The Risks and Rewards of Remote Deposit Services

1. The Risks and Rewards of Remote Deposit Services 2009 Treasury Management Conference September 10, 2009 Omaha, Nebraska

2. Agenda • What are Remote Deposit Services? • Remote Deposit Capture • Branch Capture • Background on Remote Deposit • Benefits • Risks • Responsibilities • Agreements

3. What is Branch Capture? • Branch Capture is a process that allows tellers/branch personnel to scan checks accepted over the counter and transmit the scanned images to the FIs central operations area.

4. What is Remote Deposit Capture? • Remote deposit capture is a service which allows a user to scan checks and transmit the scanned images and/or ACH data to a financial institution for posting

5. Remote Deposit Process Remote Printing Paper Paper Paper Image Paper Image Exchange CheckWriters Image Exchange Depository Bank Retailers/Merchants Paying Bank Paper Paper Paper Transit Paper Direct Send

6. How does RDC Work? • Merchant customers present traditional paper checks to purchase items or make payments. • The merchant captures these checks using a remote deposit scanner and application which collects data and images, and creates a specially formatted file. • The merchant submits the file electronically to the financial institution (or its service provider) for deposit, clearing, and settlement. • Once the bank validates the electronic file integrity, the deposit is posted and the transaction is cleared and settled using the Check 21 model.

7. Any Bank FRB Account Processor Credits & Debits Check Advices / Adjustments / Item Fees Forward FRB File Acknowledgement Messages X9.37 Transit Items Return Returns (Paper / Electronic) Paying Institution Any Bank BOFD Endorsement X9.37 Transit & On-Us Items Merchant Any Bank BOFD Remote Capture Vendor Or Financial Institution Image Archive DDA Posting Statements Deposit Activity Online Banking

8. Clearing and Settlement • Image – based • Electronic cash letter transmitted from BOFD to collect items • “Truncation” • ACH • eCheck - “Conversion” • ARC/BOC/POP

9. eCheck vs. Image Exchange • Conversion refers to the electronification of specific check data (MICR, amount, etc.) into a non-image file format for clearing and settlement using ACH • Business checks, travelers checks, credit card convenience checks, checks >$25,000, and others are not eligible. • ARC – Accounts Receivable Conversion • POP – Point of Purchase • BOC – Back Office Conversion

10. eCheck vs. Image Exchange • Truncation refers to the conversion of traditional paper checks into electronic images for clearing and settlement using the Check 21 model • All checks including business checks, money orders, etc. are eligible for truncation and there is no statutory limit on the transaction amount

11. Rewards of RDC - FI • Reduced Transportation Costs • ATM/Branch/Incoming Customer Cash Letter • New Revenue Streams • New Clients • Existing customer consolidation of relationships • Additional products • ACH & Checks • Elimination of geographic boundaries

12. Rewards of RDC - FI • Reduced Processing and Clearing Costs • Lower fees for image exchange • Transportation costs reduced • Staffing reduction

13. Rewards of RDC - Customers • Accelerated Clearings • More Processing Time • Later Deposit Deadlines • Improved Availability • Make deposits earlier in the day • Enhanced Cash Flow • Accelerated clearings and earlier availability

14. Rewards of RDC - Customers • Reduced Transportation Costs • Up to 80% reduction • Convenience • No need for couriers or trips to FI • Reduced Processing Costs • Eliminate • Time and expense to go to bank • Time spent balancing deposit and associated keying • Consolidations of Banking Relationships

15. Rewards of RDC - Customers • Consolidations of Banking Relationships • Geographic footprint no longer necessary • Increase volume • Lower pricing – per item fees • ‘preferred’ availability • Expanded credit relationships • More efficient corporate treasury

16. RDC Issues - Customers • No legal foundation for Remote Deposit Capture • Agreements assign responsibility to corporate • Image Quality • Corporate user responsible for adequate images • Duplicate Items • Corporate user warrants that item will only be presented once

17. RDC Issues - Customers • Captured Checks • Retention and security • Destruction • Cash Deposits • Deposit at bank • Transmission Failure • Security • Access to scanner and transmission of deposits

18. RDC Issues - FI • RISK – FFIEC Guidance Issued • Pre-Implementation • Post Implementation • No legal foundation for RDC • Regulations/Law/Legal Precedent • Agreements

19. Risk – Pre-Implementation • Assessed by senior management • Legal risk • Compliance risk • Reputation risk • Operational risk • RDC program • compatible with FI business strategies • Management able to manage risks

20. RDC Agreements • Definitions • Hardware/Software Issues • Deposit & File Limits/Returns • Deposit and File Limits • Transmission Issues • Image Quality • Items Eligible for Deposit • Deposit Deadlines • Funds Availability Schedule • Retention/Destruction Policy • Warranties and Indemnification • Liability • Errors and Discrepancies • Intrusion and Stolen Data • Updated Customer Information • Contingency Plan • Financial Risk (Risk Assessment) • Controlling Law

21. Risk - Post Implementation • KYC Procedures and Policies • Risk Policy and Procedures • Periodic Review of Customers and RDC Usage • Training for Customers • Vendor Due Diligence/Suitability • Business Continuity • Risk Measuring and Monitoring Systems

22. Summary – Risk & Reward • Great Technology • Many cost and time savings features • If approached and implemented correctly • Benefits for FIs and Customers • No Law or Case Law Yet • Risk must be managed to protect FI interests and satisfy Customers

23. Questions? • More Information • www.epcor.org • memserve@epcor.org • Wendy Wishon, AAP • EPCOR • wendyw@epcor.org