Top Stories

Mixing it Up

Lockbox Outsourcing Grows Interest as Community Banks and Billers
Determine Savings and Process Improvements are Too Good to Pass Up

By Mark Brousseau

In 1999, a visit to a lockbox outsourcing vendor would have left most banks and billers intrigued but probably not ready to jump. They weren’t going to trade their processes for the marginal benefits that they perceived. Nine years later, if those banks and billers take a second look at lockbox outsourcing, they will be dazzled. Lockbox providers today have better technology, their service offerings have been expanded, and best practices evident in more places. They also have more certifications (such as SAS 70), which help guarantee consistency, quality and improved operational management.

Banks and billers are coming away so impressed that more of them are concluding that they need what these lockbox providers are offering. This is certainly the experience at Image Remit, the outsourcing division of lockbox solutions provider Cash Management Solutions (CMS). Founded in 1999, Image Remit now provides third-party and end-user remittance processing services to the financial, insurance, and utility industries, among others. Currently serving from four East Coast facilities, more sites are being developed.

Image Remit’s experience mirrors that of a growing segment of the lockbox market. “The current lockbox landscape continues to evolve from primarily a payments process, to a document and information management process that may include a payment,” said Ralph Gallo, senior vice president and account manager, for Image Remit. “While treasurers and CFOs still need financial information, more of them are expecting that transaction information be used to feed their legacy systems and various reporting mechanisms.”

And they want this information as fast and complete as possible, added former banker Walter Elkins, chief business development officer for Image Remit and CMS, both of Clearwater, FL. To be sure, banks have long viewed the lockbox as another tool for inticing corporate customers to bring their deposits and lending needs to the bank. “In many cases, lockbox was viewed as a necessary evil or treated as a loss leader,” noted Scott Sapia, director of marketing at Image Remit. But bankers are now being challenged to be more creative with their lockbox offerings, to help their clients drive customer service, operations efficiency, and profitability. “We see more banks, particularly smaller ones, leveraging the lockbox to position themselves as a value leader. They see the lockbox as a way to drive new business.” Elkins added that by providing more information, at a faster rate, lockbox providers not only increase their fee revenue, they also strengthen their client relationships – making them “stickier.” And many banks are concluding that a hybrid lockbox delivers the most bang for their buck.

The Hybrid Lockbox

Because of its unique relationship with CMS, Image Remit has long understood the promise in the flexibility of hybrid lockbox environments. A hybrid lockbox not only combines benefits of traditional lockbox processing with document and information, but also examines a customer’s entire workflow to determine how best to provide a solution that will allow them to become more efficient. That may include new workflows, new outputs, new business models, and even new approaches to how the outsourcing relationship is set up.

"Today's market dynamics are forcing bankers to look beyond the normal in-sourcing or outsourcing arrangements of days gone by. Banks need the flexibility to mix and match the qualities of these arrangements, based on customer need, specific geographic requirements, their need to leverage domain expertise, and their profitability
goals,” Gallo explained.

He added that bankers are carefully analyzing their product offerings and matching those offerings to the customer niches that they support. “With this approach, bankers rely on their outsourcing providers to have the flexibility to adapt their solutions to client needs."

The greatest demand for hybrid lockbox solutions is coming from larger community banks: “those seeking to expand their business activity, yet lacking a lockbox offering,” Sapia said.

"As community banks reach asset levels that have them pondering next steps, and re-evaluating their current business account offerings, they usually determine that they’ll need enhancements if they are to become competitive with larger regional and national banks in their market,” Sapia said. “Most of them have too few business accounts to already have put a lockbox service in place, but they have a few customers who are interested in lockbox."

Sapia said this presents a paradox for community banks: lockbox is a crucial area for retaining these accounts and increasing their deposit activity, but in-house systems – and the associated hardware, software and services – are too expensive. “That’s where outsourcing becomes so attractive,” Sapia noted, adding that hybrid outsourcing only improves the ROI.

With hybrid lockbox outsourcing, the bank can offer its customers lockbox services comparable to those available from large national banks – and advanced over traditional lockboxes – without the initial cost and associated staffing needs of an in-house solution.

The low startup costs of an outsourcing arrangement allows these banks to meet the needs of key clients, while cost-effectively growing their lockbox business to a point where they can re-evaluate the way they do things. Once its volumes grow, the bank can choose to move to an in-house lockbox model, continue the outsourcing arrangement, or use a hybrid approach.

Sapia added that growing lockbox volumes don’t necessarily warrant a move to an in-house system: “Outsourcing still reduces staffing and management headaches, and today’s prices are so competitive that it may not be worth a switch if a bank is happy with its provider."

The best part about this hybrid approach, Gallo said, is that it opens virtually any market to lockbox providers. “It’s the difference between a payments-centric approach and a document or information management approach. Once images of payments and remittance documents have been captured, they can electronically be moved through different workflows, based on the user and the application. For example, payments can be routed to a receivables system, while legal documents or vendor agreements are directed to a CRM platform.”

Hybrid lockboxes are also perfect for the red-hot market of healthcare/ EOB processing, noted Randy Flynn, senior vice president of business development, at Image Remit. And even software providers are trying to get in on the act. “We’re seeing more and more of our software competitors trying to launch or acquire outsourcing channels in order to offer their own hybrid lockbox solutions,” Sapia said.

Declining Checks

Image Remit’s strategy to focus on hybrid lockbox processing has benefited the company in another way: it has shielded it from the potentially ill-effects of remote deposit capture and declining check volumes, which some believe could threaten outsourced lockbox providers.

"While the advent of remote deposit capture threatened to cut into the lowvolume lockbox market, the impact has been minimal,” Gallo noted. “Remote deposit capture has been a
trade-off between convenience and capability. Many remote deposit capture users now recognize that despite faster check deposit times, the inability of check scanners to accommodate supplemental remittance documents actually decreases organizational efficiency.” Gallo sees more billers turning to solutions from lockbox providers that offer remote capture of checks as well as documents.

"Using this approach, we can offer document/information management for non-financial items such as insurance forms, legal contracts, lease agreements and more,” Sapia noted. Similarly, declining check volumes haven’t fazed Image Remit. “Check volumes are primarily declining in the retail environment,” Sapia said, noting his company tends to focus on the business-to-business side. “Wholesale lockbox or business-to-business checks are still quite strong and will continue to be, despite the continued drop in paper retail payments.”

The Next Big Thing

When Image Remit looks to the horizon, it sees the competition coming. Sapia expects near-term movement by software and services providers to acquire established outsourcing providers as a means for offering the type of hybrid solutions that Image Remit is known for. Flynn believes more lockbox providers and solutions vendors will introduce hybrid remote capture solutions that handle both checks and full-sized documents. Additionally, he sees more vendors jumping into the EOB fray. And Gallo thinks larger lockbox providers will choose to buy up their smaller competitors rather than grow their volumes organically.

But armed with a steady stream of new technologies from CMS, ambitious plans for more lockbox sites, and a unique approach to lockbox, Image Remit is helping to redefine the lockbox for the 21st century.

This is a sponsored feature. A placement fee has been paid for this article.

---

Mark Brousseau is editor of today magazine. He can be reached at 717-767-2574 or mbrousseau@tawpi.org.

---

Download pdf of this article.

 

top of page