An Orbograph White Paper

1. Check Processing
Automation
Guaranteed
Performance in
Check Processing
White
Paper
New technologies and services
enable FI’s to attain cost savings
targets of up to 40%
Co-authored by
Orbograph and
Trent Fleming
February 15, 2011

2. Introduction
Charles Darwin said, “it is not the strongest of the species that
survive, nor the most intelligent, but the one most responsive to
change.” This statement is particularly true when an industry
evolves beyond maturity and into decline.
The check processing industry is no exception, and to survive,
FI’s and check processing vendors must realize that they have
entered into a phase focusing on execution.
This paper will
The goals are changing and no longer does check imaging
focus on how
financial possess the excitement of “newness”. However, there are
institutions with in- several critical targets that check processing managers must all
house check strive for in today’s economy:
processing can  Develop strategies for continued reduction of overall
evolve their costs as well as per unit costs
operations into the
greatest levels of  Manage to performance levels in all phases of check
efficiency. processing including capture, exceptions, recognition,
and balancing
 Leverage all capabilities to create a value proposition
This paper will focus on how financial institutions with in-house
check processing can evolve their operations into the greatest
levels of efficiency. The foundation to this strategy leverages
improved recognition or check processing automation
technologies for branch, teller, centralized, blended capture as
well as RDC environments. These solutions insure FI’s reduce
overall operational costs, insulate unit costs from increasing
and drive improved efficiency ratios.
I. Predictability in Check Volume
The 2010 Federal Reserve Payments Study was released on
December 8, 2010. The volumes and numbers presented by
the Federal Reserve were relatively predictable as various
consulting organizations in the financial industry provided tidbits
of data points over the past 24 months.

3. The overall trend in electronic payments cannot be disputed as
there was significant percentage growth in ACH, debit, and
prepaid cards from 2006 – 2009. These growth trends are
predicted to fall significantly. Meanwhile, credit card payments
flattened and check volumes remained predictable. (See
Appendix A)
The demise of checks again fell short of expectations, realizing
only a 6.1% decline in checks written. The estimate that 27.5B
checks were written in 2009 illustrates the resiliency of this
payment mechanism. If this trend continues, 2012 should yield
22B checks written; still very significant.
More check challengers’ are on the rise as P2P payment
vehicles are trying to steal volume from lower dollar personal
check usage. Additionally, bill presentment solutions are
becoming more practical for FI’s and could take a bite out of
B2B check transactions.
However, a 2010 Orbograph Customer Study on check
volumes to existing customers (FI’s) received 202 responses,
with 18% indicating volumes were actually growing and 39%
indicating a volumes decline of 1% - 2.9%. (See Appendix B)
“This confirms our initial assumptions that the check processing
Joe Gregory
Vice President market is still a viable business for improving operational
Marketing efficiency,” summarized Joe Gregory, Vice President
Orbograph
Marketing.
“Credit card volume actually declined by .2% CAGR from 2006
to 2009, implying that credit cards have reached an industry
level of maturity and may be on their way down as well,” stated
Barry Cohen, General Manager of Orbograph. The number of
credit card transactions did not eclipse check volumes as they
have appeared to have peaked at 21.7B per year.
The future of credit card transaction volume has several major
influencing factors, including:
 The Credit Card Act of 2009: Will consumers view the
improved legislation as a positive and entice greater
use, or will credit cards receive further negative publicity
resulting in additional volume decline?

4.  Reg E: Will the impact on overdraft fees and debit card
fees drive revenues down to a point where banks
reevaluate profit margins on credit cards and checks,
thus softening their promotion of electronic payments
over paper?
 Dodd-Frank Act: Will the possible reduction of debit card
interchange fees cause a momentous shift away from
free checking? Will consumers no longer be incented to
use debit cards?
As electronically generated transactions trend toward lower
growth rates, check volumes will continue to decline in a stable
manner for the foreseeable future. Check processing
managers who realize the significant opportunities to reduce
Check imaging has costs in this area will focus on ways to support shareholders’
enabled banks to cost reduction objectives for their organizations.
separate the
functions within
proof of deposit II. Driving Costs Out of Low Value Functions
(POD) processing
enabling FI’s to Prior to Check 21, the decision to select in-house check
blend in-house with processing vs. outsourcing was simple: reader sorter verses
outsourcing on “bag and drag”. There were pros and cons as each had their
various sub-
functions.
own connotations.
Today, check imaging has enabled banks to separate the
functions within proof of deposit (POD) processing enabling FI’s
to blend in-house with outsourcing on various sub-functions.
For example, images captured in a branch can be:
 Routed to a central location, keyed and balanced in-
house
 Routed offshore for data entry or data validation, but
balanced in-house
 Directed to a service bureau for full POD processing
 Processed with teller capture
In all of the scenarios above, automation is critical to a cost
effective operation, minimizing manual data entry, exception,
and balancing functions. These functions add no value to the
transaction. The single most impactful component to a system
workflow is the recognition process, known for years as

5. CAR/LAR. For example, a 1M volume per day bank must staff
for 250,000 items for keying if they only achieve a 75% read
rate. It’s no wonder that banks want to outsource with numbers
like that. Additionally, many have misread rates of 3-5%, driving
balancing costs incrementally higher.
High automation and accuracy rates facilitate a straight-
through-processing (STP) model, based on the premise of
having a transaction flow through the process with minimal
manual intervention. The best way to target such a model is to
deploy automation solutions which maximize performance at
point of capture or with a centralized configuration which
complements the image workflow. This approach is
dramatically superior to post recognition rekeying and
rebalancing of transactions based on poor recognition results.
“Going forward, there is little to compel an institution to continue
with true in-house processing with high levels of inefficiency.
Properly managed and negotiated, a blended offering can be
highly competitive, offering predictable costs, and tremendous
Trent Fleming benefits from the standpoint of support, backup, and other
Consultant resources,” stated Trent Fleming, Consultant.
President
www.trentfleming.com
III. Check Processing Automation with Managed
Recognition Technology™
Orbograph’s patented Automation Services™ is the industry’s
only check recognition service for financial institutions with in-
house check processing environments including branch, teller,
or centralized. Automation Services targets straight-through-
processing (STP) levels of recognition efficiency by delivering
performance levels of 98% read rates with accuracy levels near
99%. (Note: Hyrbid Automation configurations provide
automation levels from 85-90%) Image quality, image usability,
and image integrity are also available as added value
functionality.
Even with this level of performance, it is difficult for FI’s to
continually control performance levels at all capture points.
Orbograph Managed Recognition Technology is comprised of a
set of comprehensive business intelligence and alerting tools

6. utilized by the Orbograph Client Services group to deliver on
performance SLA’s. These functions include:
 Priority monitoring of both total performance and
performance by branch
 Priority scheduling for peak volume daily processing
 Automation Services and distributed recognition on-
going tuning
o Proactive bank document review
o Proactive quarterly consultations on performance
 Priority reporting
 Image quality and usability optimization
FI benefits from Orbograph Automation with IQUA and
Managed Recognition Technology includes:
 Reduced unit costs
Financial institution
 Reduced data entry and balancing costs by up to 40%
benefits from  Elimination of software maintenance
Orbograph  Stabilized performance
Automation with  Increased staff utilization
IQUA and Managed
Recognition
 Collapsed processing windows
Technology  Elimination of courier runs
includes…  Built-in disaster recovery
 Leveraged hardware for multiple applications
 Free software upgrades
 Minimized piggyback images and non-compliant images
IV. New Features/Fraud Implications
New capabilities within Automation Services are now available
to further streamline processing. Automated Endorsement
Detection minimizes manual review of high dollar inclearing
images and reduces fraud risk by insuring endorsements are
present on transit checks. Remotely created check (RCC)
detection, also referred to as Preauthorized Drafts (PAD),
enable the bank of first deposit to minimize exposure by
identifying these risky items on Day 1.
Among the more sophisticated pattern-recognition tools is
image-based fraud prevention, which uses a digitized picture of

7. each check to identify suspicious transactions. Images can
supply critical information to catch identity thieves, stemming
losses while making business processes more efficient.
Biometric information, like a handwritten signature, can validate
whether or not the legitimate “hand” authorized the check in
question. And with counterfeit checks, images can help in
verifying check stock, which transaction-based detection alone
will never find. Further, by reading the payee data on check
images, financial institutions can now match "black lists" from
local and regional law enforcement.
Automation V. Business case and customer testimonial
Services™ with
Orbograph Managed
Recognition The Automation Services business case is based on a number
Technology provides of site variables including site volumes, cost of data entry,
not only a migration balancing costs and percentage of multiple field documents.
plan for FI’s looking Typical ROI models return savings of up to 40%. See
to save additional Appendix C for example.
costs from check
processing
operations, but a Use cases of several large Orbograph Automation Services
long term “insurance customers listed in Appendix D.
policy
V. Conclusion and Migration Options
In addition to simple processing requirements and meeting
deadlines with balanced files, SLA's must now consider fraud
and other exception situations more precisely. As check volume
falls, dollar amounts may rise and fraud becomes more
attractive. Combine this with increasingly capable technologies
for the perpetration of fraud, and you have a challenging
situation.
Automation Services™ with Orbograph Managed Recognition
Technology provides not only a migration plan for FI’s looking
to save additional costs from check processing operations, but
a long term “insurance policy”, guaranteeing both performance
and cost savings as volumes decline in the future.
If you are interested in testing this solution, proof of concept
(POC) options are available in 2011.

8. APPENDIX A:
2010 Federal Reserve Payments Study
Non Cash Payments 2006 2009 CAGR
Total in Billions 95.2 108.9 4.60%
Checks (written) 33.1 27.5 -6.1%
Checks (paid) 30.5 24.4 -7.2%
ACH 14.6 19.1 9.3%
Credit Card 21.7 21.6 -0.2%
Debit Card 25 37.9 14.8%
Prepaid Card 3.3 6 21.5%
APPENDIX B:
2010 Orbograph Customer Research
Volume Change # Responses Percent Cum Percent
Growing 36 18% 18%
1-2.9 78 39% 56%
3-5.9 50 25% 81%
6-8.9 30 15% 96%
Over 9 8 4% 100%
Total Responses 202

9. APPENDIX C:
Automation Services Business Model Sample

10. APPENDIX D
Orbograph Automation Services Press Releases