Document capture for finance

Extending and Enhancing Document Capture Throughout a Financial “From the Back Office Institution to to the Front Reduce Processing Office” Costs White Paper December 2008 From the Back Office to the Front Office: Extending and Enhancing Document Capture Throughout a Financial Institution to Reduce Processing Costs Less than a decade ago, the biggest concern of large financial institutions was whether their systems would be prepared for a changing date. The electronic concerns of Y2K were overstated, and banks were more than ready for the year 2000. Little did anyone suspect the turbulence that lay ahead—most of it paper-based. The housing boom of the 1990’s brought a flood of new loans, mortgages and an assortment of new banking products. The paper volume increased. Financial institutions broadened their services, offering brokerage accounts, NOW accounts, Roth IRAs, savings plans and lines of credit. The response was an ever-increasing number of depositors. Correspondingly, the paper volume increased. The corporate malfeasance prompting the Sarbanes-Oxley law resulted in renewed financial oversight. The tragedies of September 11, 2001 brought major legislative changes, a host of anti money-laundering laws and the U.S. Patriot Act. Again, the paper volume increased. More recently, with declining housing values and a slowing economy, the U.S. foreclosure rate skyrocketed. Once again, the paper volume has increased. As the federal government moves to shore up the economy by investing billions to acquire stakes in some of the best-known names in the financial services industry, one thing is certain— the paper volume will continue to increase. Document Capture Takes Two Paths Banks and other financial institutions have responded to this avalanche of paper by deploying a number of back- office document capture systems, usually at a central office or remote document processing facility. Meanwhile, looking to reduce their own paper backlogs, the local branches of these same financial institutions have made separate investments in document capture. The benefits brought by document capture process automation are numerous. Business processes are more efficient in an electronic data environment. Customer accounts are opened faster; loans are approved more quickly; transactions are handled more accurately, and information can more easily be shared across departments. In the high-volume document processes of financial institutions, these efficiencies translate to substantial cost savings. Manual processing is not only fraught with inefficiencies and errors, it is also expensive. By automating the repetitive tasks of document handling, data entry and validation, staff can be reduced or reassigned to higher-value tasks. Branch offices have installed office productivity tools such as multifunction peripherals (MFPs), desktop scanners, and fax systems. However, there is a misconception that these tools are solely for office tasks such as copying and document sharing, and not an integrated part of a solution to automate document-driven processes. White Paper – From the Back Office to the Front Office: Extending and Enhancing Document Capture Throughout a Financial Institution to Reduce Processing Costs Page 1 Likewise, the back-office operations processing loan documents, credit applications, investment documents and account forms, have in place their own high-speed scanners, enterprise capture software and data repositories. Similarly, there is a misconception that these tools are solely for records management and archiving, and not an integrated part of business process automation. Capable of processing millions of pages of paper, these systems automate such labor-intensive functions as mail opening, check sorting, and forms processing. Information from structured documents is extracted using sophisticated character recognition and document identification applications. Because large-scale, back-office capture systems were originally most effective in extracting highly-structured form data, their use was limited to very high-volume repetitive documents. The carefully encoded, magnetic-ink characters on the bottom of checks is one example. Over time, the software has been used for increasingly more complex document processing, but almost always large-volume, structured forms. This evolution has led to a disconnect between the customer-facing, front-office processes where many transactions originate, and the back- office document-capture system, which feeds the data repositories. While the elimination of paper storage is a tangible advantage to document capture systems, the fact remains that archiving is just a small part of the potential benefit these tools can bring. Viewing capture solely as an electronic file cabinet overlooks the gains brought by automating transactions from the start. So how can financial institutions optimize their investments, and get these two sides of the same coin to work more cohesively to facilitate their branch-oriented, document-driven, transaction processes? Transactions Begin at the Branch—So Too Should Capture For most financial institutions, a transaction begins at the branch, not in the back office. With the pervasiveness of ATMs for cash, and Internet banking for routine account transactions, the branch office is increasingly used to conduct more complicated (and for the bank, higher-value) transactions. Walk-in customers are just as likely to be opening an account, seeking lines of credit, or securing a home mortgage as they are to be cashing a check. Booz Allen Hamilton reports that 63% of consumers prefer to obtain a current/savings account in the branch rather than alternative methods such as the Web or phone. In this environment, when a customer walks up to a loan officer or credit specialist and inquires about a loan, they expect immediate action. By exploiting the document capture system already in place, there is an opportunity to immediately automate these transactions. Verification documents such as proof of income or W-2 forms and valid identification can immediately become a part of an approval workflow. Instead of converting these paper documents to images later in the back office, they can and should be captured immediately in the front office. White Paper – From the Back Office to the Front Office: Extending and Enhancing Document Capture Throughout a Financial Institution to Reduce Processing Costs Page 2 For mortgage loan applications, financial institutions face some of the most difficult and expensive document processes. With multiple branches where loan papers may originate, countless different forms and legally mandated documents, as well as the competition to provide the fastest possible response, this is an increasing challenging segment. Fortunately, it’s also an area with the greatest benefit from an integrated branch-office / back-office capture process. A mortgage workflow based upon the immediate capture of transactional documents significantly shortens the time needed to make a decision. For credit applications, documents can be sent to central offices where a single loan officer might govern over a number of branches. Any missing documents can be immediately forwarded to complete a transaction. Business customers enjoy faster approval of line-of-credit requests (Or more timely denials when appropriate, minimizing potential loss). Mortgage applicants receive faster access to funds. Enhance Document Capture in the Back Office to Automate Banking Processes Capturing documents that originate in the branch and then quickly routing them to the back office can greatly enhance productivity as discussed. But whether the documents arrive electronically or in a paper-based format the information that these documents contain is what is driving critical business processes. The information from these documents allow financial institutions to enroll new customers, take deposits, and generate revenue. Without this information an institution cannot assess a customer’s risk or their credit worthiness. And information from these documents is often necessary in the event of a regulatory audit. Yet many financial institutions are still relying on manual methods to identify different document types and extract data from them. Or when they are ready to process or archive the documents with a capture system they are manually sorting and separating documents. This, of course, becomes an expensive proposition due to the labor required to complete these tasks. In fact, analysts have estimated that the cost to process a single mortgage loan, for example, adds up to $877. Further increasing costs are errors and exceptions that are inevitable with manual processing. Again, since financial institutions have already established a back-office capture infrastructure, the tools exist to do more with each transaction. Document capture tools can do more than just electronically archive documents and can be enhanced to automate document-driven business processes. Bottlenecks such as manual document-sorting, document identification, and data extraction can be reduced or eliminated altogether. For each step that removes a manual process, the transaction is conducted faster with substantial cost savings. Let’s go back to the example of a mortgage loan. A typical loan folder can contain between 200 – 300 pages with a wide variety of document types. Each of these document types have to be classified (e.g. application, appraisal, disclosure, etc.) and information needs to be taken from these documents to drive the mortgage loan process.