1. © 2009 EPCOR. All Rights Reserved The Risks and Rewards of Remote Deposit Services 2009 Treasury Management Conference September 10, 2009 Omaha, Nebraska

2. © 2009 EPCOR. All Rights Reserved Agenda  What are Remote Deposit Services? -Remote Deposit Capture -Branch Capture  Background on Remote Deposit -Benefits -Risks -Responsibilities -Agreements 2

3. © 2009 EPCOR. All Rights Reserved 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. 3

4. © 2009 EPCOR. All Rights Reserved 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 4

5. © 2009 EPCOR. All Rights Reserved Remote Deposit Process Paper Check Writers Retailers/Merchants Paper Depository Bank Transit Direct Send Remote Printing Paying Bank Paper Image Exchange Image Paper 5

6. © 2009 EPCOR. All Rights Reserved 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. 6

7. © 2009 EPCOR. All Rights Reserved FRB Remote Capture Vendor Or Financial Institution Online Banking Any Bank BOFD Merchant Any Bank BOFD Endorsement Check Advices / Adjustments / Item Fees Any Bank FRB Account X9.37 Processor Image Archive DDA Posting Statements Deposit Activity Transit & On-Us Items Credits & Debits Paying Institution Forward Return X9.37 Transit Items File Acknowledgement Messages Returns (Paper / Electronic) 7

8. © 2009 EPCOR. All Rights Reserved Clearing and Settlement  Image – based -Electronic cash letter transmitted from BOFD to collect items “Truncation”  ACH -eCheck - “Conversion” ARC/BOC/POP 8

9. © 2009 EPCOR. All Rights Reserved 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. oARC – Accounts Receivable Conversion oPOP – Point of Purchase oBOC – Back Office Conversion 9

10. © 2009 EPCOR. All Rights Reserved 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 10

11. © 2009 EPCOR. All Rights Reserved 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 11

12. © 2009 EPCOR. All Rights Reserved Rewards of RDC - FI  Reduced Processing and Clearing Costs -Lower fees for image exchange -Transportation costs reduced -Staffing reduction 12

13. © 2009 EPCOR. All Rights Reserved 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 13

14. © 2009 EPCOR. All Rights Reserved 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 14

15. © 2009 EPCOR. All Rights Reserved 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 15

16. © 2009 EPCOR. All Rights Reserved 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 16

17. © 2009 EPCOR. All Rights Reserved RDC Issues - Customers  Captured Checks -Retention and security -Destruction  Cash Deposits -Deposit at bank -Transmission Failure  Security -Access to scanner and transmission of deposits 17

18. © 2009 EPCOR. All Rights Reserved RDC Issues - FI  RISK – FFIEC Guidance Issued -Pre-Implementation -Post Implementation  No legal foundation for RDC -Regulations/Law/Legal Precedent -Agreements 18

19. © 2009 EPCOR. All Rights Reserved 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 19

20. © 2009 EPCOR. All Rights Reserved 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 20

21. © 2009 EPCOR. All Rights Reserved 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 21

22. © 2009 EPCOR. All Rights Reserved 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 22

23. © 2009 EPCOR. All Rights Reserved Questions?  More Information  www.epcor.org www.epcor.org  memserve@epcor.org  Wendy Wishon, AAP  EPCOR  wendyw@epcor.org 23