Many financial institutions are in a time of transition. With the continuous decline in check volume, it’s important for banks and credit unions to find efficiencies where they can. One area where financial institutions can realize immediate benefits is by outsourcing their item processing function. To learn more, PaymentsJournal sat with Joe Pachunka, CIO of Deposit Solutions at Fiserv, and Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group, to discuss the many benefits of outsourcing item processing.
Focus on Core Business
Though check volumes are declining, item processing is still a vital function for banks, Pachunka noted.
“Check processing can be thought of as a legacy business, but it’s still a very valid channel for transactions,” he added. “And it has to be up 24/7.”
By outsourcing such a manual and time-intensive function, banks can focus on their core business and focus on other areas.
Indeed, Grotta observed that by outsourcing this part of the business, banks can focus more on pursuing innovation.
“Many of the financial institutions I talk to don’t necessarily want to focus on item processing and are happy to have someone else oversee that part of business,” she said. Outsourcing to a respected vendor also enables banks to improve their cybersecurity stance and reduce system resiliency risk, added Pachunka, while at the same time receiving new application features on a daily basis.
“We are seeing some cases where in-house hosted systems applications are rarely updated even once annually,” he continued. “In some cases, updates were not applied for over three years.”
Fiserv, he noted, updates its application software three or four times per year.
“When you consider that we are living in a rapidly evolving cyber risk environment, rapid application deployment of resolved cyber risk findings is key to addressing the ever-increasing risks that are around us,” Pachunka said.
Perhaps it is no surprise then that recent statistics indicate that outsourced financial services will rise by 7.5% annually.
Overcoming Talent Retention Issues
Outsourcing can also help during times when it is difficult to attract and retain talent, such as that we are living in now.
“Retaining talent and expertise to meet in-house needs is hard,” Pachunka said. “The challenges are real and not just in the financial space; every business out there is dealing with this.”
This is especially true in item processing, where “a lot of the people who really understand item processing are starting to retire,” he added.
By outsourcing item processing, financial institutions don’t have to worry about dealing with finding employees to perform this function, and can take advantage of the “bench strength” outsourcers possess.
Banks can also take advantage of economies of scale. As check volumes decrease, as they are in many cases, an outsourced client will see variable monthly costs go down with the volume decline over time, said Pachunka, adding that an outsourced service provider can also scale up if growth or acquisition activity is happening.
He also stressed that banks do not lose control of anything when they outsource item processing.
“We don’t take over the bank’s back office,” Pachunka said. “When you outsource, you should always have a window into the processing, just without hosting it yourself. Most financial institutions we work with don’t feel like they are losing control, but rather giving up the headache of having to deal with this on a daily basis, and even often on nights and weekends.”
Pachunka said when working with a financial institution embarking on outsourcing item processing, Fiserv “takes you through the process step-by-step and makes it as easy as can be.”
Disaster and Pandemic Recovery
For many financial institutions, pandemic recovery plans were largely theoretical until 2020. But when the COVID-19 pandemic struck the world, many were scrambling to maintain operations.
Outsourcing item processing can help during pandemics or natural disasters by working with vendors that are well prepared for such occasions.
Pachunka noted that when COVID-19 lockdowns happened across the world, Fiserv did not miss any posting deadlines for clients.
“Our deposit solutions operations are geographically dispersed across the U.S. and the world for that matter,” he said. “During the first month of the COVID lockdown, we sent additional monitors and equipment to home locations for everyone working remotely.”
He added that even now, Fiserv requires operations employees to work one day per week at home to continually ensure the effectiveness of a remote environment, should it be needed again.
“Our pandemic preparedness plan was exercised thoroughly and proven to be effective,” he said.
Regarding natural disaster preparedness, Pachunka noted that Fiserv’s production and data recovery sites are hundreds of miles apart in the U.S. and based in strategic locations.
“We are in a strong situation as it related to data center support,” he said.
As check volumes decline but are still being used, Pachunka said Fiserv aims to help financial institutions in this area and manage these often time-consuming and manual functions until there is no longer a need for them.
“At Fiserv, we intend to be the last provider standing to process your checks and other items,” he concluded. “We are also preparing the next generation to support item processing until the last check is written.”