The exorbitant costs of that technology, combined with the limited resources of a small business, limited its ability to purchase software that would help it run more efficiently.
“The whole industry has evolved to the point where it’s become less expensive for the consumer,” says Will Thatcher, vice president and affiliate head of the Greater Cincinnati Business Banking Division, Fifth Third Bank. “It has moved the price point down to where the small business person has been able to take full advantage of some of these products.”
In Part I, Smart Business asked Thatcher about how this software has allowed businesses to run more efficiently and keep a sharper eye out for fraud. Part II next month will look at returning deposited items back to customers on a CD-Rom and fraud as it relates to credit cards.
How has technology helped improve the banking industry?
Approximately 20 years ago, the industry developed a cash management product called Controlled Disbursement. It informs a customer in the morning which checks would clear later that evening on their account. Since it was relatively new technology it was also quite expensive; along the lines of $500 a month for each account, plus the cost of each item clearing the account.
Over time technology has improved. Through CDD you know how much money to leave in your account to cover your checks. You can invest the extra balance into interest-bearing accounts or pay-down your debt with the bank and reduce your interest expense. It’s a way to maximize your dollar and gain knowledge as to what is coming in daily.
How much have prices come down for the software?
Right now it’s probably about 20 percent of what it was when it was introduced, which means the cost is about $100 a month or lower. Part of the reason it’s less expensive are advances the industry has undertaken in creating a more efficient delivery portal. The portal makes the information available through the banks’ Web sites.
The distribution process is so much easier. Before you had to fax the information over every morning or dial-up to a site that was owned by the bank. It was cumbersome and some times the sites crashed. As technology has advanced not only has the speed improved, but so has the accuracy, timing and reliability of the transfer of the information. Customers are paying less money for faster information simply because of the on-line sites. Reduced price and ease of use have made this automated tool so much better.
Have other automated tools improved with technology?
Sweep products, such as an interest-bearing sweep that sweep excess balances into an interest-bearing vehicle or a credit sweep, that sweeps money over every day to pay down debt are more affordable today. Twenty years ago they were labor-intensive and cost around $200 a month to be done inside a bank. Today you can set up a sweep to go either way or to sweep into an investment so that you can maximize your opportunity to save or make more money.
On the deposit side, each month you can have your bank automatically reconcile your checking accounts or have your payables reconciled to your own internal accounts payable system. What used to be done as hands-on or phone call-oriented is now done on the computer.
What about fraud protection?
Whether it’s a person stealing from inside the company or someone posing as an employee on the outside and trying to get inside, there are several things being done to help prevent it.
Inside a company, typically a small one, there’s one person who handles all the activity on the financial end. This trusted individual will write the checks and make the deposits and what we found is that many times the customer can not afford the appropriate internal controls, which may lead to an embezzlement.
One solution is to send the company receipts to a lock box The bank will then make your deposit for you and the cost of the box, which used to be in the hundreds of dollars a month, is today around $80 a month.
So when you’re talking to someone in a company with a couple of million dollars a year in sales you can tell them that it’s an internal control value. You don’t have to hire another person or waste time going back and forth to the bank.
But what you also get is someone taking care of your deposits for you so that you know the deposits are there. The bank will empty out your lockbox several times a day, seven days a week.
Watch for Part II next month.
WILL THATCHER is vice president and affiliate head of the Greater Cincinnati Business Banking Division, Fifth Third Bank. Reach him at (513) 534-7037 or firstname.lastname@example.org.