Demand Continues for Official Items from Retail Banks
Transforming Official Check and Money Order Issuance

Over the years, advancements in technology have led retail banks to see a decline in requests for official items.  Where personal checks once took days to validate available funds, Check 21 legislation has greatly reduced the time associated with check processing, ultimately speeding funds transfers and minimizing the dependency on official items.  However, as the competitive landscape for official item issuance undergoes significant transformation, one thing remains the same – bank customers still find official checks and money orders attractive, and often times a necessity, for a host of financial transactions. 

WHAT ARE OFFICIAL ITEMS?
Official items – including official, or cashier checks, and money orders – are a type of short-term draft instrument used by bank customers who need to make a contractual payment in a form that is equivalent to cash.  Both items are more trusted methods of payment than a personal check because funds are either guaranteed or prepaid at the time of issuance. 

While the majority of official items are presented the day after issuance, a two- to three-day average float time is customary.  It is during this float time that traditional payment systems providers generate revenue primarily through their ability to invest funds pending settlement.

COMPETITIVE IMPLICATIONS
While all banks are permitted to engage in the official check business, many have found that it is more attractive to use a third party payment systems provider for official items rather than to engage in the official items issuance business directly.  Retail banks often benefit from reduced risks, inefficiencies and costs by outsourcing this business process.

Recently, however, two of the largest payment systems providers have made the decision to exit and/or scale back services.  As a result, a large portion of retail banks are now forced to manage the complete official items issuance process in-house – from item creation, to printing and reporting. 

Not only are retail banks assuming the added financial responsibility for funds from the time of issuance to reconciliation, but they are now in need of an official item inventory management program to ensure necessary materials are always on hand.

WHAT KEEPS OFFICIAL ITEMS IN EXISTANCE?

Immigration
Official item issuance caters to, and often times relies in part on, immigration patterns.  Commonly referred to in the banking community as “unbanked” or “underbanked” consumers, these individuals often need to transfer sums of money quickly and painlessly, but either do not have access to or have chosen not to use, traditional banking institutions. 

With family members relied upon for financial support, immigrants who have obtained financial security are occasionally called upon to send money back to their native countries.  It is through official check and money order issuance that this is made possible.

Rise in Internet Shopping
With a simple click of the mouse, consumers can buy nearly any product online – from clothing and music, to home loans and automobiles. As technology has evolved to accommodate payment options including credit card, debit card, and online merchant accounts such as PayPal, some consumers are still hesitant to complete online transactions.  Far outweighing the convenience is the fear that by using any of the online payment options, their bank or credit account information will be exposed and they will fall victim to thieves. 

A similar story holds true for online merchants who fear they may not be reimbursed for goods or services provided.  To ensure that funds are available from the buyer and to eliminate the associated risk, some may request an official check or money order to be issued prior to completing the transaction. 

As a result, official checks are relied upon because the amount of the check must first be deposited by the individual into the issuing institution's account. The person or entity to whom the check is made out is then guaranteed to receive the money when cashing the check and only the amount of funds indicated on the secured document. 

Turbulent Housing Market
In today’s turbulent housing market, buyers have the upper hand.  ‘For Sale’ signs proliferate.  Home prices are falling.  At the same time, however, some lenders are going out of business while others are phasing out certain loans. 

As a result, lenders are more leery than ever to process and approve loans, and home sellers may have to accept lower prices than they had hoped for.  In order to protect their interests, both parties often require the issuance of an official check to ensure initial funds are available to begin a real estate transaction.  This not only provides a glimpse of the buyer’s financial stability but can also help the seller rest assured that the transaction will be executed. 

HOW ARE BANKS ADJUSTING TO THE PAYMENT SYSTEMS ENVIRONMENT?

Automating Official Item Issuance
Leading banks have found that automating the process of official item creation, printing, inventory management and reporting provides significant return on investment, while simultaneously adding a level of protection against check fraud. 

Excessive manual processes, which were once thought to reduce check issuance error and control check fraud, are costly and oftentimes ineffective.  According to branch time studies, it takes a teller anywhere from four to seven minutes to manually issue a check or money order, versus less than a minute with an automated process.   Not only does this mean more time is spent focusing on the customers’ needs with an automated solution, but operational costs from key links in the official item issuance chain are significantly reduced. 

Regardless of the sophistication of your current payment systems, finding a partner that can provide an end-to-end secure disbursement process can streamline your issuance processes, saving your organization time and money. 

Inventory Management of Base Stock
While some financial services providers are not ready to invest in a long-term solution and have chosen to sustain their current operations, bringing the official items issuance process in-house still requires check base stock and inventory management in order to meet customer needs. 

Through an auto-replenishment program, automating inventory replenishment with pre-defined guidelines, you’ll have the freedom to specify desired inventory levels, reorder points, and reorder quantities at the branch level.  Furthermore, your organization can save both time and money while eliminating the need to store blank check stock in house, and the associated risk.