Many financial institutions are feeling the urgency to make headway on payments modernization and digital transformation initiatives. However, all the factors involved in outsourcing an essential function like item processing might make a migration project seem like a daunting task.

In a recent PaymentsJournal podcast, Candace Burleson, Senior Implementation Analyst at Fiserv, Amina Moyer, SVP of Core Banking Solutions at Community Bank, and James Wester, Co-Head of Payments at Javelin Strategy & Research, discussed the successful item processing migration at Community Bank, the issues it solved, and the opportunities the modernization project created.

Prior to the implementation, one of the biggest challenges at Community Bank was staffing. The Item Processing (or Proof) department struggled to retain knowledgeable staff. The roles were often considered entry level, even though the team was a critical component of the financial institution’s daily operations.

“The hours can be demanding, and our Proof and IT teams had many late evenings to ensure the balancing and timeliness of the cash letter getting out the door,” Moyer said. “Our mainframe tasks were extensive, comprised of multiple checklists that were probably no less than three or four pages. That poses significant risks if the teams handling those tasks lacked any expertise or overlooked a step.”

The bank’s IT teams were also responsible for server maintenance and timely software updates, which were crucial to preventing any processing disruptions. Before the migration, Community Bank was a fully in-house shop for all their processing, which is why it chose to first migrate item processing to an outsource environment ahead of its full core system migration.

However, the project still presented challenges because the bank had to maintain daily operations.

“That is a common refrain we hear from financial institutions, that they have a bank to run,” Wester said. “When they look at all the challenges of taking on a project like this, that’s on top of all the stuff that has to be done in terms of running a bank, plus the fact that every bank is different. Everyone has their own challenges, whether it is staffing or the nuances of how they may run their business. It can be a scary thing to undertake.”

Once Community Bank made the decision to migrate item processing—with Fiserv’s aid—the process was accomplished in steps.

“First was discovery,” Burleson said. “We worked collectively as a team, the Community Bank team along with myself. We discussed processes and procedures that they were working on in-house, gathered data which assisted me with the best setups for the institution, both for capture and then the back-end processing approach.”

The next phase of the process was development. Fiserv and Community Bank professionals worked on coding collectively. They identified the items that they would capture daily and the expectations for the receipt of files from item processing.

Then came testing, which began internally on the Fiserv side and then was piloted at Community Bank. There was continuous testing to ensure that both parties were receiving the correct data on a timely basis. The final phase was the go-live and support process.

“On go-live week, we monitored all incoming and outgoing files, outgoing meaning cash, letters, files back to the bank,” Burleson said. “We were able to exclude a lot of things that they were doing internally, and it was a good teamwork effort.”

One of the immediate impacts of outsourcing item processing was that it alleviated many of the staffing issues Community Bank faced when employees retired or moved on to other opportunities.

The bank was also able to initiate cross-training within their operations team, which turned out to be a significant advantage. Cross-training brought fresh perspectives to the table, which identified opportunities for process improvements and efficiencies.

The additional training not only increased the depth of knowledge within the institution’s teams, but it also helped employees recognize their value to the organization. The staff was more aligned with the bank’s broader goals because they had time to stop and see where they were on the bank’s road map, when previously they were too bogged down with day-to-day tasks.

“I’d also say our client experience improved,” Moyer said. “In addition to migrating item processing, we introduced front counter teller capture at our branches, which reduces errors. In the past, those types of errors that were occurring at the teller line posed both a financial and reputational risk to our bank. The teller capture solution came as a benefit through migrating and implementing the item processing solution.”

Within the banking industry, front office projects often take precedence. However, the middle and back-office touch so many aspects of a financial institution’s operations that updating these functions can have a dramatic impact. Still, the work involved in modernizing those aspects of the business has made many banks hesitant to take on such a demanding task.

“For financial institutions, this is a shining example that these processes are difficult, but they can be done,” Wester said. “If you are looking at manual processes, paper-based processes, it’s beyond the point where these things need to be taken care of. So much of what we’re looking at in financial services—from a technology standpoint—depends on a completely digital middle and back office.”

These manual day-to-day tasks can not only mire down a bank’s operations, but they also create operational risks when there are errors and delays. However, a staff that understands these functions can be instrumental in a successful migration.  

“The collaboration was key, in addition to having teams that are intimately familiar with the day-to-day and the whole experience here,” Moyer said. “The strength of the teams on both sides is what contributed to the success of this migration. It just gave a comfort level to the team when they were trying to unwind years of these manual tasks and relating them to what today is going to look like.”