Why Your Financial Institution Should Automate Exception Item Processing

Mobile deposit capture, check imaging, electronic clearing, and other advances in technology allow financial institutions to process transactions more quickly than ever. These processes are a valuable part of attracting and retaining quality customers. However, if not managed properly, these conveniences can also make your financial institution more vulnerable to fraud.

To strike the right balance, you may need to automate your exception processing. Automating item exception processing allows your financial institutions to process transactions quickly without overlooking fraud indicators. If you want to stay competitive, you need these services.

To learn how to improve productivity while keeping costs under control, contact us at SQN Banking Systems today.

What Is an Exception Item?

An exception item is any item that cannot be processed by the bank because it is not as it is expected to be. Exception items include payments that cannot be processed, but they also include information and files in loan portfolios.

In relation to payments, exception items may include checks drawn on closed accounts or accounts with insufficient funds. They may also include forged, altered, or fraudulent checks, ACH transfers, wires, or credit/debit payments. In a loan file, an exception item may be a missing credit report or an expired insurance document.

How Does Automated Exception Item Processing Work?

The exception item processing solution analyzes all of the transactions presented at your financial institution, and then, it flags excepted items for manual review. The list includes any items that fall outside of expected parameters or that show a high likelihood of fraud based on thousands of different data points.

The exception item appears on a workflow screen with all other relevant data, images, and documents. Your team reviews the list and determines which items should be paid or returned, or you can have an external team handling your exception processing. Using the same workflow, your team can notify customers, adjust transactions, add on fees, and transmit outgoing returns.

When you invest in an automated solution for exception item processing, you provide your staff with everything they need in a single solution. They can easily compare a signature on a check with a reference signature in the customer’s file. They can see stop payment requests and special instructions related to certain types of accounts and transactions.

You can also use smart queues to send exceptions to the right team and to minimize the need for manual review in select cases. For example, you can route exceptions based on account type or internal priorities. In particular, you may have different teams handling payment exceptions and exceptions in your loan accounts. Having everything they need at their fingertips speeds up their workflows, while also reducing the risk of fraud and helping to lower labor costs for your financial institution.

You can also reduce processing bottlenecks by creating automatic decisioning on items with multiple exceptions in relation to your item hierarchy.

Types of Item Exceptions

An exception item is any item that does not meet predetermined parameters and must be reviewed or addressed before the item can be finalized or processed. Generally, item exceptions fall into the following categories: incomplete information, insufficient data, expired documents, and required actions.

Incomplete information refers to any information required to complete a transaction. If someone deposits a check, a missing signature renders the check incomplete and it will be presented for manual review. As transactions get more complicated, so too do the types of required information.

For example, a loan application may be incomplete if it is missing a single signature, but the file may also be flagged as incomplete if it’s missing lien searches from the title company, tax returns from the applicant, appraisals, or other critical information.

Insufficient data refers to the data needed to complete a transaction. For example, if someone deposits a fraudulent check, it may have a synthetic account or routing number or other data required to verify the legitimacy of the check. Other issues may include missing codes for credit or debit card transactions or the wrong type of appraisal in conjunction with a commercial real estate loan application.

Expired documents include any critical documents that must be kept updated in the file. This particularly relates to loans which often need up-to-date insurance policies or financial statements.

Required action is an exception item that has been flagged because someone needs to take action. For example, the exception report may say that an employee has to review the collateral used to back a loan, perform a credit check for a line of credit, or contact an account holder to ensure that a presented check is legitimate.

Benefits of Automating Exception Item Processing

Automating exception item processing by using technology that identifies exceptions and presents them to your team for manual review offers the following advantages:

• Real-time image capture – Avoid delays that increase the risk of payment fraud by utilizing a solution that provides you with real-time image capture.
• Improved customer service – Increase customer convenience by allowing your accountholders to deposit checks remotely or through the ATM, which is especially valuable for business accountholders who accept a lot of checks and would otherwise be bound by branch hours and services.
• Reduced courier costs – Use branch, teller, and ATM capture to facilitate an image-based item exception workflow which allows your team to make decisions on transactions, without the need for couriers to transport documents between branches and/or your central office.
• Savings on capital investments – Opt for a hosted solution that allows your financial institution to avoid making expensive capital investments.
• Lower labor costs – Automate processes to reduce labor costs associated with manual review. If desired, you can also outsource the exception item review full-time or as needed for weekends and holidays, helping to reduce recruitment, onboarding, and labor costs.
• Easy to implement – Easily integrate modular solutions with your existing software and solutions. Online training tools simplify the process of educating your staff on best practices.
• Operational excellence – Automate workflows to improve processing time, reduce labor costs, and improve customer service. Together, these benefits help to create an atmosphere of operational excellence.
• Simplified exceptions and returns – Simplify exception processes by using an exception review report that displays everything your team needs to make a decision in an easy-to-use, intuitive format that minimizes handling and reduces manual processing errors.
• Enhanced peace of mind – Lean on full disaster backups and recovery for all critical data so you don’t have to worry about downtime, cyber threats, or data loss.

Why Is Item Exception Management Important?

Financial institutions must carefully track exceptions to ensure that they are compliant with lending and financial regulations. Tracking exceptions also helps to reduce the risk of fraud and protect the bank’s assets and customers.

To give you an example, imagine that you do not scan checks for forged signatures. Your system flags checks over a certain amount for manual review, but you don’t review anything under that amount unless the customer contacts you. Unfortunately, a bad actor takes over a customer’s account, has a book of checks mailed to themselves, and writes thousands of dollars in checks. The customer contacts you within the required time frame so they are not liable for the losses.

Now, consider exception reporting on a mortgage loan. Your exception item report should alert you when a homeowner’s insurance policy lapses on a home used as collateral for a mortgage. When you deal with the item report, you contact the homeowner and ensure they have coverage, and if they don’t buy it themselves, your bank purchases a policy. If you had not used exception reporting, you may have missed the lapse in coverage, and if the house burned down during that time, your bank would have been saddled with the loss.

Improve Exception Item Processing With Automation Today

If you want to reduce fraud, you should automate these processes. We can help. At SQN Banking Systems, we provide a range of fraud detection and prevention solutions including Alert Review Workflow, designed to protect your bottom line and improve the customer experience. To learn more, contact us today.