HARRISBURG, Pa. – Credit unions looking to put some sparkle back in their online banking programs may want to keep a close eye on an instant online deposit program at Pennsylvania State Employees CU. At press time, PSECU was preparing to beta test its new UPost@Home online offering. UPost@Home allows members to enter a deposit online at its Web site (www.psecu.com) and have those funds immediately available without the CU actually having received the deposit. This is the ultimate case of a credit union trusting that the "check is in the mail." "It gives members immediate access to funds just as they would have to deposits made at an ATM," said Tom Ruback, vice president of card services for PSECU, and the brains behind this concept. Members are given instant access to funds for deposits up to $1,500. Ruback said that amount was chosen because 87% of PSECU member ATM deposits are $1,500 or less. The process may seem ripe with fraud potential, but Ruback said the benefits far outweigh the costs. Here's why. PSECU is the quintessential virtual credit union, and thus faces some logistical challenges. Serving over 240,000 members with only one branch, the CU has to rely on remote channels, such as ATMs and the Internet. Because of its lack of a branch network, the CU receives many of its deposits (163,000 a month) via deposit-taking ATMs. It has a long-standing policy of immediately posting ATM deposits to member accounts. But the CU is facing a new problem at the ATM. There are about 3,700 foreign ATMs throughout the state that its members use to make deposits, totaling about $1.6 billion a year. The interchange cost for those deposits has been about $1.10 per item, but because of a pricing change from the Star network, that cost can now go as high as $2.25 per item. "If we convert the majority of our membership to use this service, we're eliminating a $2.25 service cost. Even if I lose $15,000 or so a month on fraud, what we're saving overall is tremendous," said Ruback. Based on its volume at the ATM, the savings would be about $2.5 million a year. Instant posting of online deposits is obviously moving the CU into unchartered waters, but there is some history to judge fraud potential. Since the CU posts ATM deposits instantly it faces the same fraud problem at the ATM up to $500 which is the CU's daily ATM withdrawal limit. Ruback said fraudulent ATM deposits are a minute percentage of the CU's losses. The new service isn't for everyone. In order to qualify a member must have either a PSECU debit or credit card. Ruback said that criteria was chosen for a couple of reasons. One being that to qualify for those products members are put through the typical credit checks. The other reason is that it can encourage members without plastic cards to get them, and thus bring in more revenue for the CU. "It's another way to drive our electronic services. We hope to get members with just ATM cards to convert to one of the VISA products, which are revenue generators for the credit union," said Ruback. The CU gets back about 1.4% of its members' plastic card purchases. Ruback first came up with this instant deposit concept back in 1999. He worked out his initial plan on a five-hour plane ride from Harrisburg to Scottsdale."It's amazing at what you can get done on a long plane ride," said Ruback. UPost@Home will not be instantly available to all of PSECU's 75,000 active home banking users. Members have to specifically sign up for the product, signing a disclosure that among other things lays out what's expected from them. They are asked to mail out their deposit within one day of making the deposit online. The deposit must be received within 10 days. If it isn't, the CU reverses the deposit. "I think it's an aggressive approach to really pushing this channel. It sounds like a member trust thing," said Doug Benzine, SVP with CUNA Network Services. "If that's what members are asking for and the credit union has the functionality to pull it off, then that's just outstanding. Like every new product offering, there's always the liability and security issue you have to take into account." The solution does help cut down one of the biggest knocks against home banking – that is getting funds from other institutions or sources other than payroll direct deposit, into an online account. "I have an account on e*Trade and it is still a real pain to send a deposit. I send in a deposit and they put a hold on everything for a good week and a half," said Wade Painter, managing director of CU IT solutions for RSM McGladrey. PSECU President/CEO Greg Smith said Ruback and the rest of the CU's management team have looked at this program from every angle to find and fix the holes. One thing the CU wrestled with was providing members with postage paid envelopes to mail in the deposits. But Smith said that wouldn't work because members would wind up using those postage-paid envelopes for all sorts of correspondence with the CU, and it could set a bad precedent. Initially it will roll out the product with the member bearing the cost of the postage, but if it becomes an issue the CU may look at crediting a member's account $0.34 per mailed online deposit. Smith, who was set to travel to Virginia to demo the solution to NCUA examiners, said it's the ultimate in convenience. "Everyone has a mailbox. There's not much better convenience we can give than have members walk to the end of their driveway to make a deposit. Right now they have to find a deposit taking ATM," said Smith. The CU is not blind to the fact that some banks are pulling out of the state's deposit accepting ATM program. This program is also a safeguard against a major drop-off in the number of deposit taking ATMs. "Through mergers and acquisitions there are some banks that have withdrawn from the deposit program. Not many so far, but if these ATMs stop accepting deposits, we have to find another channel," said Smith. "This has been PSECU's way all along. We don't want to give the members the expensive channels. We want to entice them to use the cheaper channels," said Smith. Smith boldly predicted that the CU may even be able to pull out of the deposit taking ATM channel in a year from now if this program takes off. Reaction has been a bit muted, since the concept is so new, said Smith. "I've talked to a number of CEOs about this. There's certainly a lot of interest. If we fall flat on our face some will probably say `I told you so.' I think they're waiting to see what happens." [email protected]