Because of rules for how electronic information must be exchanged, federal regulations require single vendor solutions for clearing checks and returns, as well as related reporting. For years, Discover relied on a single third-party vendor to manage check processing and returns.
In the past few years, Discover recognized that the industry standard was not as reliable as Discover desired.
"We decided on a new approach that would eliminate a single vendor dependency—a move we thought would help mitigate risk. Discover engineers built a new solution that produced 97% accuracy, reduced risks and costs, created internal reuse assets, resulted in two patent applications, and established a new open–source project," said Dan Gisolfi, Distinguished Engineer, Head of Research and Development at Discover.
This blog post highlights the problem the team was trying to solve and the solution that they built using inner source principles.
Single vendor reliance poses risks
Electronic check deposits must pass multiple verification steps, including from the Federal Reserve, the vendor, and an in-house clearing team at Discover. Technology such as programmatic validation of the check's MICR (Magnetic Ink Character Recognition) line is used internally to detect and correct potential issues so there is no customer impact.
To eliminate the single-vendor dependency, teams from Consumer Banking and Business Technology came together to partner on an in-house solution that would replicate and enhance the vendor's capabilities and provide us with complete oversight for check processing.
This decision to pivot from a buy to a build solution posture allowed our engineers to explore deeper process improvements associated with OCR (Optical Character Recognition) technology for the handling of in-clearing process errors.
Creating a sustainable solution
The first step in the process was to explore the technical feasibility of bringing the service in-house before performing operational viability research around cost structure, governance, and the like.
The new in-house solution would need to analyze tens of thousands of checks daily for errors and, if detected, address those errors appropriately. Initially, the Processing Services team explored existing vendor-based solutions, including reliance on human oversight which was not only heavily error prone but costly.
After extended research, the team decided to create a new, internal OCR technology from scratch. While there were many viable vendor technologies, none provided the performance and accuracy necessary to offer the best customer experience possible from an accuracy and reliability lens.
"The team worked tirelessly to assess whether buying a new solution or creating one from scratch was the best option for Discover. Following a standard process, the team recommended building a new solution as it would mitigate our greatest risk," says Treesha Patel, Director of Processing Services at Discover.
The Journey to Production
As planning began on the new check processing service, a product team was created to spearhead the modernization of the money movement process. This new team developed and integrated several open-source technology components, including digital processors and optical readers to scan checks. Each of these technologies was approved by our enterprise architecture team and other governance bodies.
Through an open-source approach, the team integrated the product with the internal deployment pipeline to automatically apply code that adheres with Discover’s compliance, security, and quality standards.
After developing the solution, the team performed extensive testing to ensure the internal solution exceeded the vendor solution in terms of accuracy, residual risk, processing time, operational integration, and other key metrics.
"The use of open-source technologies and development practices enabled the team to design a highly effective solution quickly and with incredible results. I am proud of how everyone came together to build an OCR tool that reduced risk and improved the customer’s experience," says Patel.
In most cases, our internal solution surpassed the vendor solution, achieving a 97% accuracy rate for OCR.
Benefits of building internally
The roll out of the new internal service eliminates our dependency on a third-party vendor, giving us greater control over the execution of the check clearing process. Additionally, we have reduced costs by moving the service inside Discover Financial Services.
The team has filed two patent applications around the OCR technology they developed and hope to release the technology into an open-source community where industry collaboration can continue to improve the software.
