OCR is a technology we use all the time without even knowing how it works. In a nutshell, OCR is used by computers to understand letters and characters inside images, something which wasn’t that easy to think off a few decades ago..
Nowadays, we use it in translation apps, copying text from pictures of text, and digitizing physical documents using their pictures.
This nifty technology has revolutionized many industries, including the finance sector. Let’s check out how it is being used in finance, what problems it solves, and what advantages it provides.
Applications of OCR in the Finance Sector
1. Automated Data Extraction
Among the various applications of OCR, perhaps the most common use is in data extraction or, should we say, automated data extraction.
In any business, for instance, the finance department has to deal with things like:
- Receipts
- Invoices
- Bills
- Contracts
And other such documents. These documents are usually physical and have some handwritten data on them, like signatures, dates, and possibly even some monetary amounts.
OCR tools like imagetotext.me and imagetotextconverter.net are used to extract data from such documents and convert it into digital records. This is necessary for record keeping as well as enabling finance software to manage the budget and costs of running the business seamlessly.
Without OCR, this process of digitizing the physical records has to be done manually, and that takes too long. It also increases the chances of creating errors in the data, which can result in many complications down the line.
2. Bank Statement Processing
One of the most important documents in finance is the bank statement. A bank statement shows how much money has been spent or earned by an account holder.
Companies naturally have their own bank accounts and corresponding statements. Bank statements are provided via mail or through the bank’s online portal.
When sent via email, they are often in the form of a locked PDF file. Once unlocked, the PDF can be copied and then put through an OCR tool. The latter can then extract the data as digital text.
This makes bank statement processing smooth and easy.
3. KYC Compliance
KYC stands for know your customer. This is essentially a regulation that demands financial institutions to conduct due diligence on their customers before providing services. During the KYC protocols, various documents are submitted by the customers and processed by the institutions.
OCR can make the processing of said documents quick and easy. Physical documents can be digitized and saved in a matter of seconds.
Advantages of Using OCR in Finance
There are many advantages to using OCR in the finance department. For instance….
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Higher Efficiency
First of all, OCR improves the efficiency of mundane tasks like document processing manifold. While we don’t have stats to showcase how much the efficiency is improved, it can be easily guessed how much the operational efficiency increases once you consider manual labor and automation.
Humans typing out documents manually can take anywhere from a few minutes to a few hours, depending on the length of the document. OCR, on the other hand, only takes a few seconds to a few minutes at most.
The amount of time you save is enormous and warrants the use of OCR.
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Lower Costs
Springboarding off the last point, because less human labor is used to process financial documents, you have to consume fewer resources as well.
Overall, fewer hours are used to do the same or a higher amount of work. As such, there won’t be a reason for employees to do overtime, which means you have lower costs overall.
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Improved Accuracy and Reduced Errors
OCR has vastly better accuracy and error handling. This means that the final result has fewer errors (if any). The same cannot be said for manual efforts due to human error.
According to studies, OCR has an accuracy ranging from 99.959% to 99.99%, in contrast to human data entry, which has an accuracy of 96% to 99%.
This means that in a sample size of 10k, OCR will produce errors in only 1 to 4 documents, while humans will produce 100 to 400 erroneous documents. In the finance sector, where daily processing of documents can rival these hypothetical numbers, this level of enhanced accuracy is highly sought after.
Key Considerations in the Implementation of OCR in Finance
While OCR is extremely good due to its distinct advantages, there are some things that need to be carefully considered before implementing it.
Data Security
OCR systems typically work online instead of locally. What that means is that they send the scanned data to a server where the OCR engine is running and then it sends the extracted data back.
You need to implement measures to prevent this data from leaking during transit and from the server. If there are any data leaks, it can spell trouble for the finance firm.
You can expect legal troubles at the very least and huge monetary loss at worst.
So, before you start using OCR, ensure the following things.
- Have a secure encryption protocol in place to hide the data during transit.
- Mask/obfuscate sensitive data before transmitting it across the internet.
- Ensure there are no viruses on the host devices and the servers.
Integration With Current Systems
As is the case with the adoption of any new technology, OCR systems need to be integrated with an institution’s current system in a seamless way.
If the current system is too rigid and does not have the flexibility to harbor an OCR system, then you may want to reconsider adding one. You only have three options here.
- You drop the idea of adding an OCR function to your current system.
- You find a longer but practical workaround.
- Or you go all in and overhaul your rigid system to allow for further additions.
Which option is better? That is a decision you have to make.
Wrapping Up: Key Takeaways
So, what have we learned so far? That OCR is a nifty technology, very useful, and it is hiding in plain sight.
We learned that banks and other financial institutions use it for KYC, processing cheques, and other paper documents. We also learned that using OCR for these things is cheaper and more productive.
