OCR in Finance: Transforming Document Management for Efficiency and Compliance

Optical character recognition (OCR) is technology that makes it easy to digitize paper-based documents into text-based, indexable documents. As the finance industry relies on physical documents, it stands to benefit from OCR significantly. OCR in finance is also essential from a compliance perspective, as digitizing documents can help companies be in better regulatory compliance.

OCR technology has come a long way. Interestingly, the development of OCR back in the 70s was made to help visually impaired individuals read written or typed texts on printed paper. Today, businesses use it to extract information from printed or handwritten documents quickly.

This article explores the use of OCR technology in finance, why it’s important for enterprises in this particular sector, and how they can use it to improve document handling and data collection.

What is OCR in Finance, and How Does it Work?

Optical character recognition (OCR) is the technology that turns printed, or handwritten text into searchable and/or editable digital content. It involves scanners for capturing the image of the physical document and specialized software that scans for characters in the digital image and creates a text document in the required format.

Here’s how OCR works:

• Image Preprocessing: The OCR software first prepares the image by enhancing its quality, removing noise, and converting it to grayscale.
• Text Localization: This step involves identifying the image areas containing text. Techniques like edge detection and connected component analysis are used.
• Character Segmentation: The localized text is divided into individual characters or words.
• Pattern Matching: The extracted features are compared to a database of known character patterns. The most likely match is selected.
• Post-processing: The recognized text is further processed to correct errors, such as misidentified characters or incorrect word segmentation.

In finance, OCR is frequently used to extract information from statements, invoices, and contracts. It may also collect data from customer documents like IDs, tax returns, or forms. However, more sophisticated OCR tools are needed to retain the format of financial documents. For instance, bank statements are presented in tables. So, the OCR software must be able to reproduce the table digitally with the duplicate rows and columns and, of course, the values. Luckily, OCR technology has improved significantly over the years, delivering greater accuracy, faster processing, and supporting multiple languages and writing systems.

MST’s OCR software can accurately capture text and retain the format as close to the actual document as possible. It automates collecting data through documents, streamlining processes like account opening and loan application. It converts documents into searchable text, making it easy to find particular content.

Benefits of OCR for the Finance Industry

Although any business can benefit from digitizing paper documents with OCR, the finance industry is positioned to rely on it a lot more than the average business. And the simple reason for that is there’s still frequent use of papers in the industry. While there has been a solid drive to go paperless, unfortunately many processes still use paper. For instance, many banks require their customers to sign on paper when registering their signature for financial transactions.

With paper documents still in use, here’s how OCR can benefit finance companies:

Automation and Efficiency

Manual data entry is a thing of the past, as it’s highly inefficient. With automation, the speed of collecting information can be improved significantly. OCR technology can scan a document, extract information, and turn it into a ready-to-process file in seconds. The same process may take hours for a person to do manually.

With automation, workflows can move much faster, and documents can be digitized at scale. For example, customer ID verification can be carried out much quicker.

Improved Accuracy and Reduced Errors

OCR minimizes human errors in data entry, improving the accuracy of financial records. While accuracy depends on the quality of the document’s image and the tool’s capability, it’s safe to say that most OCR tools can outperform humans in accuracy.

In finance, there’s no room for error. Even one wrong number in statements can create havoc. Accuracy isn’t an option but a necessity so as to ensure information extracted from physical documents is 100% the same.

Cost Reduction

By automating document workflows, financial institutions can reduce operational costs and free up staff for more critical tasks. Instead of digitizing hundreds of documents manually through data entry, employees can save time by automating most of the process. They simply have to scan a document, and with a few clicks, a digital copy will be ready.

Similarly, greater accuracy of OCR also results in cost savings. Errors in data entry may lead to significant losses. Even if there’s no financial loss, it will result in productivity loss, as employees will need to spend time correcting the mistakes.

Regulatory Compliance

OCR enables financial institutions to comply with strict regulations, particularly those requiring financial accountability and data protection. Businesses in the finance sector, including banks, credit unions, insurance providers, and investment firms, are liable to collect necessary information from their clients. Similarly, they’re also liable to protect this information.

While OCR is not a security technology, it can help secure documents by creating digital records and maintaining accurate audit trails.

Data Accessibility and Integration

OCR makes previously inaccessible data in paper documents searchable, editable, and easily integrated with systems finance companies frequently use. The digitized documents can be used with proprietary software through APIs and connectors. Some financial OCR solutions, like MST, can readily integrate with content and enterprise resource management systems.

Key Applications of OCR in Finance

OCR use cases in finance involve both internal and external documents. Any type of physical document can be digitized with the help of OCR to streamline workflows and processes. Here are the typical applications of OCR in finance:

• KYC and Customer Onboarding: Know Your Customer (KYC) is a process banks and other financial institutions use to verify the identity, suitability, and risks associated with potential or existing clients. It forms a part of regulations to prevent money laundering and terrorism financing. Customer information is usually collected with forms, which can be digitized with OCR and saved in a database.
• Loan Processing: While loan applications can be completed online, many establishments still use paper forms. Besides forms, loans require a slew of evidence documents, which must be scanned to be used by loan processing systems. OCR automates the extraction of loan application data, speeding up the approval process.
• Invoice Processing: Where invoices are sent or received physically, OCR automation can quickly get information on accounts payable by extracting data from invoices and matching it with purchase orders.
• Auditing and Compliance: OCR makes it easier to audit financial records, ensuring regulatory compliance with key laws like MiFID II and AML. Any physical copies of critical and sensitive documents can be backed up digitally after getting processed by OCR software.
• Tax Document Processing: Lenders often need to analyze applicants’ tax returns for loan or mortgage processing. OCR extracts information from tax forms and filings, reducing the need for manual data entry. It can collect the required information when used with the right tools.

The Role of OCR in Regulatory Compliance

Banking is a heavily regulated industry, which means all operations must comply with regulations. Some regulations focus on financial reporting, while others focus on data privacy. Documents are at the center of all these regulations.

Here are some examples of how OCR can play a role in regulatory compliance:

• Financial Action Task Force (FATF): OCR can help financial institutions comply with FATF recommendations on AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism).
• General Data Protection Regulation (GDPR): OCR can assist in extracting and analyzing personal data to ensure compliance with GDPR requirements.
• Bank Secrecy Act (BSA): OCR can help financial institutions identify and report suspicious activity required by the BSA.
• Sarbanes-Oxley Act (SOX): OCR and other technologies can automate financial reporting processes to ensure compliance with SOX.

Emerging Trends in OCR Technology for Finance

In the past, OCR technology involved specialized scanners that recognized characters one by one, line by line. Today, this technology is much more sophisticated. OCR software can process images taken from phones and extract text easily. It’s poised to get even more streamlined, with faster processing and higher accuracy.

Here are the recent technological developments in OCR:

• AI-Powered OCR: With major advancements in Artificial Intelligence, OCR technology incorporates elements of generative AI to help improve recognition of less legible text. With contextual awareness and training on large language models (LLMs), AI-enabled OCR tools will be able to extract information with nearly zero errors.
• Cloud-Based OCR: Cloud-based OCR tools may reduce processing load on servers and make the tool available everywhere. They essentially work like software as a service (SaaS), which users can access from anywhere to capture and digitize physical documents into readable, searchable, and editable files in formats like PDF.
• Mobile OCR: Mobile devices with OCR capabilities allow remote workers and customers to easily submit financial documents such as IDs, checks, and receipts for processing. Smartphones have the capability to recognize text in images already. Dedicated OCR mobile apps can take that functionality to the next level.

How MST’s OCR Solutions Help Financial Institutions

MST’s eViewer features a built-in OCR tool, which can complement the tech stack of any finance company. The OCR technology works with scanners to capture the document and turn it into a digital format of your choice.

For instance, bankers can scan and digitize customers’ forms and ID documents with the eViewer. Furthermore, the eViewer can be integrated with the bank’s systems, mapping the data on forms or IDs to fields in a database. It can work with existing systems, eliminating the need to create document capture and digitization solutions from scratch.

Another advantage of MST’s OCR is that it works with several image formats. Whether the scanned document is in JPG, PNG, TIFF, or a document in the MODCA format, the software will recognize text and convert it into an editable digital document. Once the document is digitized, the text can be easily searched and extracted. For instance, in a tax return form captured with OCR, a specific part can be searched with a string search.

As MST looks to the future, it is investing in building its own AI Machine Learning OCR tool to further assist financial institutions with greater OCR accuracy as well as being able to extract that data to improve workflow productivity.

The eViewer also offers many other features that complement document-related workflow management in banks, credit unions, and other financial institutions. These features include auto-redaction, digital signatures, and format conversion. It’s a comprehensive solution for managing, sharing, and viewing documents in finance.

Conclusion

Dealing with heaps of paper documents can be a significant bottleneck in finance. OCR automation offers a solution by instantly extracting data from images and transforming them into editable digital files. This not only streamlines processes but also enhances data accessibility and searchability.

For finance organizations, OCR can be a lifesaver. Imagine quickly extracting financial data from scanned invoices, contracts, or bank statements. MST’s document viewing and conversion solutions, powered by OCR, can help finance institutions streamline their operations.

Contact MST today to learn more about how OCR automation can revolutionize your finance processes.