Bank Statement

Processing and
Automation
[COMPLETE GUIDE]
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Introduction

Automation is revolutionizing the way businesses manage and process

financial statements. The banking industry is highly competitive and
online banking is replacing paper-based statements in order to boost
rates of customer satisfaction and provide real-time access to premium
services. Electronic statements prevent identity theft, fraudulent
transactions, and make it easier to view complete lists of transactions in
an easy-to-access format. Robotic Process Automation (RPA) and
Optical Character Recognition (OCR) technology are at the forefront of
bank statement processing solutions.

Statistics show that 35% of financial institutions are recording an

increase of 2 to 5% in revenues from incorporating automation solutions
into their bank statement processing workflows.

The adoption of automation in bank statement processing for customer

onboarding and underwriting is something that companies cannot ignore
any longer. In fact, in the post-covid era, the automation adoption rate
in the BFSI industry is significantly increasing.

The aim of this guide is to introduce the basics of bank statement

processing and its automation to the reader. The guide also discusses
the importance and benefits of automation over manual bank statement
data extraction and helps the reader choose the best bank statement
automation solution.

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About Docsumo

Docsumo was born out of that desire to free underwriters, founders,

COOs, and accountants from manual data entry.

And we are just getting started!

With Docsumo, you can extract data from any document type: structured,
semi-structured or unstructured. Our pre-trained APIs allow the user to
extract data from common document types such as bank statements,
identity verification documents, invoices, and forms.

Adding to that, Docsumo’s auto-classification feature classifies multiple

document types in real-time without having to write custom rules, and our
custom validation rules ensure that no incorrect information peeps into
your system, ever!

Best in class for capturing data from

financial documents
“We are using Docsumo’s APIs for automating data
capture from bank statements and identity cards
while on-boarding customers. It has reduced the
time our operations team spends on data entry by
manifolds while providing a much better customer
experience.”

Prashanth Ranganathan
CEO, PayU Credit

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TABLE OF CONTENTS
INTRODUCTION TO BANK STATEMENTS 3
Uses of Bank Statements
Importance of Bank Statement Processing

MANUAL VS AUTOMATED BANK STATEMENT 5

PROCESSING

Manual versus automated bank statement processing

Benefits of Processing Bank Statements

BANK STATEMENT PROCESSING AUTOMATION 7

Bank statement automation processing workflow
Data extraction methods from bank statements

COST OF BANK STATEMENT PROCESSING 10

AUTOMATION

HOW TO SELECT A BANK STATEMENT 12

PROCESSING AUTOMATION SOFTWARE

FREQUENTLY ASKED QUESTIONS 14

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Chapter 1 – Introduction to Bank Statements

Bank statements show an official record of all financial transactions that occur
during a given period in a month. These account statements give an overview
of cash flows to and from your account. Every statement has its own unique
format depending on the bank it is generated from. However, there are
common details present in all bank statements which are:-

Opening balance- This describes the balance of an account before any

transactions take place.
Withdrawals- Withdrawals are debits and indicate that you’ve withdrawn
money from your account. Any time you make a withdrawal, your total
amount contained in that account gets reduced.
Credits (or deposits)– Credits are referred to as deposits. The term is used
to refer to transactions flowing into.
Date– Dates of transactions are recorded in bank statements.
Transaction IDs– Transactions IDs are reference numbers of your
transactions that took place. These are used to map transactions coming
from vendor accounts and verify income or credit sources.
Account holder name– The account holder is the beneficiary or the person
who has an account in the bank.
Account number– Account number is generally between 8 to 12 digits in
length. Individuals have to furnish their account numbers to borrowers,
lenders, and vendors before being able to make a transaction.

A/C HOLDER NAME

ACCOUNT NUMBER

DATE

WITHDRAWALS

CREDITS (OR DEPOSITS)

TRANSACTION DATE

TRANSACTION IDS

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Uses of Bank Statements

In most cases, customers use bank statements to keep track of their
transactions, however, lenders and insurers use these documents for identity
and address verification. The following are the most common uses of bank
statements:-

1. Verify Income Sources

The financial information contained in bank statements provides proof of employment,
annual turnover rates, and income sources of individuals. These are often requested by
credit lending organizations before approving for loans or mortgages.

2. Loan and Mortgage Approvals

Banks and NBFCs use bank statement processing to perform a credit profile analysis of
borrowers. Cash flow analysis of statements gives an idea about the financial standing
of borrowers which helps in determining loan or mortgage amounts.

3. For Documenting Finances

Processing your bank statements can help you understand how much money you make,
interest earned, penalties and other settlements done. Getting these figures sent to
you on a monthly basis makes it much easier to manage your finances.

Importance of Bank Statement Processing

Here are a few reasons why businesses need to process bank statements and
extract data from them:-

1. Bank statement reconciliations

Reconciliations simply mean you check transactions recorded internally versus the
ones printed on the bank’s ledger. Account reconciliations are needed by organizations
to verify account holders and prevent accounting errors when making transactions.

2. Recognize spending habits

Lenders, investors, and financial institutions process bank statements to identify the
spending habits of borrowers. It keeps individuals accountable with their finances,
reveals liabilities, and makes it easier to perform cash flow analysis.

3. Accurate tax reporting

Bank statement processing is needed by organizations to verify, authenticate, and
generate tax returns. Income tax departments in countries request a copy of
transactions in order to file returns and process refunds every year.

4. Validates data and prevents fraud

Bank statements have to be processed to identify cases of fraudulent transactions. It
helps in figuring out the cases of fake identity, forged documents, and fraudulent
details on these account statements.

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Chapter 2- Manual vs Automated Bank

statement processing
Manual bank statement processing includes reading data from PDF documents
or physical bank statements and entering it by hand. In account reconciliation,
transactions are read-off statements and entered into a general bank ledger
where they are recorded. Automated bank statement processing removes the
need for physically scanning documents and entering data from tables printed
on pages, thus drastically reducing countless hours of time for data processing.

MANUAL BANK STATEMENT AUTOMATED BANK

PROCESSING STATEMENT PROCESSING

A time-intensive process that involves Limited human intervention is needed

entering data, making corrections, and and data is automatically scanned, read,
validating by hand. and input into systems using intelligent
OCR solutions

Limited to few hours of the day Automated bank statement processing

solutions can scan and document
statements in real-time, 24X7, without
being prone to fatigue or breaks

Re-corrections are involved if data No need for re-corrections since data is

entries are wrong validated automatically during entry

Cost of hiring employees is high in Initial costs involved in paying for

long-term software are high, but long-term costs
of running it are low

Transactions can be delayed due to Transactions are fast due to high

slow processing processing speeds

There are many chances of There are almost no chances of

document fraud document fraud

There is a limit to the number of Unlimited bank statements can be

statements that can be processed in a processed by using automated
day solutions

Error rate can be as high as 30% No margin for human error and
accuracy rate is 99%

Cannot convert bank statements to You can convert bank statements to

different formats Excel, JSON, and a variety of formats

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Benefits of Processing Bank Statements

Let’s look at the benefits of processing bank statements using Docsumo’s
intelligent document processing technology:-

1. Reduces paper-based document storage

All the data extracted from bank statements is securely stored on Docsumo’s servers
and users can view it using an encryption key. Data extraction from PDF/images files
using bank statement processing software can help users structure and organize data
for easy analysis.

2. Cuts down costs

Because of intelligent automation, companies don’t have to hire new employees for
accounting data entry. The costs involved in hiring full-time employees are drastically
reduced as Docsumo is able to process huge volumes of data without much human
intervention. Employees who are already working in the organization can focus their
time on more productive tasks, thus saving time spent doing manual data entry.

3. Reduction in human errors

Docsumo’s automation tools reduce human errors since the entire process of reading
data from bank statements to data entry and output is automated.

4. Bulk processing
There is no limit to the number of bank statements users can upload and process using
Docsumo. Docsumo’s self-learning technology is able to recognize different structures,
layouts, and formats of bank statements and automatically capture key areas from
them. There are no chances of missed payments, document fraud, or missing
transactions when you get a summary of your complete financials sent to you using
Docsumo’s automated data extraction and processing mechanisms.

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Chapter 3 - Bank Statement Processing

Automation

Extracting data from bank statements, entering it into accounting systems, and
performing an analysis on top of this organized data is bank statement
processing. Automating bank statement processing involves removing the need
for manual data entry and automatically extracting financial information from
account statements - validating them, and ensuring that details entered are
correct. With the help of document AI software, users can save the time and
manpower required to process bank statements without sacrificing data
accuracy or integrity.

A bank statement usually has three parts - beginning/ending balances, interest

earned, and funds withdrawn/deposited to the account. The MT940 format is a
SWIFT standard followed worldwide for processing electronic bank statements
in Europe while BAI2 is popularly used throughout the United States. Electronic
bank statements are the cornerstone for reporting accounting activities and
many companies choose to opt for electronic statements since they give
greater visibility into cash flows.

While electronic bank statements each have their own formats, most of them
contain key components which are common throughout all statements. The
transaction, reference IDs, and balance lines are usually of the most
importance. Below we give an outline of what a regular bank statement looks
like.

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Format of a Bank Statement:-

A typical bank statement looks like this:

Most bank statements have fields such as date periods, description of payment,
credits, debits, and balance amounts. The visual layout of the statement can
differ from bank to bank. Some banks have the account holder's name printed
at the top with the address and branch details near the bottom. That's why if
you’re processing thousands of bank statements from different banks, an
automated solution becomes a necessity.

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Bank statement automation processing workflow

Phase 1: Capturing bank statements

The received bank statement can be in different formats (PDF, image, paper-based,
photocopy, etc). Docsumo’s intelligent data capture algorithms, AI, and OCR APIs
extract key information from these statements (like summary tables, account numbers,
transaction IDs, amounts, etc.) and proceed to the next phase which is data entry and
coding.

Phase 2: Data entry and coding

Docsumo’s API captures line items for GL coding and feeds the extracted data from
bank statements into bank ledgers or ERP systems.

Phase 3: Validation
After automated data entry, the next step is validating the data. The Docsumo API
sends the extracted data to the user for review and approval. If there are any errors or
mismatching entries, the API flags those areas and reports issues by routing them to
the AP for manual verification.

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Data extraction methods from bank statements

i) Template-based Optical Character Recognition Method (OCR)
OCR is a technology that uses pattern-based recognition for scanning and reading
bank statements. Since it is a template-based approach, it works for specific formats.
OCR is not a versatile solution as it cannot read documents of the same type in a
variety of layouts or different formats. This is because OCR frameworks have to be
coded with rules and follow specific criteria when it comes to data extraction from
bank statements and detecting them. When the number of vendors increases, using
different templates for different bank statements becomes difficult as it turns into a
time-consuming process.

ii) AI-based or Cognitive Data Extraction

AI-based or cognitive data extraction is a self-learning technology that mimics human
behavioral patterns for effective decision-making. For reading bank statements in
various formats, bank statement data extraction software like Docsumo is able to
automatically learn from huge volumes of data. AI can recognize different document
layouts, changes in header/column/table positions, and subtle alterations in the
arrangement of data presented in bank statements.
What can take hours for a manual operator to learn and adapt to multiple formats, AI
can get it done in seconds and its accuracy improves the more data you feed into
models. With time, AI technology helps users in processing bank statements
automatically since it’s capable of processing large datasets. You also don’t have to
worry about creating new templates for scanning new bank statements since with AI,
they’re not needed.

iii) Combining Machine Learning and Template-based Approach

This approach combines the best of both worlds, with the bank statement processing
model using standard templates for reading existing bank statements. When a different
bank statement format arrives, the machine learning algorithm learns from it and
switches from using the default templates. Later, it automatically creates a template
for the new statement without needing any human intervention. The more bank
statements are processed, the smarter the algorithm gets, with its database growing
larger for processing a variety of financial documents. The accuracy of the technology
also improves after using it for a short period of time.

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Chapter 4 - Cost of Bank Statement Processing

Automation

Processing a single bank statement can take up to 20 minutes, and when errors
are made, more charges add up for re-correction and re-entering of data.
Lenders need to go through thousands of loan applications a month and when
collecting statements from over 100+ banks in 1,000 formats, it becomes
challenging to process all of them.

Bank statements are processed for different purposes, such as income

verification and the transaction data has to be categorized, with attributes such
as gross income and average monthly balances being used for underwriting
tasks.

Hiring an employee for manually processing bank statements can cost

organizations thousands of dollars and when you factor in breaks, delays, and
downtimes in processing applications, the rates go higher. An average
employee cannot work round the clock which is where bank statement
processing automation makes a big difference. You don’t have to worry about
error margins during data entry and the data extracted gets automatically
validated in the process.

Let’s say that processing a bank statement manually takes up to 5 minutes. If a

lender has to process 10,000 bank statements a month that’s 50,000 minutes
or 833 hours of manual processing a month. Now add the cost to manually
review these processed documents along with the revenue lost due to delays.

Automation helps significantly in reducing this cost. Automating bank

statement processing saves cost by:-
Improving Accuracy - Automated data extraction can be 95 to 99% accurate
thus reducing the need for manual review.
Improving processing time - It can process a bank statement in 30 seconds
or less, thus eliminating the need for manual processing and the time
required is much less.
Reducing the turnaround time - Automated bank statement processing is
much faster and more accurate than manual processing. Because it takes
less time and needs less human intervention, there are almost no delays and
no revenue lost due to these delays.

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On average automation can save up to 70% of the total cost associated with
bank statement processing. The benefits of automation go beyond simple cost-
cutting as it brings more and more customer onboarding opportunities that
were earlier lost because of the slow processing and approval.

With Docsumo, organizations pay based on what they need and what they use.
Docsumo uses a ‘pay as you use,’ pricing model which means you only pay for
the number of documents you process.

For downtimes, delays, and on days when statements don’t have to be

processed, there are no additional costs or hidden fees involved.

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Chapter 5 - How to select a Bank Statement

Processing Automation Software

Accounting departments are bombarded with huge volumes of documents on a

daily basis and selecting a bank statement processing automation software
reduces the manual effort needed to go through them. Bank statement
processing automation software parses unstructured data from PDF files and
parses according to rules defined by the user based on different layouts.

Whether your goal is to simply parse a PDF, convert your extracted bank
statement into an excel spreadsheet or share it with third-party vendors for
financial reporting, bank statement processing automation can streamline your
accounting workflow and adapt to fit your various use-cases. Here is a list of
features you need to look for when investing in these solutions:-

1. Document classification capabilities

Underwriters receive a variety of documents on a day-to-day basis. Not all of these are
bank statements and any good document processing solution should be able to identify
what types of documents they are and classify accordingly. Your automated bank
statement processing software should be able to forward extracted bank statements to
the concerned department after identifying them during the upload process.

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2. Flexibility in formats
The bank statement processing solution should be flexible in reading a variety of file
formats. Your chosen platform should be able to read PDF bank statements, scanned
images, and extract data from several other file types.

3. Speed
If the software is slow and causes downtimes or delays in your accounting operations,
it is not worth it. Speed is a key criterion you should look for in your bank statement
processing automation solution. Your software should be capable of handling large
loads of data and process it in a minimal amount of time.

4. Accuracy
You don’t want to sacrifice accuracy by acquiring speed. All the details extracted from
your statements should be accurate and there must not be missing values.

5. Cloud Support
Cloud support makes it easier to backup and store your bank statements online. You
should be able to share your extracted statements with others and securely save them.
Cloud support makes this possible and does not compromise on data privacy or
integrity either.

6. Security
In this digital age, a growing number of cyber threats are of major concern to users. A
good document processing platform should limit access rights to individuals and make
data accessible to only authorized users. Again, tracking tools for monitoring account
activity over the network and alerting users of unauthorized data requests are a must.

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Chapter 6 - Frequently Asked Questions about

Bank Statement Processing

Talking to hundreds of clients, we hear so many questions about automating

data extraction for loan underwriting documents. We’ve compiled a list of
frequently asked questions about automated bank statement processing, and
answered them:-
1. Can I process only bank statements using Docsumo?
No, Docsumo’s data extraction capabilities go beyond processing bank statements. If
you are using Docsumo, you can also process invoices, tax documents, identity
verification documents, and others without any issues.

2. Can automated bank statement processing help me extract

data from PDF documents?
Yes, automated bank statement processing will help you extract data from PDF
documents. Not only that, but you can extract data from scanned images, photocopies
of transaction statements, and much more. Docsumo’s intelligent OCR and AI
combined to make it possible to collect and organize financial data from your bank
statements within minutes!

3. Can I extract data from canceled cheques?

Yes, you can extract data from canceled cheques and process it for accounting
purposes. Docsumo lets you extract data such as bank name, dates, amounts, and other
headers/footer details from canceled cheques.

4. How can I process a bank statement online?

There are many ways you can go about this. One approach is to request your bank to
deliver electronic bank statements via email. However, a huge flaw in this arrangement
is when you have multiple bank accounts, you’ll have to sort through the data in all
those statements. This is where automated bank statement processing helps since
Docsumo’s platform can scan transaction data from a variety of bank statements and
compile the extracted data for you.

5. Is Docsumo safe to use?

Yes, Docsumo is completely safe to use. We are GDPR Compliant and SOC-2 certified.
Furthermore, the platform does not share customer data with other users online.
Whatever is stored on the platform stays on the platform, with Docsumo using your
personal data solely for improving its existing services.

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6. How accurate is automated bank statement processing?

Automated bank statement processing yields a 95 to 99% accuracy rate. Docsumo has
a 99% accuracy rate when it comes to scanning and processing bank statements.

7. How do I sign up with Docsumo for a free trial?

Schedule a demo with us by visiting https://docsumo.com/contact-us to learn more
about Docsumo and how we can help you in processing bank statements and other
underwriting documents!

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