Already a Rocket, Remote Capture Is Set to Shift to Warp Speed

Remote deposit capture, already a hot product in electronic payments, is poised for explosive growth, according to a report released this week. More than 2,900 U.S. financial institutions had implemented remote capture, or were in the process of doing so, by the end of March, a number that will climb to more than 4,000 by the end of the year, says the report, released by Celent LLC, a New York-based research firm. Meanwhile, the population of workstations scanning checks for remote capture will grow from 112,000 in March to nearly 245,000 by year's end. The report, called “The State of Remote Deposit Capture: Entering the Mainstream,” forecasts that the number of these endpoints will exceed 1 million in 2009 and 5 million in 2012. Remote capture, a technology that allows retailers and other businesses to make electronic images of checks they receive and transmit those images to their banks, is growing faster than any other recently introduced financial-services technology, the report's author, Bob Meara, writes. He cites online banking, now nearly ubiquitous among banks, as an example. By the middle of 1998, three years after online banking had started to pick up momentum, about 10% of banks had installed systems. By contrast, 36% of banks have now adopted remote capture, less than three years after the October 2004 effective date of the Check Clearing for the 21st Century Act (Check 21), the law that lent impetus to remote capture technology and strategies by giving image replacement documents (paper printouts of check images) the same legal status as original checks. “[Remote capture] is showing classic signs of a technology 'crossing the chasm' from early adopters into mainsream adoption,” Meara says in the report. “The overall tenor among surveyed financial institutions of all sizes is that [remote capture] is a must-have product.” Still, most banks still view the product defensively, he says, as a way of holding on to clients they might otherwise lose to other banks. Few, he says, see it as a “spectacular” chance to grow deposits and fee revenues, and hence are “squandering a great opportunity.” Those that do, he adds, “are also the ones with most of the [remote-capture] clients.” In fact, just one-quarter of the 100 largest banks account for 80% of those banks' total client base for remote capture, the report estimates. Indeed, while banks have been quick to adopt remote capture, client penetration has been much slower, with most banks focusing on a narrow band of treasury customers. Only 12 banks had more than 1,000 live client locations as of March, the report says. The reasons for this lie mostly on the bank side, Meara notes. Banks suffer from defensive thinking, an exaggerated sense of risk, flaccid marketing, and inflated pricing. Banks are slapping on incremental monthly fees, per-deposit and per-item fees, and asking clients to buy scanners, he says. “While defensible, such pricing has clearly limited demand and was appropriate for last year's market, not the increasingly competitive market to come,” Meara says. Still, a number of developing trends will help drive remote capture deployments, the report concludes. These include: a campaign by mid-size and large banks to recruit small businesses with Web client versions of the product; new, lower-price scanners intended for low-volume businesses; and increasing adoption of image exchange by paying banks, allowing for straight-through processing of images. The last point, which will cut transaction costs for banks by accelerating the elimination of costly IRDs (which have been necessary for paying banks that don't accept images for settlement), will lead to more favorable pricing for remote capture. So will competition. Banks' so-called first-move advantage with the product will vanish by the end of the year, the report says, forcing banks to compete with more and more financial institutions for businesses' deposits. “The inevitable result will be price compression, leading to accelerating adoption of [remote-capture] services,” Meara says in the report.