M-Commerce: Take One of These for Durbin Headaches

In the Age of Durbin, banks need a product to make them feel good about payments. Enter mobile remote deposit capture, a service with cool factor that could attract and retain customers and even generate new revenue streams.

by Peter Lucas

Is there anything a smart phone can’t do? It plays music, serves as a GPS device, surfs the Web, and now, thanks to the ingenuity of Apple Inc., answers questions asked by humans in a now-famous female voice known as “Siri.”

But as cool as those features are, there is one some consumers might think is even cooler—using the phone as a mobile remote deposit capture terminal. Depositing a check through a smart phone is now as simple as launching a mobile-banking app, clicking pictures of the check’s front and back using the phone’s camera, and hitting the send button. No more heading to the branch or ATM to make a deposit.

Television commercials from JPMorgan Chase & Co. and State Farm Bank have been all over the airwaves promoting the capability. Several other major banks have jumped on the RDC bandwagon, including Bank of America, Fidelity Bank, First National Bank of Omaha, First Tennessee, Sovereign Bank, and U.S. Bank. USAA Federal Savings Bank with its Deposit@Mobile product was the first to offer the service to consumers several years back (“The Little Guy’s High-Tech Advantage,” March 2010).

Not surprisingly, consumers showing the most interest are between the ages of 18 and 34, which tends to be a very-tech savvy, gadget-oriented demographic. Overall, not quite one-fifth of consumers say they’re interested in the service, according to Chicago-based consulting firm AlixPartners.

Banks rolling out the technology have enjoyed strong consumer acceptance. Chase, for example, says it has received more than $1.5 billion in deposited checks through its QuickDeposit mobile RDC service since early 2011, and a total of $2.03 billion since the service debuted in 2010.

The success enjoyed by Chase and other pioneer banks is generating widespread interest in the technology. In 2011, 66% of 187 banks and credit unions surveyed by Boston-based Celent LLC said they were planning or considering a mobile remote deposit capture solution, up from 51% in 2010 and just 26% in 2009.

What makes mobile RDC appealing to financial institutions is that it’s another self-service channel that can attract new customers, boost retention rates, and increase consumer satisfaction.

Survey results released by AlixPartners last October revealed that 43% of consumers questioned would switch their primary bank to get mobile RDC. In addition, 81% of mobile RDC users said they were extremely or very satisfied with their primary bank, compared to 72% for non-mobile RDC users. The survey also concluded that mobile RDC adopters deposit 25% more checks than non-adopters.

‘A Staple’

“Redirecting check deposits that would be made through a branch to mobile RDC, which is a lower-cost self-service channel, is an obvious benefit to banks because self-service channels cost less to operate than branches,” says Bob Meara, a senior analyst for Celent’s Banking Group. “It is expected that mobile RDC will become a staple of mobile banking in the next couple of years.”

According to a 2010 study by Pleasanton, Calif.-based Javelin Strategy & Research, an in-person transaction at a branch costs $4.25. Contacting the call center or using an ATM costs $1.29 and $1.25, respectively. In comparison, mobile-banking transactions cost 10 cents and online-banking transactions 19 cents.

“Moving check deposits to RDC represents a substantial cost savings to banks,” says James DeBello, president and chief executive of Mitek Systems Inc., a San Diego-based provider of mobile imaging solutions. “About 65% of branch transactions involve a deposit.”

Mitek has agreements to provide mobile RDC software to more than 160 banks in the U.S., including seven of the top 10.

In addition to lower check-handling costs, there is the potential for financial institutions to charge for the service. Two banks—First Tennessee and U.S. Bank—charge consumers 99 cents per scan, according to Meara.

Whether consumers who use mobile RDC a few times a month are willing to pay for the service remains to be seen, however. Consumer backlash in late 2011 forced banks, including leading debit card issuer BofA, to cancel debit usage fees.

Consumer outcry also prompted Verizon Wireless in December to scrap plans to charge customers $2 for paying their bill online or over the phone and charging it to a credit or debit card.

“I am not sure there is enough volume in mobile RDC right now to justify a fee [to consumers], but if banks don’t charge for the service, it will be one of the few they don’t charge for,” says O.B. Rawls, senior vice president, North American Sales, for Marietta, Ga.-based point-of-sale equipment reseller Tasq Technology Inc., a unit of processor First Data Corp.

The prospects for fee revenue are much better for small businesses, to which banks have had trouble selling desktop RDC solutions because of the high cost of scanners.

The benefit of mobile RDC to Mom-and-Pop businesses is that they don’t have to make a special trip to the bank or ATM to deposit checks. That represents a big cost and time savings as employees entrusted with the task have to make their way to the branch during banking hours while they are on the clock. Even making deposits through an ATM after business hours requires a special trip.

To minimize the time and cost of making deposits, many small businesses will hold checks for several days before depositing them. While that practice brings some operational efficiencies, it also deprives the business of cash flow as checks received days before sit uncashed, and increases the potential for loss or theft.

Mobile RDC allows small businesses to make daily deposits, ensuring the funds are credited within 24 hours. “One of our bank clients services an irrigation company that moved their business to them just to get mobile RDC,” says Gary Brand, director of Source Capture operations for Brookfield, Wis.-based bank processor Fiserv Inc. “Mobile RDC is a service banks can bundle with other services, such as account management for small businesses, for which they can charge a fee.”

Fiserv said in December that “more than a dozen” banks and credit unions had signed on to provide its Mobile Source Capture solution to their customers.

Better ROI

Entry costs for mobile RDC are less than purchasing a dedicated desktop RDC scanner, which runs between $400 and $800. In comparison, higher-end smart phones range in price from $199 to $299 and have much greater utility than a scanner. For small-business owners that already have a smart phone equipped with a camera, the economics of RDC are much more attractive.

“The lower-cost barrier to mobile RDC means that banks can push the service further downstream to businesses because the return on investment now makes sense for small businesses,” says Brand.

To further strengthen the business case for mobile RDC, many service providers are pitching users on using the technology to capture invoices and other documents they want imaged and stored at their bank, such as account statements. Some banks are even expanding the definition of small business to include high school booster clubs and other groups that get lots of checks.

“We are seeing a lot of creative uses of the technology,” Brand says.

Meanwhile, Mitek Systems, has leveraged its image-capture capabilities to enhance electronic bill payment with its Mobile Photo Bill Pay application. Consumers open a bill-pay app on their smart phone, snap a photo of the bill with its camera, verify the information on the invoice, such as biller name, amount due and due date, and hit the pay button.

“It’s a faster, more convenient way to pay a bill using a mobile phone than typing in the data needed to facilitate the payment on a phone’s keyboard,” says DeBello. “Consumers can use the app for a one-time or recurring bill.”

One of the biggest opportunities for mobile RDC, however, is with non-banked consumers who rely on currency exchanges or other third parties to cash their paychecks. According to DeBello, a check-cashing service, just like a bank, could provide a mobile RDC app to its customers that they could use to photograph and transmit an image of the check. But instead of being deposited into a demand-deposit account once the check is accepted, the funds could be automatically deposited to a customer’s prepaid card account.

“We expect many companies in the check-cashing business will show interest in adopting the technology in 2012,” says DeBello.

With banks on one end of the financial-services spectrum and check cashers on the other, companies in between also have the potential to become mobile RDC providers.

Leading alternative-payments provider PayPal Inc. already offers mobile capture, and market observers expect American Express Co., prepaid card program managers such as Green Dot Corp., and Wal-Mart Stores Inc. with its big financial operation and prepaid card managed by Green Dot, to possibly enter the field.

As attractive as mobile RDC appears, weaknesses do exist in the business case for widespread adoption in the near term. Foremost are concerns about criminals using the technology to deposit a check into multiple accounts, across multiple banks, and then quickly withdrawing the funds through ATMs.

‘Boogie Man’

“Concerns about risk do make the business case uneasy because some banks are concerned about a boogie man lurking in the closet,” says Meara.

Many RDC providers have taken steps to counter such fraud by building platforms that allow tracking and tagging of checks as they enter the system to automatically spot duplicate deposits or flag deposit amounts entered by the consumer that do not match the amount on the check.

Fiserv, for example, allows banks to view every check deposited through RDC or checks that fall within certain parameters, such as if a customer deposits more checks than normal during the week.

“Banks are doing a pretty good job of detecting duplicate deposits and other anomalies in the system,” says Meara. “The fraud threat is really more theoretical than tangible, but the risk raises concerns nonetheless.”

Another potential speed bump to mobile RDC is the slower-than- expected adoption of smart phones. Last July, comScore Inc. reported that just 35% of mobile-phone users owned a smart phone.

That’s obviously a fair amount of the market, but not as much as some earlier forecasts predicted. New York-based research firm The Nielsen Co. had estimated that smart phones would comprise the majority of the mobile-phone market in 2011, for example.

Forecasters have now pushed their predictions for the smart phone’s dominance back by several years. Alix Partners projects smart phones’ market share to grow to 43% over the next couple of years and reach 60% in 2016.

There are myriad reasons consumers are holding off on getting a smart phone. The cost-benefit tradeoff is the biggest factor, as many consumers with a so-called feature phone are reluctant to spend the money for a costlier smart phone. At the same time, newer feature phones come with Web browsers, and phone-company plans to purchase Internet access through those phones are more affordable.

“Some Baby Boomers and older consumers have no interest in purchasing a smart phone,” says Meara.

Still, payments experts agree that while the initial audience for mobile RDC is heavy mobile-phone users, the cool factor of the technology will spread it to a wider audience.

Defensive Strategy

“It is an attention-grabbing technology, which is why banks have interest in it,” says Tasq’s Rawls.

Finally, while broader use of mobile RDC will likely cannibalize some transactions through ATMs and branches, the lower cost of accepting deposits through this self-service channel will benefit banks’ bottom lines.

“Banks view the service as a way to add another consumer touch point in an era when consumers are using multiple channels to interact with them,” says Fiserv’s Brand. “There are still going to be times when consumers need to use a branch or ATM to deposit checks, but not offering this service opens the door for non-bank competitors to come in and grab this segment of the business from banks.”