Components: Remote Possibilities

Karen Epper Hoffman

Mobile remote deposit capture and related services are creating a wealth of opportunities for imaging companies. What is market leader Mitek Systems doing to defend its position, and what do its challengers have cooking?

Will success change mobile remote deposit capture?

Services that allow consumers and businesses to deposit checks via their smart phone or tablet computer finally are starting to kick into high gear. Buoyed by heavy promotion from the likes of JPMorgan Chase & Co. and Citigroup Inc., and carried along on a tide of ever-improving smart-phone cameras and imaging technology, mobile remote deposit capture (RDC) is riding high on a wave of strong support.

Already, nearly half, some 48%, of the top 25 U.S. financial institutions offer mobile RDC, according to Mary Monahan, research director of mobile for Javelin Strategy & Research, Pleasanton, Calif.

“That’s quite a change from a year ago,” says Monahan, who believes usage of mobile RDC has doubled. “It’s a very popular service.”

One clear beneficiary of this rise in popularity is San Diego-based Mitek Systems Inc., the imaging-solutions company behind the mobile RDC offerings at hundreds of banks. Mitek’s software captures the check image, converts it to digital data, and transmits that data to the bank’s receiving RDC solution in the correct format.

As of Sept. 30, Mitek’s publicly disclosed customer base was 564 financial institutions, including 28 of the nation’s top 50 banks. Some 205 customers are live with Mitek’s mobile RDC offering, including the Bank of America Corp., which launched its RDC service last fall.

“Mitek went all-in on mobile imaging when the rest of the industry stayed focused on traditional systems,” says Bob Meara, senior analyst for Boston-based Celent LLC. “Now every vendor selling RDC has a mobile solution, many of which include Mitek’s engine.”

Mitek’s role as the Big Kahuna of mobile RDC imaging had long been “one of the best-kept secrets” in remote banking, according to Mike Diamond, Mitek’s senior vice president for business development. Mitek’s Mobile Deposit product typically is sold as a white-label solution through processors and application-service providers that include NCR, the former BankServ (now part of Fundtech Ltd.), Fiserv, FIS, Jack Henry & Associates, and Bluepoint Solutions.

But as mobile RDC takes off, the secret won’t stay under wraps for much longer as competitors as well as customers try to edge deeper into this space.

‘A Dynamic Growth Rate’

“The rising tide lifts all boats,” says Alan Bernstein, president of Vertifi Software LLC of Burlington, Mass., a subsidiary of EasCorp, a credit-union services provider that targets credit unions with its RDC offerings. These include a mobile RDC option for its DeposZip service offered to consumers and businesses.

In December, Vertifi announced that it had doubled the number of RDC-using credit-union members from the previous year, up to 500,000. Bernstein says that while the company has offered a desktop RDC service since 2007—the mobile offering came much more recently, in 2010—80% of the RDC transactions come through mobile.

“We’re seeing quite a dynamic growth rate [on mobile] compared to desktop,” says Bernstein.

Another company moving more aggressively into mobile RDC, from a different angle, is Top Image Systems. Based in Tel Aviv, Israel, the company has been focused on the image-capture market since the early 1990s—with most of its customers located in Europe, Asia, and the Middle East, according to Isaac Rome, vice president for global banking and mobile. But by setting up a new office in New York, Top Image Systems has decided that it wants to grow its MobiCheck product in the U.S.

Rome says that Top Image Systems already has “quite a few clients in the United States,” albeit not in the mobile RDC space. But he does not see Top Image Systems as a direct competitor of Mitek because his company’s technology is more focused on the mobile front-end than Mitek.

“Mitek is not really a mobile company,” Rome says. “Their capabilities are on the back-end.”

Mitek may see it a little differently. In September, Mitek filed a patent-infringement lawsuit against Top Image Systems. This follows patent disputes between Mitek and USAA Federal Savings Bank over mobile RDC technology (box).

Increasing market opportunities are not just leading to court battles, but to new partnerships and improvements in the technology behind mobile RDC as well. For example, Saratoga, Calif.’s All My Papers, a developer and distributor of software toolkits and applications for check imaging, in September announced an alliance with Israel-based Orbotech Ltd.’s U.S. subsidiary Orbograph, a leading supplier of recognition solutions for the U.S. check-processing market.

According to Bill Lange, senior vice president for sales and marketing for All My Papers, the deal to add Orbograph’s technology will help the company improve the courtesy amount recognition/legal amount recognition (CAR/LAR) on checks. (The courtesy amount is the numerical dollar figure, while the legal amount is the spelled-out version.)

Lange claims that his technology, which captures images and puts them into an image cash letter to move through the clearing process, already has “very low substitution errors.”

But Lange admits that mobile RDC technology still has a way to go in terms of creating fewer read errors and becoming faster. To solve the latter issue, Lange says, his technology does not work in color, but in grayscale images, which take much less time to process and transmit from the phone.

Meanwhile, of the more than 200 financial institutions that use its remote deposit capture products, more than 150 credit unions are using Vertifi’s solution for mobile RDC, according to Bernstein. The vast majority of transactions come from Apple Inc.’s iPhone or iPad or mobile devices running Google Inc.’s Android operating system.

While the company is focused on image-capture technology and service support, Vertifi also is looking to integrate with overall mobile-banking solutions by partnering with other service providers, Bernstein says.

‘Wildly Overstated’

Still, there is at least one major obstacle that industry insiders say is impeding progress—and it is coming from an unlikely source: the banks that themselves offer mobile RDC through their online-banking programs.

Specifically, many financial institutions, worried that this newfound ability to remotely deposit checks by phone will lead to widespread fraud, have in some cases instituted strict limits for how much a customer can deposit via mobile RDC. For even the smallest businesses or consumers, these limits could restrict their interest in using RDC, say industry executives.

“For some of the financial-service providers, this is new territory and they’re imposing Draconian limits,” says Diamond of Mitek, who adds that some banks limit deposits to just $3,000 per month or less. “We need to educate the banks” about making the service secure without imposing such strict limits, he says.

For his part, Lange of All My Papers doesn’t see mobile RDC as being “wildly successful” for consumers.

“Some banks are putting it out for competitive reasons, but there are a lot of stumbling blocks,” he says. These include consumers’ frustrations with using their phone to frame and photograph checks, and the “severe limits some banks impose on deposits.”

“With the consumer marketplace, mobile remote deposit capture will not become that much more popular,” says Lange. He adds, however, that he does see the acceptance of mobile RDC “trickling down to smaller and smaller types of businesses.”

Meara of Celent says that “mobile RDC was years in the making.” Banks have been slow to roll it out because of risk and compliance and operational concerns, he adds.

“By all objective measure, the risks associated with [mobile RDC] have been wildly overstated,” he says. “Banks would give their right arm to have [so few] losses on credit cards [as with mobile RDC].”

‘New Use Cases’

In the meantime, more uses for the imaging technology that supports mobile RDC are already coming down the pike. In December, for example, Minneapolis-based U.S. Bancorp said it would offer Mitek’s Mobile Photo Bill Pay product to its customers.

Users will take a picture of a bill using their smart phone or tablet, and then Mitek’s technology will extract all the necessary billing information, just as it would from a deposited check, and fill the data fields for payment through U.S. Bank’s mobile-banking app. Consumers also will be able to schedule bill payments and add payees from their phone using the service, which is set to roll out early this year.

“We believe that Mobile Photo Bill Pay is the next killer app for financial services, and we’re delighted that U.S. Bank is leading the mobile-banking charge,” James DeBello, president and chief executive of Mitek Systems, said in a news release.

Adds Diamond, “We’re super excited about Mobile Photo Bill Pay.” He believes that this application will help move the dial, where online bill payment has stalled in uptake.

In early January, San Antonio, Texas-based USAA, one of the first U.S. financial institutions to offer mobile RDC, began piloting a new feature that allows consumers to use their mobile phones to remotely open accounts.

The consumer takes a picture of a blank check from another financial institution with a mobile device; the photo captures the routing and account numbers from the other institution and then uses that account to fund a new account at USAA. The bank plans on rolling out the service later this year.

“More use cases are coming down the line,” Diamond says. “We have a tendency to be overly focused on mobile RDC.” He adds that he sees a lot of new options for using the imaging technology for authentication and enrollment.

Still, Meara of Celent believes it might be a while before the market can move beyond mobile RDC.

“No one is clamoring for [these other services] yet,” he says. “Until banks like U.S. Bank and a handful of other large banks follow and create demand for the next new thing … I don’t see any evidence of the ‘hockey stick’ [sharp upward] acceptance in 2013. There’s already tons on financial institutions’ plates.”

Patent Wars in Mobile Imaging

Mitek Systems Inc. may well be the 800-pound gorilla of mobile remote deposit capture technology. And it intends to stay that way.

Over the years, the San Diego-based software developer has applied for and obtained a number of patents to protect what it calls the “industry’s gold standard technology … for Mobile Deposit on smart phones and tablets.”

The company had been issued 13 U.S. and international patents and has at least 14 more pending, which cover the processes for “depositing a check, processing the image, and creating a Check 21-compliant image, whether the processes are carried out using a smart phone, tablet, server, or any combination of such devices,” according to a Mitek press release last September. Mitek in early January said the U.S. Patent and Trademark Office had issued it yet another one.

In the past year, Mitek has shown it intends to put its money where its patents are.

Last April, the company filed a lawsuit against USAA Federal Savings Bank for alleged patent infringement and breach of contract. Then, on Sept. 26, Mitek announced that it had filed a suit against Israel’s Top Image Systems, another mobile-imaging software solutions provider, in the U.S. District Court of Delaware. The suit alleges that Top Image Systems infringed on five of Mitek’s patents, all of which “generally relate to mobile image capture and processing using a smart phone or tablet,” according to a Mitek release.

Mitek is seeking damages against Top Image Systems and “injunctive relief” to prevent the company from selling its mobile-imaging products, such as MobiCheck, the release states.

Isaac Rome, vice president for global banking and mobile for Top Image Systems, believes Mitek is misusing its position in the market and its patents to stymie competitors.

“Mitek has been intimidating the market for the last couple of years … preventing the market from growing in the way it should be,” Rome says.