Networks: Remote Capture Hits Its Stride

Peter Lucas

With big banks like Chase and Citibank aggressively promoting remote deposit capture, consumer demand for the product is skyrocketing. As a result, more and more banks are using it as a tool to acquire and keep customers.

It’s been a long time since banks have had a customer-acquisition and loyalty tool as sexy as remote deposit capture. The last such innovation was the ATM, which despite being introduced in the late 1960s took about 20 years to become a hit with consumers.

Unlike the ATM, RDC has hit its stride with consumers much sooner. Six years after the introduction of retail RDC, which allows consumers to capture check images using an in-home scanner or the camera on their smart phone or tablet computer and deposit them through an online-banking application, 38% of consumers that switched banks the past year did so to get access to mobile RDC, according to a December 2011 survey by New York-based consulting firm AlixPartners LLP.

“Mobile RDC can move market share and that’s why banks like Chase and Citibank are marketing it so aggressively,” says Teresa Epperson, managing director for AlixPartners.

That fact has not been lost on banks, which are rushing to roll out remote capture. After a slow start, about 75% of banks and 50% of all financial institutions in the United States have now adopted RDC solutions, according to Boston-based Celent LLC.

Not surprisingly, the mobile version of RDC has become a major driver behind the adoption of remote capture among financial institutions. With the online capabilities of smart phones making it easier for consumers to manage their finances on the go and the increasing market share of such phones versus lower-function feature phones, small financial institutions with limited technology budgets realize they can level the playing field with big banks by rolling out a low-cost mobile RDC application.

That’s significant because earlier this year banking heavyweights JPMorgan Chase & Co. and Citigroup Inc. aired national television-commercial blitzes for their respective mobile RDC applications, taking the buzz around the technology from whisper to roar among consumers across a wide range of ages.

Mobile RDC adoption among all consumers is still low: less than 6% in the second quarter, but that’s still more than double the level as recently as 2011’s fourth quarter.

While almost 70% of mobile RDC users are ages 18 to 44, according to AlixPartners, the remaining 30% are older than 44, which shows the broad consumer appeal of the technology. What’s even more encouraging for backers is that adoption of mobile RDC outside the core younger user demographic is expected to grow, especially among consumers comfortable using smart phones, adds Epperson.

Further slicing of mobile-RDC user demographics shows that mobile-banking users are adopting the technology at a rapid pace. During the second quarter of 2012, AlixPartners found 27.4% of mobile-banking users surveyed use mobile RDC, compared to 11.6% in the fourth quarter.

“Consumers like the convenience that mobile RDC offers and it is proving to be an effective technology for migrating consumers away from branch deposits and other channels that handle paper checks,” says Epperson.

Indeed, AlixPartners’ research shows that customers reduce branch visits and usage of banks’ automated phone systems by 40% and 58%, respectively, after they begin interacting frequently with their bank via mobile devices. Usage of such services declines again after mobile-banking users begin using mobile RDC, with ATM use and even online banking plunging.

Adoption Hurdle

The pioneering USAA Federal Savings Bank based in San Antonio, Texas, put remote capture and later mobile RDC on the map of new bank services six years ago. Other major financial institutions now offering mobile RDC include Charles Schwab Bank, PNC Bank, State Farm Bank, and Wells Fargo, as well as dozens of credit unions and community banks.

Wells Fargo, which launched its RDC app in Arizona and Washington in May, added Connecticut, Kansas, Nebraska, New York, and Northern California to its roster of states where the technology is available.

Processors such as Fiserv Inc., meanwhile, are eyeing thousands of their financial-institution clients as prospective providers of mobile RDC to consumers.

Although consumer adoption of RDC is growing, a pitched legal battle between USAA and San Diego-based Mitek Systems Inc., the leading vendor of mobile RDC software (box, page 52), over allegations of patent-infringement and related claims represents a potential dark cloud.

Mitek, which holds key patents for the technology and whose software is used by 408 financial institutions, fired the latest salvo in July through a motion in U.S. District Court in Wilmington, Del., that amends a patent suit Mitek filed in April. The new motion adds allegations of defamation and unfair practices against USAA for alleged failure to produce evidence that Mitek stole trade secrets.

The skirmish broke out in March when USAA sued Mitek in U.S. District Court in San Antonio alleging fraud, breach of contract, and unjust enrichment, as well as theft of trade secrets. USAA alleges Mitek improperly rolled out a mobile-capture product using technology it had developed and disclosed to the software company under confidentiality agreements. USAA also is seeking a declaratory judgment that it has not infringed on any of the five patents Mitek holds related to mobile capture.

USAA cited the litigation as the reason for declining comment about its mobile RDC application for this story. Mitek chief executive James DeBello says the lawsuit arose after discussion with USAA about migrating the bank to the latest version of Mitek’s platform.

“The genesis of the dispute arose out of a business negotiation,” says DeBello. “We enable USAA’s product and the patents in question are ones we have held since 2008.”

Industry experts say that so far, the lawsuits have not hurt RDC adoption.

“There is no evidence that is the case,” says Bob Meara, a senior analyst for Celent. “The bigger hurdle to greater adoption comes down to whether financial institutions will loosen their risk-management policies regarding who the service gets offered to, and the size of the checks that are allowed to be deposited.”

Expanding Reach

Indeed, it is not uncommon for banks and credit unions initially to place strict low-dollar limits on checks deposited through RDC, such as a maximum of a few hundred dollars or even $100, to protect against fraud. Nor is it uncommon for financial institutions to set minimum-balance requirements for customers using the service and to offer it only to long-standing customers.

While the restrictions represent sound risk-control practices, strict limits on the amount of the check deposited usually prevent RDC users from depositing their paychecks.

“While the risk-management guidelines vary by bank, they do limit the use of RDC as a customer-acquisition tool,” says Meara. “Some banks are loosening their risk-management guidelines, and it will be interesting to see whether their success in attracting and retaining customers will prompt others to follow.”

One bank having great success with allowing higher limits on mobile deposits is Charles Schwab Bank. The brokerage firm’s banking arm offers mobile RDC to investors as part of its checking-account services. Customers can deposit checks totaling up $10,000 per day using mobile RDC. In addition, they can write checks, make free ATM withdrawals, pay bills online, and make purchases using their ATM cards.

Since the launch of the mobile RDC application in May 2011, 59% of all check deposits to Schwab Bank are made using mobile RDC.

“We launched the service as a convenience for our customers. Previously, they relied primarily on the mail to deposit a check,” says Diane Russell, senior vice president, platform and product management, for parent company Charles Schwab Corp. “We definitely feel this can help us attract new customers.”

One of the benefits of adopting mobile RDC for Schwab is the ability to compensate for the company’s lack of a branch network where customers can readily make deposits. Rather, Schwab’s retail presence is its brokerage offices.

“Schwab is a national financial-services brand with a relatively small footprint compared to some bank-branch networks. Offering mobile RDC greatly expands its reach to consumers across the entire country,” says AlixPartners’ Epperson.

Testing mobile RDC’s effectiveness for attracting customers in areas where a bank has few or no branches is part of San Francisco-based Wells Fargo & Co.’s strategy.

“We wanted to test adoption of the technology in a set of diverse regions, such as rural and urban areas, areas with high and low technology adoption rates, as well as areas where we have a large footprint and a small footprint,” says Armin Ajami, vice president of mobile product management for Wells Fargo.

While Ajami will say only that adoption of the technology has been strong, he adds that mobile RDC is available to Wells’s 8.3 million active mobile-banking users. Even more encouraging than current adoption rates, he says, is that in regions where the technology is not available, customer anticipation and excitement for the product is strong.

“RDC has become a very popular feature request among our customers,” says Ajami.

‘Consistent, Steady Growth’

While financial institutions offering RDC are promoting the service through traditional channels, such as television commercials and direct-marketing materials, one marketing channel where they are finding a great deal of unexpected traction is social media.

“We are seeing people recommending the service through Twitter and social-media channels,” says Schwab’s Russell.

Customer reviews of the various mobile RDC apps available through Apple Inc.’s App Store also are helping spread consumer awareness and adoption of the technology.

“Customer delight is a powerful driver for adoption and we are seeing a lot of good reviews for our app,” says DeBello, who adds that more than $10 billion has been deposited through Mitek’s mobile RDC application since its launch in 2008. In the last six months, deposit volume through banks using Mitek’s application has grown 143%, he adds.

Big banks are not the only financial institutions enjoying success with mobile RDC. Credit unions are finding the technology is an effective way to better serve customers spread throughout the country and serviced by only a handful of their own branches supplemented by branches available through sharing arrangements with other financial institutions.

“About 65% of our clients’ RDC deposits are coming from mobile RDC versus desktop RDC,” says Alan Bernstein, president of Burlington, Mass.-based Vertifi Software LLC. “Credit unions have a broadly dispersed customer base, which makes it tough to service their customers through branches. That’s why we are seeing consistent, steady growth of RDC and mobile RDC among our credit-union clients.”

As a wholly owned subsidiary of Eastern Corporate Federal Credit Union, Vertifi provides payment software and services to credit unions throughout the U.S. More than 100 are using Vertifi’s mobile RDC application.

‘A Powerful Utility’

While RDC appears to be a technology that can attract new customers for financial institutions and boost customer loyalty, in some cases it is being used as a bridge technology to full-fledged electronic deposits and payment.

“We see it as a stop-gap solution until our customers move to digital payments,” says Mike Vickery, senior vice president and chief operating officer for Boise, Idaho-based TruGrocer FCU. “Our strategy is to find technologies and services we can use to transition customers out of the paper-check world.”

With just five branches located in areas densely populated by its members, TruGrocer began offering desktop RDC about 18 months ago. Members scan both sides of their check using a desktop scanner attached to their computer and route the check images for deposit through TruGrocer’s online-banking application. Of the credit union’s 35,000 members, 150 are using its RDC service and about 50 use it up to three times a week, says Vickery.

“We don’t have a lot of members using it, but by offering RDC we show members we can provide them with services to make deposits more conveniently no matter where they live,” Vickery says.

In addition to using RDC for retail banking, solution providers such as Mitek are expanding their use to business-to-business applications.

“We have a major beer distributor that is using the technology to accept checks from its clients,” says DeBello.

Check deposit, however, is just the first step when it comes to making use of RDC. With 46% of U.S. adults owning a smart phone in February 2012, up from 35% in May 2011, according to Pew Research, some financial institutions are looking to expand use of the technology to bill payment and credit card balance transfers.

To pay a bill using RDC, consumers snap a photo of their bill using their smart phone or tablet computer, download the image to their bill-payment application, enter the amount to be paid, and hit the pay button.

“The same concept can be applied to credit card balance transfer offers,” says Gary Brand, director of source capture solutions for Brookfield, Wis.-based Fiserv, which provides RDC primarily to small and mid-sized bank clients. “Now that the technology has proven itself for check deposits, the barriers to other uses are coming down.”

About 70% of Fiserv’s clients have rolled out either desktop or mobile RDC and RDC volume is growing about 20% annually. The company expects to debut a bill-payment remote-capture application by the end of the third quarter.

With RDC a hot ticket for consumers and a way for banks and credit unions to grab market share, remaining barriers to adoption are expected to fall soon as financial institutions can’t afford to let their competitors get the upper hand.

“RDC is becoming a powerful utility and the number of financial institutions using it is expected to rise significantly in the next year,” says Vertifi’s Bernstein. “Those that don’t offer it will be at a disadvantage.”

Mitek Finds New Uses for Mobile Capture

Capturing check images for deposit into bank accounts is not the only use Mitek Systems Inc. has in mind for its remote deposit capture technology. The mobile RDC pioneer is now developing plans to use its technology for funding prepaid cards.

Consumers would capture an image of a check using their mobile phone for deposit into their prepaid card account. Between 60 million and 80 million Americans have limited or no account relationships with financial institutions, according to San Diego-based Mitek.

“A large portion of consumers underserved by banks carry smart phones, which we see as an opportunity to use mobile RDC to service them,” says Mitek chief executive James DeBello. “Interest in this application of the technology is high and we are talking to several financial institutions. We expect some launches later this year.”

As part of its plan to penetrate the prepaid card market, Mitek recently hired Mike Strange, the chief technology officer of the big prepaid card program manager Green Dot Corp., as its CTO. Strange has 20 years experience in payments and prepaid cards, as well as hosted services, and is expected to help diversify Mitek’s product offerings.

Other areas where Mitek is looking to expand the use of its mobile RDC technology include bill payment, credit card balance transfers, and uploading images of driver’s licenses and credit and debit cards to mobile wallets.

To transfer a credit card balance using mobile RDC, consumers receiving a general balance-transfer offer could snap a photo of their current card statement on their smart phone and send it to the card issuer making the offer. The issuer would scan the data fields from the image, such as name, address, and amount owed, calculate a credit score, and within minutes send back an offer specifying the interest rate, transfers fees, and other terms. The consumer would then click an accept or decline button.

“As mobile devices become more ubiquitous, we are finding ways to use mobile RDC to enable them as financial-services kiosks,” says DeBello.

As of June 30, Mitek had 408 financial-institution clients, 93 of which were added during its fiscal 2012 third quarter. Of its clients, 137 are live, including Chase and Citibank, Bank of New York Mellon, PNC, U.S. Bank, and Wells Fargo, which plans to complete its nationwide rollout by year’s end. Mitek recently signed Chicago-based BMO Harris Bank.

Third-quarter revenues totaled $3.2 million, up from $3 million for the same period a year earlier. Of that, $2.5 million came from sales of software and $698,000 from maintenance and professional services. Of the 93 deals completed during the third quarter, four were reorders.