The Little Guy’s High-Tech Advantage

Jim Daly

Small financial institutions use remote deposit capture to compensate for their lack of branches as they compete with big banks for depositors, but that’s not the only reason they’re deploying the new technology.

Geography matters, but it’s not all that matters regarding 21st Century deposit gathering.

The spread of remote deposit capture has indeed helped credit unions and small banks compensate for their lack of offices. Financial institutions operate more than 98,000 branches in the U.S., according to research firm SNL Financial, but banking’s physical face is heavily dominated by behemoths with hundreds of branches, several of which have more than 1,000. Wells Fargo & Co. and Bank of America Corp. each has more than 6,000 branches, and JPMorgan Chase & Co. has about 5,200.

A few years back, remote capture’s promoters saw their new technology as leveling the playing field for credit unions and small banks that had no chance of matching the physical presence of the expanding national giants.

With remote capture, a consumer logs into his online-banking application using a personal computer or smart phone, selects the deposit feature, scans the front and back of a paper check using a common Twain scanner connected to the PC or takes pictures of it with a smart phone, and uploads the images to the bank. Unless the software calls for a re-do because of bad images, the process generally takes just a minute or two.

Equal Benefits

The technology is largely living up to that early promise of overcoming geographical barriers.

“Our membership is so dispersed … and that’s where we have to be,” says Mike Vickery, senior vice president and chief operating officer of TruGrocer Federal Credit Union, a Boise, Idaho-based institution serving 34,000 members nationwide who work in the supermarket industry. “Geography is a huge thing for us.”

TruGrocer in late December began rolling out a remote deposit capture program using technology from bank processor Fiserv Inc. “Something as timely as remote deposit can let us be a little different than the rest of the crowd,” says Vickery.

Remote capture can be especially helpful for credit unions in retaining members when they move out of an institution’s service area, says Alan Bernstein, president of Vertifi Software LLC, the technology subsidiary of Eastern Corporate Federal Credit Union (EasCorp), Burlington, Mass. EasCorp offers its client credit unions remote deposit capture software under the DeposZip brand name.

“Now that you can do check deposits, there’s virtually no difference between what you can do online and what you can do in a branch, for processing transactions especially,” says Bernstein.

But making up for small or non-existent branch networks isn’t the only advantage small financial institutions are finding in the new technology. Remote capture gives customers more ways of interacting with their small bank or credit union, even if a branch is just down the street.

“It’s about giving choices, we want to give members as many options as we can,” says Craig Roy, senior vice president of support services at Marlborough, Mass.-based Digital Federal Credit Union whose remote capture program runs on Vertifi software.

Some institutions are finding that remote capture for consumers is enabling them to capture new business from entrepreneurs as they launch small businesses. Gary Brand, director of source capture optimization at Brookfield, Wis.-based Fiserv, notes that two Fiserv client credit unions in Louisiana are pursuing such a strategy.

“I’d say they wanted it not just to make up for any branch footprint, [but] for some of their higher net-worth members that have a business on the side,” Brand says.

And, of course, there is the efficiency of automating a process that once involved the handling of a paper document by employees. Remote deposit capture can reduce a bank or credit union’s expenses for processing deposits that once originated at the branch, through the mail, or ATMs, especially envelope deposits.

In fact, some might argue that apart from reducing the big banks’ geographical supremacy, remote capture’s advantages flow more or less equally to all users.

“The benefits don’t vary between financial institutions,” says Jeff Dennes, architect of USAA Federal Savings Bank’s remote capture initiative, the nation’s first big such program and certainly the most widely watched. He moved to Columbus, Ohio-based Huntington Bancshares Inc. in October and is leading an effort to launch consumer remote capture and other digital services at Huntington, a large regional bank with 608 branches in six states.

“The overall customer value is there regardless of the size of the institution,” says Dennes, senior vice president and chief digital officer. Huntington has offered remote capture for businesses for about two years and is working on a scanner-based home application as well as mobile applications for Apple Inc.’s iPhone and smart phones running on Google Inc.’s Android operating system, according to Dennes.

‘Get over It’

Of course, none of remote capture’s benefits, geographic or otherwise, will accrue to a financial institution if it doesn’t offer the service in the first place. While many banks offer it to business customers, the consumer sector is still vastly under-penetrated.

For example, only a “couple of hundred” of Fiserv’s nearly 6,000 eligible financial-institution clients offer consumer capture, according to Brand. Vertifi’s product has about 65 users. And only a handful of banks and credit unions offer remote capture’s mobile variant, notably USAA, JPMorgan Chase & Co., and some small institutions.

Fraud risk is at or near the top of the list of bankers’ reasons for holding out. Remote capture creates the risk of a duplicate entries; for example, a dishonest person depositing the same check with two institutions at nearly the same time and withdrawing funds before the banks detect and stop payment on the suspect items.

Thus, every bank or credit union offering remote capture needs to construct custom risk-control models or deploy those from processors and other vendors. But Digital Credit Union’s Roy gets a little tired of hearing about worries that remote capture’s risk is excessive.

“You’ve got to get over it,” he says, noting that he “can count on two hands” the number of fraud incidents the 350,000-member Digital Credit Union has experienced since it began offering remote capture in March 2008 and added a mobile version last summer. The credit union has adjusted its fraud-control parameters occasionally due to “our risk modeling and individual member needs,” says Roy.

While many financial institutions offer remote capture only to customers they deem low-risk and then put limits on the number and amount of deposits, often over a month’s time, TruGrocer offers its service relatively liberally.

The credit union developed its own decisioning system that checks for proper magnetic ink character recognition (MICR) lines, duplicates, signatures, and other transaction factors as well as the history of the account, including overdrafts, according to Vickery.

So far, so good after less than two months for the service TruGrocer dubs eDeposit. “It’s literally been two [suspect transactions] out of the hundreds that we’ve processed,” says Vickery.

Risk control is one of the key factors credit unions and small banks must address if they want to offer remote capture as they venture outside their safe zones. There are older ways to overcome the challenges of geography, notably deposits by mail, participation in surcharge-free ATM networks and, for credit unions, shared-branching agreements. Under such deals, a credit union’s members can perform a transaction in partners’ offices.

TruGrocer FCU’s members, for example, have access to 4,200 branches even though TruGrocer itself has only five offices—two in the Boise area, Orlando, Fla., Dallas-Fort Worth, and Los Angeles.

But shared branching has its downside. “It is necessary to us … but no, it is not an inexpensive option,” says Digital Credit Union’s Roy.

Remote capture is a way to potentially reduce shared-branching expenses and so-called foreign fees that an institution pays when customers use another institution’s ATM in a surcharge-free network. A deposit through a shared branch costs Digital as much as $3 while one through remote capture costs as little as a dime, according to Roy.

‘A Necessary Pain Killer’

In effect, the issue of geography and remote capture is really an issue of operational efficiency. With the customer the one dealing with the paper, no matter where he or she is, the institution benefits by handling only electronic transactions.

“One thing we want is this service to grow, and not other forms of deposit,” says Vickery. He adds that TruGrocer so far hasn’t done major marketing for the new service, but says that plans call for it to be promoted with the credit union’s other electronic services.

Remote capture is making headway at Digital. About 40,000 members have made at least one remote capture deposit in the three years the institution has offered the service, and in a recent month Digital took in 30,000 deposits remotely totaling $30 million. About 9,000 of those were via mobile channels and totaled $11 million.

While small banks and credit unions typically aren’t thought of as the financial industry’s technological leaders, their size and frequent use of processors’ full suites of services make it relatively easy for them to implement new systems, according to Bob Meara, a senior analyst at Boston-based Celent LLC who follows bank technology. That’s one reason they’re at the forefront of remote capture.

“A nod from the CEO and they’re up and running in a few months,” he says.

Now, remote capture’s frontiers are moving to mobile devices. “This is an effort to augment mobile banking with a very necessary pain killer,” says James B. DeBello, president and chief executive of Mitek Systems Inc., a San Diego-based software firm whose technology powers many of the mobile capture systems in use today. “It reflects a shift and consumers demanding more convenience. Smart phone means access to information at any time.”

Mitek reported in mid-February that Chase, the biggest bank in the mobile remote capture market so far, would use its flagship Mobile Deposit software in the next version of the bank’s QuickDeposit service for use with multiple smart-phone operating systems.

Mitek in January said that 10 banks, including three of the nation’s top ten, had signed agreements to deploy Mobile Deposit. In releasing its first-quarter earnings for fiscal 2011, Mitek said that another 10 banks, credit unions and other financial institutions would integrate the application.

Vertifi’s Bernstein says mobile capture will especially appeal to the younger consumers credit unions are trying to attract, but institutions need to vet the service carefully. “Getting the technology right is more important than just creating a lot of hype,” he says.

Yet if consumers do want to use computers and mobile phones to make deposits, they’re likely to find an increasing number of local banks and credit unions willing to supply such services no matter where they live.

“It just comes down to having a pulse on what your member needs are,” says Roy. “We try to anticipate what’s going on in their lives and try to make it easier for them.”