I hate being wrong: A precise look at mRDC adoption in the US

Nobody likes being wrong. I’m no exception.

Sometimes it’s not so much being wrong as much as being inaccurate. Here’s an example of where my best-effort estimates have been a bit off.

Mobile RDC (mRDC) has been a fairly hot topic and a mobile banking capability that has gained rapid and widespread adoption among US banks. But how rapid and how widespread? I’ve taken a stab at answering these and other questions over the past few years. Relying on a combination of financial institution surveys and RFI responses from the leading vendors, Celent has published comprehensive annual reports on the evolving state of remote deposit capture, including mRDC.

Back to the question…

Since empirical methods would be tedious and time consuming, I created estimates of mRDC bank adoption annually based on vendor-reported client base and implementation backlogs. It turns out that two of my last three annual estimates weren’t all that accurate. How do I know?

Last month, FI Navigator and Celent announced a collaboration to publish the industry’s most comprehensive report detailing mobile banking offerings on the more than 6,000 U.S. financial institutions that offer mobile banking and more than 50 vendor providers.

The report, Mobile Banking Quantified – Comprehensive Benchmarks for US Vendors & Institutions, will be available for download in late April 2016. The research leverages FI Navigator’s mobile banking data and analytics module, along with Celent’s industry research methodologies, to provide vendor and institution performance standards from nearly three years of month-to-month historical data.

Look at how my historical annual estimates compare to the more accurate FI Navigator data since mid-2013.

mRDC History

Back in 2013, vendors were implementing as quickly as they could. In aggregate, vendors reported over 700 banks and credit unions were under contract, but not implemented. It turns out that implementations proceeded faster than I thought, as my year-end estimate was 40% low! I did better in 2014, but estimated 9% high in 2015.

I look forward to the extraordinary precision and depth of insight Celent’s relationship with FI Navigator will bring the industry. For more information on the report and additional offerings, please go to http://discover.celent.com/FIN-Mobile.

The Mobile RDC Cost-savings Myth

Mobile RDC (mRDC) is so hot right now. And, for good reason – the capability matters to consumers. In fact, consumers value it rather highly compared to other mobile banking functionality. In a June 2013 Celent survey of US internet active consumers, mRDC was the second most highly valued capability surveyed, with two-thirds of smartphone users ranking the capability “highly valuable” (6 or 7 on a 7-point scale). Among those surveyed, mRDC was more highly valued than person-to-person payments (54%) and the emerging capability to enroll a new bill payee using the phone’s camera (46%) which a handful of banks offer. Mobile Value Despite the obvious wisdom in adopting mRDC, there’s a growing chorus advancing the assertion of prodigious cost savings realized with every mRDC deposit. Some assertions are in the $4.00 per deposit range. The argument is based on estimates of average per-deposit transaction costs of $4.50 or greater for branch deposits and as little as $0.25 for mRDC. Vendors cite these numbers as if the business case were inviolate and cost savings immediate. I think this is hogwash for several reasons. 1. Cost savings through mRDC – or any self-service mechanism for that matter – is only realized when a commensurate operating cost reduction in the branch infrastructure is affected. Easier said than done. Most banks have long since thinned their teller ranks. More substantive cost reductions must come through process redesign, automation, physical redesign and organizational change. These are huge undertakings. Banks are grappling with the unsustainability of their branch networks. mRDC isn’t their silver bullet. It’s simply contributes to the erosion in foot-traffic already taking place. 2. Branch transaction cost estimates, even if precise, are usually fiction. Most banks I’ve interviewed concede their activity based costing models are rudimentary at best. More importantly, branches serve multiple, important functions beyond deposit processing and these are often not reflected in the transaction cost estimates. 3. mRDC cost savings are argued to be a result of displacing teller transactions with low-cost self-service deposits. Great idea, but what about the ATM channel most banks just invested in? How much cannibalization of image ATM deposits are assumed in the calculation? Not much I dare say. To the extent this occurs, it erodes the theoretical cost savings of mRDC. 4. And lastly, the total costs of mRDC are typically understated once licensing, maintenance, support, compliance and training are included. Where does this leave us? mRDC is a great innovation; a real win-win. But, unless your head of retail is willing to commit to $4.00 in cost reductions for every forecasted mRDC deposit (I haven’t met one yet), the cost savings claims may be more theoretical than real. Said another way, migrating transactions to self-service channels remains an important objective. Let’s not overstate the short term cost savings associated with doing so.

Mobile RDC vs. Branch Deposits: Which is More Risky?

The FFIEC Guidance on RDC Risk Management published in early 2009 was a watershed event that ushered in widespread concern over the risks inherent in remote deposit capture. The guidance was promulgated by regulators that had no operational experience with the technology. Banks did what they had to do – devote extraordinary effort to ensure regulatory compliance. Vendors too were busy enhancing the risk management capabilities of their solutions. Now, these capabilities give banks extraordinary abilities to manage check deposit risk. Over the same period, RDC evoved from the business-only product of its genesis to what is quickly becoming a mainstream consumer self-service deposit mechanism. Yet, the majority of U.S. Banks restrict usage because of risk concerns. In all of this, it’s important to realize that the belated FFIEC guidance did not result from egregious losses resulting from RDC abuse over the previous four years. Instead, the guidance was meant to be preventative. There remails little evidence of ongoing operational losses from RDC. In three consecutive annual surveys of RDC deploying financial institutions, nearly 90% reported having suffered no RDC losses. And, losses among the other 12% were not recurring events. Are the widespread risk concerns warranted? Those Darn Duplicates! For those who insist that RDC gathered deposits are inherently risky have Check 21 to blame. After all, it was Check 21 that created the legal footing such that original items wouldn’t be needed for clearing and settlement. Since Check 21 didn’t require BOFD’s to have original items either, RDC was born. And, what’s the inherent risk? Arguably, the only mechanism unique to RDC is loss resulting from duplicate presentment. All other loss scenarios can occur with or without RDC. Let’s assume such things will begin to happen with some regularity. Then what?     Managing Risks: Beyond defensible KYC procedures, what is available to help banks mitigate check deposit risk? Plenty! Most banks (or their item processing service providers) already have enterprise duplicate item detection capability. Those relatively few that don’t need to make an investment. COCC, a Connecticut outsourced processor, announced in June 2011 that it would provide duplicate presentment detection for all its item processing clients at no charge. More third party processors will likely follow. In March 2013, Early Warning Services announced a pilot of an enhanced version of its Deposit Chek Service that includes duplicate item detection among participating financial institutions. A sophisticated deposit review mechanism should also be in every bank’s toolbox. Modern systems are able to provide near real-time views of deposit activity across channels, place limits on deposits and flag unusual activity for speedy review by trained personnel. Many systems also can be set to flag items that have a mismatch between the item’s dollar amount and the depositors stated deposit amount along with routing and transit number validation and optional image based check fraud detection – all prior to posting. Contact your vendor if you need more information. RDC vs. Branch Deposits Invariably, banks reluctant to offer mobile RDC assert that deposits made at bank branches are less risky. Really? Only a small minority of FIs have teller image capture systems, so consider two scenarios: a non teller capture branch deposit compared to RDC using a modern deposit review system. You decide.
Branch Deposit Remote Deposit
Deposit review is conducted manually (if at all) by tellers in a distracted and hurried environment. Deposit review conducted by trained specialists in the back-office.
If item detail is captured at all at the branch, most include check amounts only. Tellers are focused on completing the transaction. Check codelines are captured and verified in real-time. Suspects are flagged immediately for review and possible hold.
Teller visibility is limited to a single deposit. Back-office personnel often have an enterprise wide view of account trends and activity.
Fraud systems don’t see the item until hours later, often not until day-2, depending on when image capture occurs. Optional real-time interface to fraud and positive pay systems. Multiple risk filters examine all items in real-time, flagging unusual activity or suspect items for operator review.
With typical branch deposits, transit items aren’t presented until late in the day. Transit items are presented for clearing and settlement throughout the day, accelerating payment and returns.
Funds availability is a function of policy and Reg CC – without regard to characteristics of individual depositors. Funds availability may be negotiated based on customer risk ratings as part of a unique deposit services agreement.
In Celent’s view, banks still on the mobile RDC sidelines fearing RDC risk are more susceptible to returned item loss through obsolete branch deposit taking workflow. A less risky, lower-cost approach invites image capture at each point of presentment alongside modern, image-based risk management approaches.

USAA Deposit@Mobile User Impressions

USAA Federal Savings Bank was an early-adopter of mobile RDC (mRDC) with its Deposit@Mobile product introduced in 2009, which followed the 2006 introduction of its desktop RDC product, Deposit@Home. This offers user impressions of its newest app version, currently available for the iPad and available for the iPhone and Android shortly. The upgrade offers two significant capabilities: • The option for automatic scanning, much like how most QR code readers operate. • The ability to deposit multiple checks in each deposit. The capabilities were developed in-house. Both are significant in Celent’s opinion and demonstrate USAA’s continued leadership in this space. Like many users, I upgraded USAA’s mobile app without hesitation and without knowing what was new. The next time I logged into the app, the new Deposit@Home capabilities were front and center with a pop-up window merchandizing the “automatic check capture” feature (below). USAA1 Once I navigated to “Deposit Checks” I was greeted with a more detailed explanation of what was new. Both features were clearly explained and I was able to deposit using automatic scanning or using the old workflow. Naturally, I tried the new capability. USAA2 Once Deposit Checks was selected, the scanning began immediately. As shown below, what to do was rather obvious. The image capture occurred within about two seconds once I had the check reasonably outlined by the green band. Rear image capture occurred identically. Once both sides were captured, I could continue with additional items using the same process. I scanned two items. Once image capture was complete, the application took me quickly through each item to indicate the deposit amount as well as the deposit account. The straightforward way to deposit into multiple accounts was rather clever. Although most users won’t likely have the need to deposit multiple checks, small businesses surely would along with the “power user” segment. USAA3a The deposit confirmation (below) was detailed and immediate. It showed with clarity, where the funds were deposited and confirmed availability of each item. USAA4 Overall, I found the app brain-dead easy to operate, and the deposit was successful on the first attempt – more than can be said of many mRDC applications in service. The process was a bit faster than the old approach for single item deposits, and significantly faster for multiple item deposits. The application is refreshingly flexible compared to the rigidity of most available mRDC apps, while not sacrificing usability. In the spirit of full disclosure, I have been a USAA member since serving a tour on-board nuclear submarines (SSBN 658) in the mid 1980’s. Originally an insurance subscriber, I now enjoy a broader range of USAA services.