USAA and UPS Stores: A Lesson in Branch Relevance

USAA and UPS Stores: A Lesson in Branch Relevance
In October 2010, USAA announced its partnership with The UPS Store to act as an in-person deposit gathering channel for the bank – something USAA has done without for years and still managed to enjoy a deposit growth rate of roughly three times the industry average. Last week, USAA announced its Easy Deposit service is now available at 1,700 The UPS Store locations. From its start in 1983, the objective of USAA Federal Savings Bank was to leverage the company’s strong brand equity and high customer satisfaction among its insurance, credit, and brokerage customers to build a strong banking franchise. USAA struggled with attracting member checking and savings deposits— for good reason. Without a branch network, USAA relied on mail-in deposits. To facilitate, it has provided free self-addressed stamped envelopes for members. But this approach, with its delayed funds availability and high internal processing cost, was not a competitive proposition. USAA more recently pioneered desktop and mobile RDC solutions for its banking customers as an alternative for mail-in deposits which used to be its mainstay. The solutions have been a huge success. So why this? The obvious answer is that despite the overwhelming success of Deposit@Home and Deposit@Mobile, a significant number of USAA members aren’t opting in. Far from an indictment against remote deposit capture, USAA’s latest move – along with its opening additional full-service retail branch locations in Killeen, TX and Washington, D.C. speaks volumes about the enduring relevance of branch banking in our increasingly multichannel world. Moreover:
  • This move gives credence to the “branch is not dead” argument. Financial institutions serve a diverse customer base with differing needs and preferences. As much of a success as Deposit@Home and Deposit@Mobile have been, they have not rendered branch banking obsolete – even for USAA. Traditional retail banks should expect significant deposit transaction migration to self-service channels with desktop and mobile RDC, but not overwhelmingly so. There will remain – for at least a number of years – important customer segments for which RDC solutions won’t appeal.
  • On the other hand, retail branches are disturbingly devoted to deposit gathering. USAA’s move will give it quick access to 1,700 locations near its target geographic markets at a small fraction of the cost of traditional branches. Traditional banks that think they don’t compete with USAA need to think again.
  • As transactions continue their migration to self-service channels, there will be increasing demands placed upon retail FIs to re-think their branch models. The status quo is no longer sustainable. As transaction volumes leave the branch, so will foot traffic. FIs will have to create new reasons for customers to visit the branch and obtain proportionally higher cross sell ratios just to maintain. At the same time, declining transaction volumes will produce increasing unit costs on the remaining transactions. It’s not a pretty picture.
  • USAA obviously isn’t selling in The UPS Stores. Any cross-selling will be for UPS Store products and services, not those of USAA. This isn’t a problem for USAA because it has become adept at selling its wares without face-to-face interaction. Traditional retail banks need to learn this art! For most U.S. financial institutions precious little sales effort exists apart from the branch network. This too is unsustainable.
Again, welcome to the new normal! What do you think?

U.S. Bank Deposit Point II: Will Pay-for-Deposit Last?

U.S. Bank Deposit Point II: Will Pay-for-Deposit Last?
In March, U.S. Bank launched two consumer/small business products after extensive pilot testing: • Deposit Point, a desktop RDC product bundled with its online banking solution. • Deposit Point Mobile, Initially available to U.S. Bank Mobile Wallet users who have an iPhone. Following up on my previous post, Celent finds two aspects of the product launch noteworthy. 1. U.S. Bank is making both desktop and mobile RDC available to its consumer and small business retail banking clients 2. It is charging $.50 per deposit for the service. The last post addresses the former. This post address U.S. Bank’s move to charge for the service in an environment where most banks charge monthly fees for commercial RDC products while offering consumer RDC free of charge. Some have proclaimed U.S. Bank’s price point for Deposit Point a non-starter. Celent offers two responses: • We don’t think so, and • We hope not We don’t think so: To call the idea of charging consumers and small businesses $.50 per deposit a non-starter denies RDC’s concept strength. RDC saves time and money – and it’s “green”. All three benefits are compelling to many consumers and small businesses. It’s not clear how much testing U.S. Bank did prior to establishing a price point for its Deposit Point. Obviously, some customers will pass on the idea once the price point is known. Fine! Alternatives are available for those customers preferring to drive to a branch or ATM and stand in line. More importantly, launching Deposit Point with an associated fee establishes that the convenience of RDC indeed has value. The bank is free to bundle Deposit Point with other services or to discount the product in the future. We expect it to do so. In the meantime, the bank should be able to enjoy some early-mover benefits. To do otherwise would be leaving money on the table. The fee structures accompanying PayPal, Popmoney and ZashPay suggest there may be some sustainability to a pay-for-deposit RDC model. We hope not: Will the pay-for-deposit model survive? One thing is certain, a raft of large banks are gearing up to launch mobile and consumer desktop RDC products of their own in short order. But for the next year or two, these financial institutions will be in the minority. And most that do launch consumer RDC products will not make them available to the mass market because of the perceived risk in doing so. Most consumers won’t have access to RDC. This opens up a sizeable market for third party, bank-neutral solutions – as long as there is revenue to be had in return for the risk taking. The next six months will be telling.

U.S. Bank Deposit Point: Doing Right Things Right

U.S. Bank Deposit Point: Doing Right Things Right
Earlier in March, U.S. Bank launched two consumer/small business products after extensive pilot testing: • Deposit Point, a desktop RDC product bundled with its online banking solution. • Deposit Point Mobile, Initially available to U.S. Bank Mobile Wallet users who have an iPhone
To be eligible for Deposit Point, one must have had a U.S. Bank checking or savings account for at least 12 months, be enrolled in online banking and have no more than two returned items over the past three months. Eligibility for Deposit Point Mobile similarly required longevity with the bank and enrollment in U.S. Bank Mobil Wallet. Ostensibly, U.S. Bank’s strategy with these products is to improve convenience among existing customers, not to use the channel for new customer acquisition (at least not initially). While this may appear to be a concession, there may be clear wisdom here as well. Here’s why. To mitigate risk, financial institutions typically establish suitability or eligibility criteria for RDC users and place sensible deposit limits on those users. Tighter eligibility requirements allow less restrictive deposit limits. U.S. Bank set deposit limits as follows: • Consumers: $2,500 per day, $5,000 in a five-day period • Small businesses: $5,000 per day, $15,000 in a five-day period These are generous deposit limits compared to the Chase Quick Deposit mobile RDC option, for ecample. If a bank doesn’t have the flexibility to enforce multiple deposit limits based on user segments, we think U.S. Bank’s approach will be much more satisfying to customers wanting to deposit pay checks or other non-trivial items. Celent finds two other aspects of the product launch noteworthy. • U.S. Bank is making both desktop and mobile RDC available to its consumer and small business retail banking clients • It is charging $.50 per deposit for the service This post addresses the former. A subsequent post will address the latter. Last fall, Celent sought to understand if consumer desktop and mobile RDC would co-exist, or if mobile RDC might leapfrog its desktop cousin. If research results are to be believed, U.S. financial institutions intend to launch a goodly number of both product variations.
Source: Celent FI survey, September 2010, n=246. Q: In thinking about the industry's adoption of consumer capture, which outcome below do you think is most likely?

Source: Celent FI survey, September 2010, n=246. Q: In thinking about the industry's adoption of consumer capture, which outcome below do you think is most likely?

Yet, in discussions with financial institutions, many wonder why they would want to launch both desktop and mobile variations. After all, if a customer could just use their smart phone, why would they want to set up a desktop scanner for the same purpose? Do these same banks have both internet and mobile banking platforms? Of course. Mobile banking hasn’t and likely won’t render internet banking channel obsolete. So why would about 25% of financial institutions think mobile RDC will render desktop RDC obsolete in the short-term? Celent’s research supports U.S. Bank’s wisdom in making both product variations available. Mobile banking is hot right now, but the addressable market of internet banking users is much larger and will likely remain so for some time. Although very early, U.S. Bank is seeing higher adoption rates with its desktop solution. See, what did I tell you? We need to remember that financial institutions serve a diverse customer base. Offering customers the ability to interact with their financial institution when and how they prefer is going to be a winning strategy. The same applies for remote deposit capture. Kudos to U.S. Bank for making both options readily available. Next week, we’ll address the fee issue.

Innovation in Unlikely Places

Innovation in Unlikely Places
BAI Payments Connect event this past week in Phoenix wasn’t exactly a hotbed of innovation in my opinion. Not surprising perhaps, when so much collective industry activity needs to be spent on compliance these days. In fact, one mid-tier bank asserted publically that 30% of its IT budget in 2010 addresses compliance directives. A sad reality in my opinion. But, innovation wasn’t absent at the event. It did show up in some unlikely places, however. Here are two innovations I observed. A common element in both is that they have to do with paper. When all the action is on the imaging and electronic side of payments, these two innovations deserve recognition for the value they provide to those having to deal with residual paper. Block & Company: helping RDC clients protect checks post-imaging. Most everyone is familiar with the FFIEC Guidance on RDC Risk Management. This too little too late guidance has spawned extraordinary industry-wide effort with the objective of reducing RDC risk mechanisms. Page 4 of the document addresses operational risk at customer locations. In particular, financial institutions are challenged to ensure customers properly safeguard original items once scanned and deposited. This is a tough one, because customers will do what they do, with little ability for financial institutions to impose procedural changes upon them. Block & Company invented a device to address the risk associated with multiple presentment and inadvertent disclosure of sensitive information from original items. The RDCheckTrack by NKL®, Paper Check Storage Device provides a secure way for RDC customers to temporarily store deposited items prior to destruction. The device provides storage capacity of about 2,400 checks held between three internal bins. A laptop-style cable lock keeps the unit in place, and an outside timer tracks the client prescribed time period for holding checks and prompts when destroying is required. Not exactly game changing, but a very practical benefit to financial institutions and customers alike. In my opinion, these ought to be offered to all new and existing commercial RDC clients.
A Solution to Original Item Storage for Commercial RDC

A Solution to Original Item Storage for Commercial RDC

Everyone hates IRDs, but Liberty Processing & Services Innovation, LLC (LPSI) is focused on taking away as much of the pain and cost of IRD production and clearing as possible. Earlier this week, LPSI announced the launch of services to more efficiently print and distribute substitute checks for financial institutions. LPSI has joined forces with United Parcel Service (UPS) and a top tier bank to bring aggregator services, convenient settlement, advanced logistics and timely delivery to financial institutions nationwide. LPSI offers same day, and deferred services to endpoints in all states for both forward presentment, as well as returned items. The innovation here is a logistical one – teaming up with a transportation logistics pro – UPS, with operations in Louisville, Kentucky, a stone’s throw away from the UPS air transportation hub. Celent understands that LPSI pricing and lead times will challenge the Federal Reserves FedImage Services. Perhaps with its logistics superiority, LPSI is well positioned to be the last man standing as IRD volumes continue their decline.

Mobile RDC: Easier Said than Done

Mobile RDC: Easier Said than Done
Making occasional check deposits using one’s cell phone camera is a great idea. Mobile RDC is a strong concept for its convenience, cost effectiveness and ubiquity. It’s a win-win for financial institutions and customers alike. Yet two things are causing FIs to move with extreme caution: risk and compliance. A recent Chase announcement suggests that mobile RDC may be easier said than done. Last week, Chase announced a relationship with Mitek Systems to provide mobile RDC capabilities to the bank across a variety of smart phone platforms. But, Chase had previously launched its service behind significant national television advertising buys. It’s a fun ad. The post-launch move to Mitek invites questions. Why? Why now? Chase first made its Quick Deposit service available to customers in July through an update to its app for Apple Inc.’s iPhone mobile banking platform. In November it rolled out the service to customers who use Google Inc. Android smart phones. Neither initiative utilized Mitek’s Image Prove technology. With a significant base of registered users, why change platforms now? Our guess is that the image analytics engine supporting the application wasn’t up to the task. This likely caused usability problems such as those experienced by Celent’s own Bart Narter (see Bart’s blog here). There’s nothing worse than getting all fired up from a good TV ad only to be disappointed with the app later on. OK, there are worse things. Producing consistently high quality images with low exception rates under conditions of widely variable lighting, contrast, camera angle, signal strength and steadiness of hand is not trivial. In Celent’s opinion, the key to achieving good performance with mobile RDC lies with skillful use of imaging technology. Maybe that’s why nearly all vendors of mobile RDC solutions employ Mitek’s stuff (with its resulting impact on product cost). Mitek’s Mobile Deposit addresses the high variability of mobile image capture with a real time sever-side image analytics approach it calls IMage- PROVE. The basic idea is to use image analytics to automatically and satisfactorily mitigate unwanted image variability so as to render the originally captured (e.g., “raw” image) usable for automated processing. In Celent’s view, this process (regardless of solution used) is key to Mobile RDC’s viability. Without it, both user experience and operational results would likely be unsatisfactory. The figure below shows the processing of such “raw” mobile images. Processing Raw Check Images In August 2010, Mitek was granted a patent on its use of IMage PROVE technology in a mobile RDC environment. The patent covers the process of capturing a color image of a financial document using a mobile device and then transmitting the image to a server where the image can be processed further. The patent also covers the steps of detecting the financial document in the image, converting the image and correcting the orientation and size of the image. Some vendors and banks have tried to make due with image analytics systems designed for traditional check scanning approaches. Doing so might save some money, but will likely result in an eroded user experience and dissatisfied users. Compared to the cost of branch deposits, mobile RDC is a bargain. Our advice to banks: don’t be cheap, you might regret it later on. Our view: this move is good for Chase and ultimately good for the industry. A number of other large banks are close to launch. We hope all goes well.

The Latest Big Bank Mobile RDC Launch: Banco Sabadell

The Latest Big Bank Mobile RDC Launch: Banco Sabadell
The latest big bank mobile RDC launch is by a bank holding company headquartered in Barcelona. Go figure! Banco Sabadell is the first Spanish bank to launch a mobile RDC service. Press release: http://press.bancsabadell.com/2011/01/banco-sabadell-presents-its-mobile-banking-innovations-for-2011.html The product’s menu: http://www.flickr.com/photos/bancosabadell/5367041115/ Banco Sabadell’s application has a familiar look and feel, closely resembling most mobile RDC applications launched by U.S. banks. What is surprising is that Banco Sabadell would beat so many U.S. banks to the mobile RDC punch – particularly considering the state of check (or cheque) payments in Spain. Cheques represent a small minority of payments in Spain (less than 2% of payment volume in the National Electronic Clearing System – SNCE, and about 4% of value in 2009) yet remain a part of everyday life SNCE Payments Volume Personal cheques are rarely used in Spain, and are not accepted as a form of payment by most establishments. Yet, banks are of course, compelled to honor checks and process them expeditiously. As check volumes dwindle, the cost to process each item grows substantially. Checks have been truncated in Spain since 1990, through the Spanish retail payment system. Initially cheques over a certain value threshold still needed to be delivered to the drawee FI, but in 2003 the transmission of images began to replace the delivery of the physical cheques exceeding the threshold. By 2006, virtually all cheques cleared electronically. Remote deposit capture therefore presents a viable value proposition to both banks and their customers in Spain.

Implications of the 2010 Federal Reserve Payments Study

Implications of the 2010 Federal Reserve Payments Study
The Federal Reserve published a summary of its 2010 Federal Reserve Payments Study this week. Predictably, the study evidenced double digit growth in debit and prepaid cards from 2006 through 2009, alongside essentially flat credit card usage. The study evidenced a continued decline in check writing of -6.5% CAGR, from 33.1 billion in 2006 to 27.5 billion in 2009. The anatomy of check usage was well reported in the study as well, with an analysis of check writing by counterparty and purpose based on a random sampling of checks processed by a small number of large banks. The results show double digit declines in C2B check writing (-11%), modest declines in B2B (-2%) and B2C (-3%) check usage and a growth in C2C check writing. In other words, businesses aren’t kicking the check habit – much.
Anatomy of Declining Check Usage

Anatomy of Declining Check Usage

The implications of these findings are many. One deserves special mention in my opinion. Less check writing alongside growing use of self-service channels is eroding branch foot traffic like never before. It’s no shocker that check volumes in the United States have been declining for most of the last decade. What appears less well understood is the long-term effect of this decline and what financial institutions should do in response. In addition to steady declines in check writing is a steady growth in self-service deposit activity taking the form of image ATM and RDC usage. The aggregate impact of these trends points to dramatic erosion in branch transactional activity – and with it foot traffic. The chart below shows a conservative Celent estimate of resulting average effect on branch foot traffic. teller-transactions This is a polarizing picture. For financial institutions with highly automated branch networks and well-trained personnel, these trends can point to significant cost reductions without compromising customer service. For other financial institutions, branch channel cost reductions will prove comparatively elusive. All financial institutions should embrace these trends as a mandate to quickly develop multichannel sales and service infrastructures to accommodate the quickly changing landscape.

USAA Easy Deposit Press Coverage Misses the Point

USAA Easy Deposit Press Coverage Misses the Point
This fall, USAA began offering free check deposit services at nearly 30 United Parcel Service Inc. stores in San Antonio, where USAA is headquartered, and San Diego. USAA, whose main office is its only branch, plans to expand the service to more than 1,700 UPS sites nationwide by spring. Some of the press coverage of this initiative would have readers concluding USAA’s move into physical branch like deposit mechanisms is somehow a concession that its Deposit@Home and Deposit@Mobile services somehow fell short of the mark. Not so. Not even a little. The notion that not all customers enthusiastically embrace self-service transaction methods isn’t exactly a shocker. Most FIs (USAA included) serve a diverse customer base. Instead, USAA’s growth over the past several years absent a branch network is a huge success story and directly challenges the status quo among the significant majority of US banks. USAA grew its deposits at roughly three times the industry average since 2001 – and nearly doubled its growth since the launch of electronic check deposit gathering channels. Far from an indictment of Deposit@Mobile, USAA’s Easy Deposit initiative gives testimony to today’s multichannel imperative. But, instead of spending millions for traditional brick and mortar branches, USAA created an in-person deposit gathering channel on the cheap. By doing so, it has turned the historic competitive advantage of traditional retail banks (their collective branch networks) into a competitive cost disadvantage. Sure, there is a segment of consumers that prefer to transact with their FI in person – a shrinking segment. Soon, USAA will be competitive among that segment as well. Whoa – wait a minute – what about cross selling? The main point of USAA’s growing market share as well as its Easy Deposit initiative is this: the idea that bank branches are necessary for effective selling is simply a myth. There won’t be much selling of USAA services in the UPS stores. Not to worry, USAA has learned how to sell effectively with its other channels. In this capability, USAA has a significant competitive advantage. Today’s industry wide challenge is learn how to sell and service customers effectively across all channels. This must be done with efficiency ratios and net promoter scores that are both compelling by historic standards. USAA continues to do so as its growth exemplifies.

BAI Retail Delivery 2010 Roundup (Part 2)

BAI Retail Delivery 2010 Roundup (Part 2)
While most of the banking world (including key members of the Celent team) has seemingly moved on to Amsterdam for SIBOS, I thought I’d append a few more thoughts to Jacob’s post about last week’s BAI Retail Delivery conference. Both Jacob & I were faced with variations of the “whither on-line vs. mobile?” question numerous times during the conference. This reflects the fact that as Jacob put it in his post, “mobile is a raging topic” and that some people are beginning to think that mobile could replace the on-line channel. However, I’m afraid that aren’t that simple. As many of this blog’s readers will certainly agree, our view is that both on-line and mobile will require ongoing attention in the banking space. And to make matters a wee bit more complicated, it’s now time to start thinking about tablets. The need for continued focus on both on-line and mobile banking products stems from their form factor strengths & weaknesses when applied to differing intersections of use cases and demographics. For example, mobile banking is great for on-the-run balance inquiries, but one would struggle with its small screen and keyboard for PFM. On-line banking is fantastic for investment research & trading, but its tethered, non-push technology makes it useless for real-time alerting. Younger customers with a narrower set of banking needs expect mobile banking, but older customers using relatively complicated banking products are going to demand on-line banking. Whereas tablets can bridge form factor strengths (i.e., they offer the best of both on-line and mobile interfaces), the roughly $500 price point makes it a luxury for most customers. Put another way, on-line, mobile and tablet banking developers will be employed for years to come. I did not attend any of this year’s BAI sessions, but mobile-related observations based on countless bank/vendor meetings included the following:
  • Mobile RDC. This is quickly becoming the “must have” mobile feature that vendors mentioned they are increasingly supporting. Although customer adoption is a big unknown (USAA’s numbers are meaningless to most banks), banks are adding mRDC to their mobile banking checklist when evaluating vendors.
  • P2P. Unlike last year when mobile P2P was the BAI “belle of the ball”, this year’s conference seemed devoid of P2P discussion. Sure, a number of vendors are ratcheting up their support of it, but the breathless descriptions about the potential for this feature have subdued considerably.
  • Marketing & cross-sell. More than ever before at BAI, there was an increased focus on tapping into the mobile channel’s marketing possibilities — this included video chats with bank representatives, the inevitable leveraging of contextual marketing (based on time & place) by couponing players such as BillShrink and Cardlytics, and the use of bold tablet banner ads. Another interesting tablet use case was the selling and pre-processing of deposit and loan products to customers waiting in bank branch lines.
These are just a few BAI-related mobile observations — I’d very much welcome any other observations from our readers.

USAA Gets into Branch Banking (sort of…)

USAA Gets into Branch Banking (sort of…)
This week, USAA announced its partnership with The UPS Store to act as an in-person deposit gathering channel for the bank – something USAA has done without for years and has managed to enjoy a deposit growth rate of roughly three times the industry average recently. USAA expects the free check-deposit service, USAA Easy Deposit, will be offered in 1,700 The UPS Store locations by the spring. USAA is a reciprocally owned and diversified financial services company serving active duty, retired, and former military personnel and their families. It offers a wide variety of services including consumer banking. While it has always served the military, USAA has broadened its eligible membership over the years as its financial strength and operational capacity would support. In 2005, all enlisted personnel became eligible for USAA membership, and in 2009, USAA opened its membership to another 3 million former service members and their families. From its start in 1983, the objective of USAA Federal Savings Bank was to leverage the company’s strong brand equity and high customer satisfaction among its insurance, credit, and brokerage customers to build a strong banking franchise. USAA struggled with attracting member checking and savings deposits— for good reason. Without a branch network, USAA relied on mail-in deposits. To facilitate, it provided free self-addressed stamped envelopes for members. But this approach, with its delayed funds availability and high internal processing cost, was not a competitive proposition. USAA more recently pioneered desktop and mobile RDC solutions for its banking customers as an alternative for mail-in deposits which used to be its mainstay. The solutions have been a huge success. So why this? For starters, Easy Deposit isn’t exactly a new idea for USAA. In 2006, USAA partnered with Financial Technologies, Inc. (FTI) a subsidiary of now defunct Net Bank to operate a network of local deposit taking locations branded as Quick Post service. It provided free overnight depository services at any UPS Store location nationwide to the delight of members. UPS shipped the check deposits nightly to a capture site in Louisville, KY, where FTI performed deposit review and item correction, sending data and images to USAA. Quick Post was discontinued, however, in late 2006 as part of a Net Bank reorganization. USAA needed a replacement – so it turned to something even better; Deposit@Home and later Deposit@Mobile. So after tasting the delights of RDC, why would USAA be turning back the clock with Easy Deposit, even with its operational improvements over Quick Post? I have three thoughts. • On one hand, this move gives credence to the “branch is not dead” argument. Financial institutions serve a diverse customer base with differing needs and preferences. As much of a success as Deposit@Home and Deposit@Mobile have been, they have not rendered branch banking obsolete – even for USAA. Traditional retail banks should expect significant deposit transaction migration to self-service channels with desktop and mobile RDC, but not overwhelmingly so. There will remain – for at least a number of years – important customer segments for which RDC solutions won’t appeal. • On the other hand, this move underscores the extent to which branches have become primarily a deposit gathering channel. Of course they are. Branch level deposits are a staple branch scorecard metric. The problem is, FIs depend on considerable sales success to justify the prodigious investment needed to build and maintain a competitive branch presence. USAA’s move will give it quick access to 1,700 locations near its target geographic markets at a small fraction of the cost of traditional branches. Traditional banks that think they don’t compete with USAA need to think again. • Finally, as transactions continue their migration to self-service channels, there will be increasing demands placed upon retail FIs to re-think their branch models. The status quo is no longer sustainable. As transaction volumes leave the branch, so will foot traffic. FIs will have to create new reasons for customers to visit the branch and obtain proportionally higher cross sell ratios just to maintain. At the same time, declining transaction volumes will produce increasing unit costs on the remaining transactions. It’s not a pretty picture. Welcome to the new normal.