What do RDC and RCC Have in Common?

What do RDC and RCC Have in Common?
What do remote deposit capture (RDC) and remote cash capture (RCC) have in common? Among other things, both RDC and RCC, treasury management products in most banks, can contribute much needed retail bank cost reductions. But, remarkably few banks are enjoying the benefits. Is it because the right hand doesn’t know what the left hand is doing? In conducting research for an upcoming report, I interviewed a number of treasury management product managers responsible for remote cash capture initiatives. RCC describes the deployment of secure, validating currency accepting and recycling equipment (a.k.a. smart safes) at merchant locations coupled with information reporting and provisional credit mechanisms. Merchants deposit excess cash into smart safes and receive daily, provisional credit on the deposits. There are a bevy of merchant benefits by so doing. One benefit is the reduction in deposit activity. An individual store might go from daily, manual deposits to once per week under an RCC scenario. Most merchant locations make cash/coin deposits to a local branch. RCC invites the use of armored couriers instead. Thus, RCC can siphon considerable cash volume away from participating bank branches (where cash is handled manually for the most part) into cash vaults (where cash handling is highly automated). From a cash logistics perspective, RCC represents the best of both worlds. Cash is processed where it can be done most efficiently, branch personnel can focus on sales and service activity, and the bank receives fee income to offset its loss of working capital. Yet, only one bank of the nine interviewed recognized the retail bank benefits of RCC in developing its business case. Only one articulated RCC’s place in its overall currency management plan. The others viewed RCC through the narrow lens of its product P/(L) and nothing more. I’m not here to criticize these product managers. They’re doing exactly what they are paid to do. My criticism lies with senior management for failing to leverage synergies between the retail and wholesale lines of business. This is not an isolated occurrance. RDC offers a slightly less odious example. In a Celent survey among US financial institutions in September, 2011, the vast majority indicated that they offered RDC to treasury management and small business customers alike. So far, so good. Small businesses aren’t known to be great wholesale lockbox clients. Instead, most deposit at the local branch, and many do so simply to make check deposits. Perfect RDC candidates in other words, who self-select by their frequent visits to the local branch. Seldom are product prospects so accommodating. One would think most banks train tellers to recommend RDC to these clients. I wish it were so. Among those who utilize branch staff as part of RDC sales efforts, nearly half indicated that branch originated sales leads accounted for less than 25% of all RDC leads. And, like RCC, rare is the bank that connects the dots between small business RDC usage and the opportunity to reduce branch infrastructure costs. branch-share-of-rdc-leads I don’t suggest that the primary strategic intent in either RDC or RCC lies in cost reduction. Far from it. These examples simply serve to highlight lost opportunity through myopia. We all do it to varying degrees. As small as Celent is, we fail to leverage synergies among our banking, insurance and securities practice areas. We need to train ourselves to look for these opportunities by regularly stepping back to gather a larger view of our businesses and operating practices. Along with occasionally seeking the help of a third party who might provide a fresh perspective. Celent is rather good at that. We just need to learn how to do it for ourselves.

Mobile RDC and the Quest for Retail Banking Revenue

Mobile RDC and the Quest for Retail Banking Revenue
We’ve all witnessed how difficult it has become for retail banking to dig itself out of its retrospectively misplaced devotion to free checking. The recent brouhaha over several banks’ attempt to recover lost debit card interchange through monthly fees gives testimony to just how challenging this new climate has become. After a decade of training consumers to expect retail banking services for free, banks are challenged with positioning products and services in a way that provides value to customers while effectively monetizing the bank’s capabilities. Said another way, banks did it to themselves – and they’re doing it again. In this context, I’m a bit perplexed at how quick banks are to leave money on the table. One particularly egregious example in my opinion is mobile RDC. Here we have a product that: • Resonates with consumers and businesses alike for its convenience and usefulness • Is offered by a small fraction of U.S. financial institutions at present, providing early-mover advantage in a largely undifferentiated mobile banking environment. • Is easily bundled with other services that appeal to highly attractive market segments. So early-mover banks must be enjoying revenue from mobile RDC, right? Of the one hundred plus financial institutions currently offering mobile RDC, I only know of several that are charging for consumer usage. This is in sharp contrast with P2P payments, for example, where the significant majority of institutions using solutions (ZashPay et. al.) for mobile P2P payments charge for the service. Some institutions may be proceeding under the belief that consumers simply wouldn’t be willing to pay a small fee in order to avoid a trip to the local (or non-local) branch. Heck, one can barely start an automobile for less than a buck with today’s fuel prices. But, Fiserv research conducted in 2010 suggests that a percentage of consumers would indeed willingly pay at least two bits per deposited check. Admittedly, this does not constitute a thorough analysis of mobile RDC price elasticity, but it does suggest banks may be missing an opportunity.

fiserv-home-deposit2

Let’s look at two banks that are charging for Mobile RDC; First Tennessee and U.S. Bank. First Tennessee First Tennessee offers a full-featured mobile banking platform supporting Android, Blackberry and iOS equipped phones. First Tennessee Mobile Banking offers account transfers, bill pay (Mobile Bill Pay), ATM locator and Mobile Deposit. First Tennessee also offers SMS Text Banking and Mobile Web Browser with more limited capability. First Tennessee bundles Mobile Deposit into its Premier Checking product at no additional cost and Premier Checking customers are automatically eligible for Mobile Deposit. Premier Checking is free for those maintaining a $5,000 minimum balance. Otherwise it costs $9.00 per month. Brokerage customers are also eligible for Mobile Deposit at no additional cost. For other customers, First Tennessee is disclosing a $.99 per check fee, but is temporarily waiving that fee. Eligibility requirements for non Premier Checking or MAP customers aren’t disclosed on its web site. Instead, only eligible customers will see the Mobile Deposit option on their mobile banking app. Simple enough; if you see it, you can use it. U.S. Bank U.S. Bank Mobile Banking is a full-featured mobile banking app for Android, Blackberry and iOS equipped smart phones and is also available via browser (Mobile Web) with more limited capability. The applications offer bill pay, ATM locator, P2P payments (Pay A Person), transfers, real time alerts and mobile RDC (DepositPoint) on Android and iOS phones. To be eligible for DepositPoint, one must be a U.S. Bank Internet Banking customer with direct ownership in a U.S. Bank Checking or Savings account and have no more than two returned deposited items in the past 3 months. There is a $0.50 fee per deposited check. Both banks are positioning mobile RDC as a value added feature. U.S. Bank charges all users, while First Tennessee overtly bundles its application with premium accounts. Both are valid options that balance risk and reward. Most other banks are simply leaving money on the table.

Wanted: A few Good Fraudsters

Wanted: A few Good Fraudsters
OK, just kidding. But, there is an interesting irony related to RDC that I’d like to highlight. Risk concerns loom large among the majority of U.S. financial institutions that haven’t yet made RDC available to consumers and mobile banking users. Other banks are throttling small business RDC initiatives, in part, because of risk concerns. Clearly, risk isn’t the only reason banks aren’t rushing to radically improve the convenience and operational efficiency of deposit processing, but it may be the primary reason. So is the concern justified? I think so, but I also think it is hugely overstated. Here’s why. In two consecutive surveys of U.S. financial institutions (September 2011, n=218), fully 90% of surveyed institutions have suffered no monetary loss at the hands of RDC. The small minority that did suffer loss mostly had a single incident – after offering RDC for 4 or 5 years in some cases. Could 90% of credit card issuers make such a claim?

90% of US FIs have suffered no losses through RDC

90% of US FIs have suffered no losses through RDC

And, the prevailing loss mechanism is straightforward; duplicate presentment. Financial institutions could be on the receiving end of a duplicate item whether they offer RDC or not. This has prompted most financial institutions to install enterprise wide duplicate detection capability. The most interesting scenario involves a fraudster depositing via RDC at one or more institutions and later depositing via the ATM or teller at a second or subsequent institution. Matters are made worse if there is a meaningful delay between the first and subsequent deposits because many banks only look for duplicate items over a narrow time period. Losses have been so low that banks appear unwilling to invest in additional fraud reduction mechanisms. If actual RDC related losses have been higher, then banks could more easily justify the business case to stem losses. One approach would be to extend duplicate detection across institutions. The Federal Reserve, SVPCO, Viewpointe and Early Warning Services (EWS) among others would be in a position to provide these services. With all the commotion about RDC risk, you’d think there would be several industry-wide solutions available by now. Not so. Last month, Mitek announced an initiative, MitekONE that is said to be available in 2012. MitekONE’s mechanism was developed to improve the ability of banks and partners to detect attempted duplicate deposits of checks, both within banks and across institutions. Mitek will be offering this capability through a strategic relationship with EWS. Here we have an innovative response to a pervasive systemic risk. But, absent a few good fraudsters, I wonder if banks will invest.

Mitek’s on a Roll!

Mitek’s on a Roll!
It wasn’t long ago, detractors of mobile remote deposit capture (RDC) offered three objections: • It won’t work • No one would use it • It’s too risky The first two objections have been thoroughly refuted through the positive experience enjoyed by the relatively few financial institutions thus far willing to challenge the status quo. The third objection is destined to be refuted as more financial institutions implement automated risk management tools increasingly available from a cadre of vendors. But, alas, check volumes are on the decline. Most deployers of mobile and consumer desktop RDC see just 20% to 30% of registered users depositing in any given month. Thus, consumer RDC’s value isn’t in its ability to process a prodigious volume of checks (they can’t) but in offering extraordinary convenience and value to consumers. But, what’s the next big thing? How is Mitek going to continue to add value beyond mobile RDC. Mitek offered a glimpse of a broader and more interesting strategy of leveraging its ability to accurately and reliably extract information off captured images. Today, Mitek announced a new product called Mitek Mobile Balance Transfer. This application would allow a bank’s customers to use their smartphones to take pictures of competing banks’ credit card offers. Users could then submit the images of these offers as a data file to their current bank, which may offer the customer a lower rate or better credit card features in an effort to have the customer keep their credit card with them (or, if the credit card is held with a competing bank, transfer the credit card balance). Unlike mobile RDC, the image isn’t used to produce a negotiable payment instrument; it is used to transform what has historically been a tedious and time consuming process for consumers and an expensive promotional vehicle for financial institutions. Celent expects Mobile Balance Transfer to be but one of a number of intensely useful applications that enable financial institutions to delight their mobile customer base.

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.

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.

BankServ to Acquire NetDeposit

BankServ to Acquire NetDeposit
Today, BankServ and NetDeposit announced the signing of a definitive agreement wherein BankServ will acquire substantially all of the assets of RDC pioneer NetDeposit, LLC, a wholly owned subsidiary of Zions Bancorporation (Nasdaq:ZION). The combined entity would place BankServ solidly among the largest RDC vendors when measured by the number of live end-users, but well behind the core banking providers in terms of breadth of FI RDC client base. Celent sees each vendor bringing strength to the resulting organization: – NetDeposit brings a capable and scalable decision gateway, an area in which BankServ may have been comparatively weak, along with a more well rounded distributed capture solution set including branch capture and multiple commercial RDC products. – NetDeposit brings a forthcoming mobile RDC solution to round out its consumer and small business RDC capability. – BankServ brings innovative and user friendly front end client applications – particularly its seamless integrations to QuickBooks and Peachtree accounting packages. – BankServ also brings diversity beyond distributed image capture with its Mobilescape, SWIFT and wire transfer products along with their substantial client base. – Both organizations have a well deserved reputation for innovation in a solution segment mired in tiresome compliance activities related to FFIEC published risk management guidelines. The result will be a stronger, more capable competitor in a market with, frankly, too many vendors. This is all good.