The Changing Face of RDC

The Changing Face of RDC

With all the press following the Chase mobile RDC initiative, everyone is likely aware of mobile RDC. But, there’s another changing face of RDC that may not be as cool as depositing using one’s cell phone, but one no less important to banks.

In late July, Servant PC Resources announced integration of its Servant Keeper Church Management Software with Heartland Check Management from Hartland Payment Systems. With the Heartland solution, a client simply scans a check from their location using a remote scanner, and the deposit is processed. The client receives automatic notifications and can monitor every step of the deposit in real-time. At that point, the transactions are posted in Servant Keeper format to reconcile all member contributions without manual entry — making it an end-to-end solution. Additionally, the client can elect to have bad checks handled by Heartland’s automated recovery program.

This announcement – and the solution it trumpets – stands in sharp contrast with most bank sponsored RDC solutions in several important ways. Specifically:

  • It provides solution integration that adds value compared to a stand alone, deposit-only RDC solution offered by virtually all banks.
  • Banks aren’t doing the selling. In an August 2009 survey of 172 US financial institutions, the majority of respondents conceded that less than 5% of their small businesses were using RDC. Servant PC Resources serves over 22,000 US churches that will now be offered a compelling RDC value proposition as a simple upgrade to software they already use. Vertical market integrations like this offer solution providers (in this case Hartland Payment Systems) instant, low-cost access to strategic target markets. Churches deposit lots of checks.
  • Heartland performs deposit review and item correction, virtually eliminating the need for users to manually correct poorly captured check amounts, saving them time and improving the user experience.

But, banks don’t seem all that concerned about this changing face of RDC. In the same August 2009 survey, only one in four responding financial institutions voiced any concern about the growth of non-bank RDC providers (figure 1).

third-party-rdc-risk

What can financial institutions do to address this threat from non banks? First, some banks don’t see this as a threat. Why? Because some banks (perhaps a growing number) are more interested in deposit gathering than the fee revenue offered by RDC. For those banks wanting the RDC relationship, Celent suggests these steps:

1. Offer the right product(s) for small business, with at least one option being one in which businesses don’t have to buy a specialized check scanner.

2. Make it easy to say “yes” with simple and affordable pricing and online enrollment.

3. Get busy selling.

The Growing Importance of Self-Service

The Growing Importance of Self-Service
Reg. E changes, the Credit Card act of 2009, the Restoring American Financial Stability Act – all have eroded banks ability to generate revenue. While the full extent of the damage this legislation has caused the industry remains to be seen, one clear implication is that banks must shed costs. For example, in a July 2010 Celent survey of 200+ financial institutions, two-thirds of respondents cited cost reduction as one of their top-3 retail banking priorities. Shedding cost is relatively easy. Doing so without compromising sales and service delivery is a significant challenge. Celent sees self-service becoming increasingly important in the new normal. Here are several recent examples.
  • Chase is offering essentially free remote deposit capture (RDC) solution to small business customers as long as they make a requisite number of monthly deposits using RDC. The implicit objective is to reduce the branch traffic along with its related costs.
  • Bank of America is piloting a new eBanking account which is free to customers using 100% self-service channels. Using the branch for those customers will result in an $8.95 fee.
  • Chase began offering mobile RDC capability to iPhone users of its mobile banking solution. Mobile RDC offers a low-cost self-service deposit capability that, by definition, keeps check deposit transactions out of the branch.
  • A small but growing number of credit unions led by Coastal FCU in North Carolina have extended branch hours, not by keeping the branch open longer, but by deploying vestibule personal teller machines (PTMs) that combine ATM like experience with real-time video conferencing with tellers housed in a centrally located call center. Doing so has provided extended branch hours at a fraction of the cost of keeping full-service branches open longer.
The common thread among these examples is customer pleasing service delivery at significantly lower cost than the traditional branch banking service model. Is there any doubt that the trend will continue?

Chase Mobile Remote Deposit Capture

Chase Mobile Remote Deposit Capture
Mobile banking is now in the mainstream. I am a customer of JPMorgan Chase and like the iPhone app. It gives me the access to what I need in a mobile app:
  • Balance information.
  • Transaction history.
  • Branch and ATM locations
I can also use it to pay my credit card bill. All good. The only reason I go to a branch or ATM is to deposit checks or get cash. I was very excited to learn about Chase’s new mobile remote deposit capture. The app is very user friendly:
  1. Key in the amount of the amount of the transaction.
  2. Take a picture of the front of the check.
  3. Take a picture of the back of the check.
  4. Approve and submit.
Chase Mobile is Inuitive

Chase Mobile is Inuitive

The problem is that I couldn’t get the check to deposit. I typed in the amount, but the character recognition couldn’t find that amount on the check, so the system rejected the deposit. This was a machine generated check with everything typed. Character recognition doesn’t get any easier. Chase needs to go back to the drawing board on the character recognition, and I need to go to the ATM to deposit the check. I anxiously await the next version.

Chase Quick Deposit: Finally an Investment in Client Adoption

Chase Quick Deposit: Finally an Investment in Client Adoption
JPMorgan Chase has apparently launched a targeted campaign to boost its Chase Quick Deposit, remote deposit capture client base with some unusually rich discounts. Specifically, Chase is offering two years of free Chase Quick Deposit (normally $50/mo, plus the $855 Panini MyVisionX scanner to power it. Total retail value = $2,055. Like any offer, there are specific requirements to this offer. — Users must deposit at least 10 checks per month — Offer is valid for new Chase Quick Deposit users only — $500 cancellation fee if discontinued within 12 months — Offer good through July 31, 2010 Some banks may balk at such aggressive pricing in the small business RDC segment. What is Chase thinking? I can guess – and they’re on to something. The minimum monthly check deposit requirement is a pretty good clue. According to its 2009 Annual Report: • Last year, 61,000 people in 5,154 Chase branches in 23 states served more than 30 million U.S. consumers and small businesses • Retail operations teams processed 700 million teller transactions • Chase added 2,400 branch sales staff last year – personal and business bankers, mortgage officers and investment representatives – to better serve its customers. What is Chase doing? It is becoming more efficient, while strategically transitioning its branch network from transaction processing centers to sales and service centers. Significantly growing its small business RDC customer base – even without associated fee revenue – can pay large dividends to Chase. How? By reducing the number of small business branch deposits. Self-service deposits are less costly to process than paying tellers to do them. The graph below depicts Celent’s estimate of declining check transaction volume in the average US branch with and without small business RDC assistance.
Declining Check Transaction in the Branch

Declining Check Transaction in the Branch

So, the robust promotion of Chase Quick Deposit reflects both a shift in RDC strategy (from PxV product revenue to a self-service reason for being) and a shift in branch strategy (from transaction centers to sales & service centers). Chase serves as a great example for other banks to follow. Celent is currently researching the evolution of North American branch infrastructure. Weigh in on the link below, and we’ll send you a complimentary executive summary of the results. http://www.surveymonkey.com/s/Branch

Mobile RDC: Getting to Yes

Mobile RDC: Getting to Yes
Following on a February 2009 announcement with MFoundary, Mitek announced in December it had formed a strategic partnership with ClairMail to integrate its Mobile Deposit capability with ClairMail’s mobile banking platform. In so doing, the companies are making it faster and easier for US FIs with existing mobile banking solutions to offer mobile deposit (a.k.a. Mobile RDC). Celent applauds this effort. A preemptive move, pre-integration with mobile banking platforms corresponding to a significant percentage of mobile banking solutions only makes sense. But doing so won’t erase adoption barriers. Celent conducted research in August 2009 among 174 US financial institutions – just prior to USAA’s announcement of its Deposit@Mobile product. In the survey conducted primarily among product managers and senior executives in RDC deploying financial institutions, Celent found that risk and/or compliance concerns are holding banks bank by nearly a 2:1 margin versus any other adoption barrier. All the pre-integration in the world won’t address the lingering systemic risk paranoia around RDC. Barriers to Mobile RDC Aren't About Technology But risk can be justified in the face of adequate reward. That’s part of the current problem with mobile RDC. The #2 adoption barrier according to Celent research is low perceived demand for mobile RDC. When banks see adequate demand for the service, the perceived risk associated with solution delivery will be more easily assumed. So what’s behind the low perceived demand? Banks mention in interviews that consumers aren’t exactly melting the phone lines with requests for mobile RDC. Of course not – no one knows about mobile RDC yet! Too many banks confuse demand for a product or service with concept strength. Concept strength measures the viability of a product or service based on its ability to meet unmet consumer needs. Demand is a function of many variables including concept strength, awareness and pricing. In Celent’s research, mobile RDC appears to be an exceedingly strong concept among consumers; a “killer app” in fact. Demand will come rapidly, once more banks offer the service – generating awareness in the process. Anticipating strong future demand for mobile RDC, wise banks will be preparing.

Intuit’s Check Solution for QuickBooks: Resistance is Futile

Intuit’s Check Solution for QuickBooks: Resistance is Futile
Since remote deposit capture (RDC) made its debut several years ago, 90% of client adoption has been at the hands of financial institutions offering generic solutions. Once primarily aimed at retaining treasury management clients, 60% of financial institutions surveyed in August 2009 now cite deposit gathering the primary objective of RDC. But alongside banks, non-financial institutions have embraced RDC and are entering the market with bank-neutral solutions. The most recent example is Intuit’s Check Solution for QuickBooks introduced with the latest release of QuickBooks in late September. These channels are emerging for one compelling reason: opportunity. Celent sees three specific advantages inherent in many of the non-financial institution sponsored solutions. 1. Solution Differentiation. Third party software vendors can provide highly integrated workflows beyond the generic solutions most financial institutions are likely to deploy. Integrating RDC solutions with vertically focused applications provides conspicuous advantages. 2. Developed Sales Channels. Demand for RDC is greater than financial institutions collective ability and/or willingness to fulfill. Third parties seeing this opportunity are maneuvering to fill demand. In many cases, each of these third parties bring with them substantial client bases, brand equity and some degree of customer loyalty. Consider Intuit with its 4+ million QuickBooks customer base. 3. Customer Preference. A number of scenarios are friendly to bank-neutral solutions. Large property management firms with properties in multiple states, for example, are compelled to have banking relationships in each state. A single, bank-neutral solution is likely preferable to buying several solutions, one from each bank. The prevailing attitude among financial institutions concerning these emerging third-party solutions is casual. Among respondents to Celent’s August financial institution survey, only 25% expressed concern. 15% welcomed the advent of third-parties who would do the “heavy lifting” as long as the bank retained the deposit relationship. rdc-competition Is this an appropriate response given the market position of Intuit? We think so. The compelling value of Intuit Check Solution for QuickBooks doesn’t lie in reducing trips to the bank, but in making all aspects of receiving and posting payments fast and easy. RDC has become one of many integrated components in the QuickBooks payments ecosystem. In this regard, banks can’t compete using generic RDC solutions. Resistance is futile. Banks can learn from Intuit by integrating RDC into applications they do own – internet and mobile banking solutions. If it is all about deposits, then banks would do well to prepare for the likelihood that the majority of deposits may soon be collected via RDC – directly or via third parties.

FFIEC Guidance on RDC Risk Management: Are We any Safer Now?

FFIEC Guidance on RDC Risk Management: Are We any Safer Now?
The Federal Financial Institutions Examination Council, FFIEC, issued its long-awaited guidance on remote deposit capture risk management in January 2009. The document clearly precipitated a flurry of activity among virtually every bank engaged in RDC. To many banks, the guidance was akin to raising the homeland security threat level from Green to Orange. RDC must be risky – I’d better do something! But a question arises now, some nine months since its release; did the guidance help banks better manage the risks associated with distributed capture? Are we any safer now? Celent offers two data points that suggest the FFIEC’s efforts, while well intentioned, did little to impact the operational readiness of banks’ RDC programs. What Really Matters Celent conducted a survey of US financial institutions in August 2009, generating 174 responses among RDC deploying banks, thrifts and credit unions. Respondents were a mix of product managers, executives, sales managers, operations and IT personnel. The survey sought to better understand the state of the industry and gauge future opportunity and adoption trends. One question asked respondents to rank various aspects of their RDC program in order of importance. The question was a forced ranking, so respondents couldn’t say that everything was important. The specific items on the list were drawn from multiple bank interviews that preceded the survey. The results were telling. With so much on their plates, and with so much unrealized opportunity in RDC, regulatory compliance was considered among the most important activities to be undertaken. Matters of customer service and reducing operational risk were judged to be less important. Interesting. The reported focus on regulatory compliance – second only to maximizing deposits (the very reason RDC exists for most banks) was reinforced in post survey telephone interviews. Banks have been so demonized by the press, administration and elected officials, the last thing banks need is any further risk of bad PR or regulatory punishment. Hence compliance is nearly Job #1.
Compliance Ranked a Close #2

Source: Celent FI survey, August 2009, n=174

What Specific Actions has the Guidance Caused? Another question in Celent’s August 2009 survey specifically asked: “What specific activities, if any, have you undertaken in response to the FFIEC guidance on RDC risk published in January 2009?” The question invited an open-ended response. Virtually every bank took action. A very small number of responding FIs asserted that no action was required because, after reading the guidance, they found themselves to be 100% in compliance. Hardly. The table below groups the open-ended responses and lists them in order of frequency. The top 3 actions account for the majority of responses. Specific Activities Undertaken as a Result of FFIEC Guidance • Reviewed and revised policies and procedures • Performed an internal risk assessment • Tightened up deposit services agreement for RDC • Ensured process and product in compliance • Implemented deposit limits and improved reporting • Implemented spot check of client retention and destruction procedures • Tightened underwriting • Increased security guidelines • Improved intra-day deposit review Source: Celent FI survey, August 2009, n=174 Thus, the FFIEC guidance has precipitated significant effort among thousands of banks – at great cost – to document and formalize what many banks were already doing. Tangible new efforts that would arguably identify and mitigate risk (deposit limits, improved reporting, intra-day deposit review, etc.) were relatively infrequent responses to the guidance. Hopefully, now that the dust has settled on the FFIEC guidance, financial institutions can get back to creating new ways to better serve their customers.

Pitney Bowes’ RDC Initiative – when will banks engage?

Pitney Bowes’ RDC Initiative – when will banks engage?
Pitney Bowes and Jack Henry & Associates (JHA) have teamed up to offer remote deposit capture (RDC) to small businesses. JHA’s ProfitStars division is providing the solution. The relationship was announced in May. E-mail marketing has begun among Pitney Bowes installed base of postal meter customers. The bank-neutral solution branded Click Deposit provides bundled scanner fulfillment support and processing for a monthly fee starting at $39.95. The lowest cost option supports up to 150 checks per month. Businesses having higher check volumes would be invited to join at higher monthly rates – as high as $149.95 with several options in between. All plans require a 3-year commitment which includes leasing the Panini MyVisionX-30 scanner. The solution optionally provides an AR extract suitable for QuickBooks users. Click Deposit customers enter a merchant processing services agreement with JHA which is, of course, riddled with mention of Check-21 and ACH terms that perhaps one in ten thousand small businesses would understand. JHA underwrites each merchant and assumes the associated deposit risk. Funds availability is not specified in the agreement, only that funds may be delayed at JHA’s discretion. Merchants are liable for fraud, loss due to duplicate presentment, NSF and proper safeguarding of original items once scanned per the agreement. All reasonable terms in our opinion. In part, the agreement is lengthy because deposits are processed using both Check-21 and ACH rails. All deposits are aggregated at one or more presentment banks that clear items using image exchange. Individual DDAs at the multiple banks of first deposit are then credited using the ACH. Celent finds Click Deposit a solid service and a logical extension to Pitney Bowes existing solutions on terms that are currently competitive to what most banks are providing. The big difference between Click Deposit and individual bank solutions (beyond the incidental use of the ACH) is that Pitney Bowes is actually selling the product. It will, no doubt, enjoy this advantage for some time as most banks remain slow to introduce remote deposit capture to the small business segment. Longer-term, Celent expects competitive offers at lower monthly pricing utilizing less capable (and expensive) scanners aimed at small businesses with low check volumes. As the market matures, low total solution cost and access to efficient distribution channels will be of growing importance. In the absolute, Celent finds this a significant initiative. Pitney Bowes enjoys a large installed base and support infrastructure well-suited for Click Deposit. Banks that have not yet awakened from their slumber need to realize that the market is not standing still. Despite the troubling economy, a number of new, bank-neutral solutions are close aboard.