In the last six months, there has been a growing buzz about a few banks that have launched or tested applications that allow their customers to make deposits by taking a picture of a physical check (front and back) with a mobile phone. The photo is converted to a digital image that is encrypted and transmitted to the bank for processing. For security and privacy purposes, no information is stored on the mobile device.
Mobile capture is just the latest innovation in remote deposit capture (RDC) designed to make the service more affordable and convenient for a broader customer base. As with most new payments technologies, risk figures to have a role in how rapidly this innovation is embraced, as I'll discuss below.
The RDC market had generally consisted of large commercial customers with an established banking relationship. However, when RDC vendors tweaked the technology to allow the use of the flatbed scanners typically used in the home, it opened the door for banks to offer a low-cost RDC solution targeted to small businesses and consumers.
Consumer capture initially adopted by credit unions
USAA Federal Savings Bank was the first bank to offer consumer capture in 2006. USAA serves a membership primarily comprised of military personnel and their families who are often deployed far from its sole branch office in San Antonio, Texas. The launch of its Deposit@Home® consumer capture service allowed its customers to make deposits from anywhere in the world using a scanner and Internet connection. Other credit unions have since followed suit with consumer capture products that offer another self-service channel for their customers, much like ATMs and online banking.
In researching a recent paper on consumer capture, I found that several factors make consumer capture an attractive product offering to credit unions. First, credit unions typically have a small branch network, and often their members are geographically dispersed across the country. Second, the disproportionately high per-item processing costs of deposits for credit unions because of their remote customer base make a compelling business case for consumer capture. Third, credit unions may have less concern about fraud issues with consumer capture because they have a "trusted" customer base.
Mobile applications reinvent consumer capture
In August 2009, USAA took the lead again in consumer capture by launching Deposit@MobileTM, a remote capture service for its mobile banking application for Apple's iPhone. In its first six weeks, a reported 270,000 members installed the updated iPhone application, and approximately 40,000 of them used the software to deposit more than 100,000 checks worth a total of $61 million. Within five months, USAA customers deposited more than $300 million using their iPhones. Last month, USAA announced a mobile application for the Android operating platform.
Not surprisingly, the USAA experience has piqued the interest of other banks to either test or consider a mobile capture application. Another driving factor is the ubiquitous nature of the cell phone in the United States, as well as the particular influence of the iPhone. A Javelin study found that iPhone users are one-and-a-half times likelier to use their mobile device to log into a bank account than all other smartphone users. There is also evidence that mobile banking customers are interested in mobile capture technology. According to the Mercatus Mobile RDC Adoption Research study conducted last year, close to two-thirds of today’s mobile banking customers are likely to adopt mobile remote deposit capture if the technology is offered by their banks.
Will concern about the potential fraud risk slow bank adoption?
While some are excited by the potential this technology has for buoying the use of mobile applications in banking, others are more concerned about the potential fraud and compliance risk this service presents to banks. Although the Federal Financial Institutions Examination Council (FFIEC) RDC Risk Management Guidance broadly covers RDC performed at any location, there still appears to be lingering concern about mobile capture. In fact, a recent Celent survey of U.S. banks found that the most common reason cited for not adopting mobile capture technology by the majority of respondents was concerns over risk and compliance.
Currently, there is still a small minority of banks offering mobile capture. For those banks sitting on the sidelines, the question is how long they will have to wait before feeling pressure from their competitors, as well as from customers who demand the functionality. As aptly described by an USAA executive, "Going to the bank to deposit a check soon may be as antiquated as black-and-white TVs."
By Jennifer Grier, senior payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed