Consumer Market
Outlook for
Mobile Photo Bill Pay
Prepared by AlixPartners LLP
for Mitek Systems
January 2012
2
THE MOBILE FINANCIAL REVOLUTION
The smartphone revolution is underway, and it is changing how we live and how we manage ...
3
Figure 1
Total Bills Paid in the U.S.
Source: AlixPartners analysis, U.S. Postal Service Household Diary Study Mail Use ...
4
What is clear from consumer research is that today there is no single preferred payment channel.
Consumers frequently us...
5
 The young smartphone generation, ages 18-25
 Active smartphone/tablet users who are mobile banking and Mobile RDC ado...
6
channel. We evaluated two major factors, first the rate of consumer adoption of MPBP, and then
second, the overall migra...
7
o Physical channels, namely, walk-in or payment by mail will decline from 38% of bills paid
to 27%
o Automated payment c...
8
MOBILE PHOTO BILL PAY FORECAST METHODOLOGY
Our Mobile Photo Bill Pay volume forecast was developed using consumer resear...
9
(7) Mobile Photo Bill Pay migration for different bill payment channels
Assumptions for migration to MPBP depend on how ...
10
About AlixPartners
AlixPartners is a global firm of senior business and consulting professionals that specializes in im...
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Consumer Outlook for Mobile Photo Bill Pay

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Released: January 2012

The smartphone revolution is underway, and it is changing how we live and how we manage our money. Banks and other financial services providers are increasingly recognizing consumers’ demands for greater convenience, speed, and engagement. In response, leading financial services competitors are now developing an array of mobile banking offerings to meet the needs of consumers’ increasingly mobile lifestyles. Research has shown that the use of image capture technology in these mobile banking applications is not only providing increased convenience to consumers, but it is also changing how and with whom consumers bank. Specifically, Mobile Remote Deposit Capture (RDC) is gaining increasing consumer attention and adoption, and is a key decision factor driving bank choice.

Another image-based mobile banking application, Mobile Photo Bill Pay (MPBP), offers consumers greater simplicity and choice in paying bills. With Mobile Photo Bill Pay, consumers with a camera-equipped smartphone or tablet have the ability to take a picture of a bill, confirm payment, and click to pay. This capability not only gives consumers a new payment option, but it also gives them a fast way to use their mobile device to pay one-time or non-recurring bills, quickly add a new payee to their traditional online bill pay, and set up recurring bills and payments. The ability to add a new payee with a mobile device is a key competitive advantage over existing online bill pay applications.

As mobile banking applications have increasingly become table stakes, it is even more critical for financial service providers to understand which new value-added applications should become a part of their core suite of mobile banking offerings. Mobile image capture technologies, and specifically MPBP, can provide banks with the critical marketplace differentiators they need.

Market growth of Mobile Photo Bill Pay will be driven by continued aggressive adoption of smartphones and tablets among consumers and the implementation of broadening mobile capabilities by leading financial services firms. MPBP adoption is forecasted to reach 33% among adult U.S. consumers by 2018, and result in 1.4 billion bills migrating to the MPBP channel. To fully understand the potential of this mobile banking application, it is important to first consider existing consumer behavior in the bill payment market.

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Consumer Outlook for Mobile Photo Bill Pay

  1. 1. Consumer Market Outlook for Mobile Photo Bill Pay Prepared by AlixPartners LLP for Mitek Systems January 2012
  2. 2. 2 THE MOBILE FINANCIAL REVOLUTION The smartphone revolution is underway, and it is changing how we live and how we manage our money. Banks and other financial services providers are increasingly recognizing consumers’ demands for greater convenience, speed, and engagement. In response, leading financial services competitors are now developing an array of mobile banking offerings to meet the needs of consumers’ increasingly mobile lifestyles. Research has shown that the use of image capture technology in these mobile banking applications is not only providing increased convenience to consumers, but it is also changing how and with whom consumers bank. Specifically, Mobile Remote Deposit Capture (RDC) is gaining increasing consumer attention and adoption, and is a key decision factor driving bank choice1 . Another image-based mobile banking application, Mobile Photo Bill Pay (MPBP), offers consumers greater simplicity and choice in paying bills. With Mobile Photo Bill Pay, consumers with a camera- equipped smartphone or tablet have the ability to take a picture of a bill, confirm payment, and click to pay. This capability not only gives consumers a new payment option, but it also gives them a fast way to use their mobile device to pay one-time or non-recurring bills, quickly add a new payee to their traditional online bill pay, and set up recurring bills and payments. The ability to add a new payee with a mobile device is a key competitive advantage over existing online bill pay applications. As mobile banking applications have increasingly become table stakes, it is even more critical for financial service providers to understand which new value-added applications should become a part of their core suite of mobile banking offerings. Mobile image capture technologies, and specifically MPBP, can provide banks with the critical marketplace differentiators they need. Market growth of Mobile Photo Bill Pay will be driven by continued aggressive adoption of smartphones and tablets among consumers and the implementation of broadening mobile capabilities by leading financial services firms. MPBP adoption is forecasted to reach 33% among adult U.S. consumers by 2018, and result in 1.4 billion bills migrating to the MPBP channel. To fully understand the potential of this mobile banking application, it is important to first consider existing consumer behavior in the bill payment market. Understanding Today’s Payment Market In the U.S., consumers pay approximately 20 billion bills a year, (an average of 12-to-14 bills per household per month) across a variety of billing categories including utility, rent/mortgage, credit cards and other loans, medical, and insurance. 2 As presented in Figure 1, this total figure has held relatively steady over the past five years and is expected to remain in the 20-21 billion range in the next 12 months. Any forecasted growth in total bill payment volume is essentially driven by overall household population growth. 1 AlixPartners, October 2011, “Mobile Remote Deposit Capture: Changing How Consumers Bank and Banks Compete.” 2 AlixPartners analysis is based on data provided by the USPS for bills paid through the mail, and available market research of the percent of bills paid by mail.
  3. 3. 3 Figure 1 Total Bills Paid in the U.S. Source: AlixPartners analysis, U.S. Postal Service Household Diary Study Mail Use and Attitudes FY 2010 While the total size of the bill market has shown little change over the past few years, the means by which consumers pay bills have changed dramatically. As consumer lifestyles have changed, the need for greater flexibility, immediacy, real-time information, and convenience has shifted consumer payment behaviors. This shift includes moving from physical payment channels, namely in-person visits with cash and paper checks via the mail, to electronic means, namely online bill pay and automated payments. Today, all three payment options remain, but electronic channels are becoming increasingly dominant, as seen in Figure 2.3 Figure 2 Payment Channels Source: AlixPartners analysis 2011 3 Physical payment channel includes mail and walk-in. Online/electronic channel includes online bill pay and biller direct. Automated payment channel includes direct debit and automated cards.
  4. 4. 4 What is clear from consumer research is that today there is no single preferred payment channel. Consumers frequently use multiple payment methods. For example, it is common for consumers in any one month to use automated direct bill to pay their utility bills, online bill pay to pay credit card bills, writing a check for a one-off medical bill, and walking into their favorite department store to pay a store card bill. Consumers’ choice of bill payment method also situationally varies and may change depending on such factors as the balance in their Demand Deposit Account (DDA), cash flow requirements, the need for expedited bill payment, the type of bill, or the need for additional speed and convenience. Online bill pay has dramatically transformed how consumers pay bills by allowing them to click their way – quickly and inexpensively – through a series of bills anywhere they have access to their online account. Nevertheless, access to online bill pay is not complete across all consumer segments. Moreover, sometimes timeliness and convenience issues even limit the availability or consumer utility of traditional online bill pay. For many consumers the hassle of entering new payees online via their laptop or PC, or the inability to enter new payees using their mobile device, sends them back to non-electronic approaches to bill payment. Because of some of these limitations and inconveniences, the growth of online bill pay, as we know it, is inevitably stalling. MPBP offers a way to overcome some of these limitations and to enhance the growth and usage of bill pay accounts, by leveraging the mobile device, whether smartphone or tablet. As consumers have come to rely on their mobile devices to manage their day to day, social and financial lives, there is a specific need that the mobile device can fill in bill pay. FRAMING THE MOBILE PHOTO BILL PAY OPPORTUNITY As mobile devices replace PCs or laptops, bill payment channels will continue to evolve. Over time, smartphone-or tablet-supported bill pay may replace traditional online payment capabilities by offering some consumers with the “bank anywhere” option they have come to expect, freeing them from the reliance on and requirement of using their laptops or PCs. For other consumers, mobile bill pay will enhance their online banking experience and potentially drive greater usage. A brief review of the Mobile Photo Bill Pay application is warranted. The MPBP application captures the biller’s information and address, the consumer’s account number and address, and the amount due via the camera, and simply prompts the consumer to verify the amount to be paid. The image capture technology offers several specific benefits to consumers:  Eliminates the need to enter multiple elements of information for a new biller in an online application  Overcomes the inconvenience of not being able to add a new biller that is a common issue with current forms of mobile bill pay  Offers the ability to pay non-recurring bills in a simple and convenient way  Helps reduce the barriers to switching by enabling consumers to easily add new payors with their new bank by using their camera-equipped mobile device, rather than migrating payors from their online banking application Target Markets for Mobile Photo Bill Pay To frame the Mobile Photo Bill Pay market, the first step is to define the relevant market segments. Some of the potential target consumer segments include:
  5. 5. 5  The young smartphone generation, ages 18-25  Active smartphone/tablet users who are mobile banking and Mobile RDC adopters  Active smartphone/tablet users who rely on a combination of offline and online channels for bill payment  The unbanked and underbanked Each consumer segment is briefly discussed below. Young smartphone generation, ages 18-25 The younger, smartphone-oriented consumers represent an interesting acquisition opportunity for banks. Forty-seven percent of consumers between the ages of 18 and 25 years old use smartphones. By 2016, 82%4 of these consumers will. These consumers have grown up using mobile devices to communicate with their world, connect with friends, plan an activity, make purchase, research products, etc. In terms of bill paying behavior, it is likely that this group has written few checks if any at all, may use their PC only when necessary, and as such are less likely to establish and actively use a traditional online banking bill pay account with their bank, or set up separate biller direct accounts with the handful of businesses they use. These young consumers may prefer to rely on their mobile devices to take care of such mundane activities as paying bills. Active smartphone/tablet users who are mobile banking and Mobile RDC adopters The next target group includes those smartphone/tablet owners who are also active mobile banking adopters and perhaps are already using other image capture technologies such as Mobile RDC. This group is increasingly managing their lives via their mobile device, and may be attracted to new mobile banking features. Active smartphone/tablet users who rely on offline and online channels for bill payment The broader addressable segment are active smartphone or tablet owners who use online bill pay, but only for a portion of their bills, and may resort to checks or other payment options for a one-off bill or because they perceive adding a new biller in their online bill pay account to be a chore. Having access to a mobile feature that removes the hassle of adding a new biller, and allows them to pay whenever and wherever they prefer, represents an attractive value proposition for this group. The unbanked and underbanked In addition to these consumer segments, MPBP also offers the unbanked and the underserved banking segment a new and much more convenient payment mechanism. By originating a payment through their mobile device, and accessing a stored value card or other alternative payment method, these consumers can pay bills in a speedy and less costly means than traditional options offered to them today. MARKET SIZE AND OUTLOOK To define the opportunity for Mobile Photo Bill Pay, we have completed new analysis to forecast the overall adoption rate among U.S. consumers and potential migration of bills to the mobile bill pay 4 AlixPartners analysis
  6. 6. 6 channel. We evaluated two major factors, first the rate of consumer adoption of MPBP, and then second, the overall migration of consumer bill payment volumes across the available payment means. The adoption rate forecast considers:  Availability of MPBP in the banking marketplace  Adoption of camera-equipped smartphones and tablets  Adoption rates for Mobile RDC (as a proxy for consumer MPBP adoption behavior) Consumer bill payment migration forecast considers:  Bills mailed to consumers  Churn rate among billers  Three primary payment channels, bills paid by mail or walk-in, automatic deductions, and online or other electronic means Based on our analysis, Mobile Photo Bill Pay adoption is expected to reach 33% among adult U.S. consumers by 2018. As a result, we forecast total MPBP payment volume of 1.4 billion bills in that same year. Figures 3 and 4 present our forecasts.5 Figures 3 and 4 Mobile Photo Bill Pay Adoption and Volume Forecasts Source: AlixPartners analysis 2011 The bill migration analysis spotlights the following consumer behavior shifts:  Total bills mailed are expected to decline from 14.2 billion in 2013 to 11.5 billion in 2018 as more bills are received electronically 5 This forecast includes both one-time bill payment as well as recurring bill payment.
  7. 7. 7 o Physical channels, namely, walk-in or payment by mail will decline from 38% of bills paid to 27% o Automated payment channels decreases slightly from 17% to 16% of payments made  Overall non-automated electronic payment channels, however, will increase from 45% to 57%, with the majority of this increase coming from the migration away from physical channels, namely walk-in or payment by mail  Online bill payment activity will increase as more users migrate away from physical channels and set up new payees with their mobile device, but some of this increase will be offset as some of those bill pay accounts will be accessed solely through the MPBP application  Importantly, the 57% of non-automated electronic payments is made up of 12% Mobile Photo Bill Pay and 45% online  The adoption rate of Mobile Photo Bill Pay is forecasted to be 33% of all consumers by 2018  Overall, MPBP adopters will migrate 37% of their total bills to Mobile Photo Bill pay for both one-time and recurring bills  In aggregate, 1.4 billion, or 12% of all bills will migrate to Mobile Photo Bill Pay by 2018 WHY MOBILE PHOTO BILL PAY MATTERS Given today’s mobile-oriented lifestyles, there is greater demand by consumers for convenience, speed, and flexibility in how they manage their lives and particularly in how they manage their money. To remain relevant with their existing customers and attract new customers, it will be critical for financial service providers to deploy mobile capabilities that meet the needs of today’s consumers. Mobile image capture technologies, and specifically Mobile Photo Bill Pay, can provide banks with the critical differentiators they need. MPBP offers consumers speed, flexibility and convenience in bill payment, and it gives them greater alternatives in managing their finances. Market growth of Mobile Photo Bill Pay will be driven by continued aggressive adoption of smartphones and tablets among consumers and the implementation and roll out of MPBP by leading financial services competitors. Mobile Photo Bill Pay adoption is expected to reach 33% among adult U.S. consumers by 2018, and result in 1.4 billion bills migrating to the MPBP channel. The value-proposition for both consumers and banks is compelling. For financial institutions seeking to leverage their existing bill pay platforms, drive increased usage, expand their mobile banking offerings, and address consumer needs and demands for increased convenience, Mobile Photo Bill Pay offers great opportunities.
  8. 8. 8 MOBILE PHOTO BILL PAY FORECAST METHODOLOGY Our Mobile Photo Bill Pay volume forecast was developed using consumer research and a forecasting model built around the following seven factors: (1) The availability of Mobile Photo Bill Pay in the marketplace The availability of Mobile Photo Bill Pay or the implementation rate of MPBP by financial institutions is expected to increase from 10% at the end of 2013 to 90% by the end of 2018. (2) The penetration of camera-equipped smartphones / tablets The camera-equipped smartphone/tablet adoption rate is based on industry data for 2010 and then forecast forward. Penetration of camera-equipped smartphone/tablets is forecast to grow from 22% in 2010 to 73% by 2018. (3) Mobile Photo Bill Pay adoption The Mobile Photo Bill Pay Forecasting Model assumes that MPBP adoption rates among customers who have relationships with banks offering MPBP and have camera-equipped mobile devices will parallel Mobile RDC adoption rates. As a result, adoption among this group of consumers is expected to grow from 4% in 2013 to 50% by 2018. (4) Number of bills sent by mail Only those bills sent by mail are considered in the Mobile Photo Bill Pay adoption forecast. Bills presented electronically are not included in the potential pool of bills for migration to MPBP. Based on the United States Postal Service's annual Household Diary Study, which tracks the number of bills mailed to U.S. households each year, mailed bills have declined steadily by just over 4% per year since 2006. It is forecast that this rate of decline will continue and mailed bills will decrease from 14.2 billion in 2013 to 11.5 billion in 2018. The decline is expected to result from the increase in electronic bill presentment. (5) Biller churn Based on USPS Household Diary Study data on the types of bills that consumers receive in the mail, and our estimates of how frequently different types of billers change, it is estimated that 10% of bills received come from new billers. Of these, it is assumed that adopters would pay 90% of these new billers with MPBP due to MPBP being the most convenient means of capturing the information on the new bills. (6) Bill payment channels Three primary payment channels are assumed in the Mobile Photo Bill Pay model: mail or walk in (physical), automatic debit or charge, and online/other electronic. In 2010, data from Fiserv show that 38% of mailed bills were paid either by mail or walk-in, 45% online/electronically, and 17% automatic debit/automatic card6 . We assume that MPBP adopters would move half their mail / walk-in bills to online due to the ease of setting up billers online with MPBP. For 2013, payment channel mix for adopters is expected to be 8% physical, 53% online, 16% automatic debit/automatic card, and 24% MPBP. This is expected to shift to 4% physical, 44% online, 16% automatic debit/automatic card, and 37% MPBP by 2018. 6 Fiserv, “2010 Billing Household Survey: Consumer Survey of Offline and Online Billing and Payment Practices.”
  9. 9. 9 (7) Mobile Photo Bill Pay migration for different bill payment channels Assumptions for migration to MPBP depend on how bills are paid. Bills paid automatically are assumed to not migrate to MPBP since they are already being paid with no effort. In 2013, 10% of bills paid online are expected to migrate to MPBP and increase to 25% by 2018. For those bills paid by a physical means, 55% of these bills are expected to migrate to MPBP in 2013 and increase to 80% by 2018.
  10. 10. 10 About AlixPartners AlixPartners is a global firm of senior business and consulting professionals that specializes in improving corporate financial and operational performance, executing corporate turnarounds and providing litigation consulting and forensic accounting services when it really matters—in urgent, high-impact situations. The AlixPartners Financial Services Practice provides strategic research and consulting services to financial institutions including banks, brokerages, wealth management firms and payments providers. We work with executives to make business growth decisions, and advise private equity firms on retail financial services investments. The Financial Services Practice team has extensive experience in mobile banking and mobile payments and is dedicated to delivering the insights, innovative thinking, and information required by our clients. AlixPartners has more than 900 professionals in offices across the world and can be found on the Web at www.alixpartners.com. DISCLAIMER - IMPORTANT INFORMATION ABOUT THIS WHITEPAPER This Research Note regarding Mobile Bill Pay (“Research Note”) was prepared by AlixPartners, LLP (“AlixPartners”) for general information and distribution on a strictly confidential and non-reliance basis. The recipients of the Research Note accept that they will make their own investigation, analysis and decision relating to any possible transactions and/or matter related to such and will not use or rely upon this Research Note to form the basis of any such decisions. Accordingly, no liability or responsibility whatsoever is accepted by AlixPartners and its employees, partners or affiliates for any loss whatsoever arising from or in connection with any unauthorized use of the Research Note. This Research Note may be based, in whole or in part, on projections or forecasts of future events. A forecast, by its nature, is speculative and includes estimates and assumptions which may prove to be wrong. Actual results may, and frequently do, differ from those projected or forecast. Those differences may be material. Items which could impact actual results include, but are not limited to, unforeseen micro or macro economic developments and/or business or industry events. The information in this Research Note reflects conditions and our views as of this date, all of which are subject to change. We undertake no obligation to update or provide any revisions to the Research Note to reflect events, circumstances or changes that occur after the date the Research Note was prepared. In preparing this Research Note, AlixPartners has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise provided to us. AlixPartners has not audited or verified the data reviewed in connection with the preparation of this report. This Research Note is the property of AlixPartners, LLP, and neither the Research Note nor any of its contents may be copied, reproduced, disseminated, quoted or referred to in any presentation, agreement or document with or without attribution to AlixPartners, at any time or in any manner other than for the internal use of the recipient, without the express, prior written consent of AlixPartners.

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