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Mobile Deposit: Why Now...And How
 

Mobile Deposit: Why Now...And How

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Released: 2012 ...

Released: 2012

Remote check capture, once a niche service offered selectively to business customers, has transformed to be a mass-market service and integral capability in mobile banking solutions. Across the financial services industry, Mobile RDC projects are underway in banks, thrifts and credit unions of all sizes to meet the market demand from retail and small business customers.

Furthering that momentum, deposit growth continues to be a strategic cornerstone of retail banking and Mobile RDC has been proven to be a catalyst for generating new revenue sources, new customers, and deposit growth. As financial institutions refine their mobile banking strategies, Mobile RDC has been elevated to be a priority initiative.

To help you navigate to a successful Mobile RDC deployment, this report will:

- provide industry update on Mobile RDC
- illuminate the key success criteria for a Mobile RDC service
- provide practical suggestions and best practices to appropriately address implementation speed bumps so that financial institutions are well prepared to achieve the benefits of offering this service

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    Mobile Deposit: Why Now...And How Mobile Deposit: Why Now...And How Document Transcript

    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Mobile Deposit Why Now…and How
    • Mitek Systems, Inc. 2 © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Table of Contents Introduction........................................................................................................................................ 3 Industry Landscape.......................................................................................................................... 4 The Drivers Behind Financial Institution Adoption............................................................................... 4 Strategic Delivery Channel .............................................................................................................. 4 Competition..................................................................................................................................... 4 Customer Acquisition and Deposit Growth ...................................................................................... 5 Focus on the Customer Experience....................................................................................... 6 Banks, Mobile and Social Media .................................................................................................... 7 Best Practice Approach to Solution Implementation ................................................................ 8 Understanding Mobile RDC Risk ........................................................................................................ 9 Qualifying and Provisioning Customers ............................................................................................ 10 Item and Deposit Limits .................................................................................................................... 10 Making the Business Case............................................................................................................ 11 Launch Approach ............................................................................................................................. 11 Marketing Strategy ........................................................................................................................... 11 Conclusion........................................................................................................................................ 12
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Introduction Remote check capture, once a niche service offered selectively to business customers, has transformed to be a mass-market service and integral capability in mobile banking solutions. Across the financial services industry, Mobile RDC projects are underway in banks, thrifts and credit unions of all sizes to meet the market demand from retail and small business customers. Furthering that momentum, deposit growth continues to be a strategic cornerstone of retail banking and Mobile RDC has been proven to be a catalyst for generating new revenue sources, new customers, and deposit growth. As financial institutions refine their mobile banking strategies, Mobile RDC has been elevated to be a priority initiative. Growing regulation in the US financial markets make it imperative that financial institutions perform due diligence and establish risk management policies and practices before launching new products. The legal, regulatory and operational risk issues with Mobile Deposit serve as speed bumps on the path to a broad and aggressive roll out of the product. Financial institutions that push through the speed bumps effectively and quickly are rewarded with first mover advantages in the market. In addition to providing an industry update on Mobile RDC, a key objective of this paper will be to illuminate the key success criteria for a Mobile RDC service and to provide practical suggestions and best practices to appropriately address implementation speed bumps so that financial institutions are well prepared to achieve the benefits of offering this service. Mitek Systems (NASDAQ: MITK) is a mobile imaging software solutions provider that allows users to remotely deposit checks, pay their bills, get insurance quotes, and transfer credit card balances by snapping a picture with their smartphone or tablet cameras instead of using the device keyboard. Mitek’s technology increases convenience for the consumer by eliminating the need to have to go to the bank branch or automated teller machine, and dramatically reduces processing and customer acquisition costs while increasing customer retention. With a strong patent portfolio, Mitek is positioned as the leading innovator in mobile imaging software and currently provides its solutions to Fortune 500 financial services companies. For more information about Mitek Systems, please visit www.miteksystems.com.
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Industry Landscape The Drivers Behind Financial Institution Adoption Strategic Delivery Channel For many financial institutions, their mobile banking solution was a paired down version of their online banking service rendered as an app for iPhone and Android operating systems. However, as mobile has grown into a maturing channel, banks and their vendors have produced richer mobile offerings that take advantage of the unique capabilities inherent with smartphone technology. Mobile RDC is a prime example of this; where the smartphone camera is used to capture a check for deposit. Delivering self-service solutions opens the door for greater efficiency and improved channel delivery economics. The cost of servicing a customer through mobile is significantly less than the cost associated with a visit to a banking office. With only moderate adoption of Mobile RDC by consumers, banks can expect to see reduced branch deposits and cost savings. Additionally, mobile banking users tend to interact with their banks more frequently because the bank is assessable anytime and anywhere. The incredible convenience benefit to consumers is equally matched by the strategic cost structure benefit to the financial institution. Competition According to a market research paper entitled "Mobile Remote Deposit Capture: Changing How Consumers Bank and Banks Compete" by AlixPartners LLP, the global business-advisory firm, Mobile RDC is a powerful, must-have capability for banks. Banks that fail to implement a mobile- banking strategy with Mobile RDC as an essential capability, risk losing market share, the report found. For financial institutions with limited branch and ATM networks, Mobile RDC levels the playing field and allows them to compete against large brick and mortar banks. The financial institutions that have led the charge with mobile banking and Mobile RDC hold a clear competitive advantage.
    • Mitek Systems, Inc. 5 © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Customer Acquisition and Deposit Growth Aggressive national advertising by Mobile RDC heavy weights JPMorgan Chase, Charles Schwab and others, has contributed significantly to both consumer awareness and customer demand for Mobile RDC. This customer demand compounded by the proliferation of smartphones makes Mobile RDC a disruptive technology. Consumers have become accustomed to and place a high value on convenience, making Mobile RDC an important mobile banking feature and a strong customer acquisition tool. Just as Mobile RDC is an effective customer acquisition tool, it is also a strong defense against customer attrition. Perceived as a high value, sticky feature, customers who use Mobile RDC are less likely to change banking relationships. The ultimate goal of customer acquisition and retention strategies is to grow non-interest bearing deposits and fee income. Checking accounts in particular are a low-cost source of funds and a key source of fee income. Increasingly core deposit growth is vital to the strength and financial performance of banks and credit unions making Mobile RDC an important service to offer. Financial Institution Adoption Trend Banks are scrambling to meet the growing customer demand for mobile RDC. A study from Boston-based Celent LLP, which collected information from 218 banks as well as financial industry vendors and service providers, found that 80 percent of financial institutions are planning or considering a mobile RDC solution. i i Celent LLP, November 2011 The State of Consumer RDC 2011: Mobile Takes Center Stage
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Focus on the Customer Experience Smartphones and smartphone apps have fundamentally changed consumer expectations for doing business and accessing information. The bar has been raised for service delivery and information access. It is increasingly difficult for a financial institution to rationalize not embracing mobile as a strategic delivery channel. Embracing the mobile delivery channel means laser focus on the customer experience. Customers expect the technologies behind the convenience and reliability of the mobile channel to deliver the same quality and personalization they have come to expect with other Apps. For financial institutions, services and applications that allow customers to perform banking conveniently are at the heart of a good mobile banking user experience. Capabilities that enable the customer to better manage their finances are also significant customer satisfaction differentiators and will simultaneously reinforce a bank’s commitment to technology and their customers.
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Banks, Mobile and Social Media Heightened customer expectations extend well beyond the technology and the Apps they use. Consumers expect total transparency and ready access to information from many sources such as; social media, blogs, and App store customer ratings. A financial institution’s reputation can best be managed if they are prominently present on social media channels and join the online dialogue. Tweets, posts, and customer ratings are resources that consumers do use when evaluating options. User feedback, posted in the iTunes Store and Android Market, is valuable information to prospective customers and can provide great insight to the financial institution App publisher. Having Mobile RDC can boost the rating of a mobile banking app in the iTunes Store and Android Marketplace. However, not having a popular feature can bring an onslaught of negative comments. This was confirmed in a review of 25 mobile banking Apps which did not include Mobile RDC. Within only 5 comments on each of the 25 App store customer feedback page, there was a comment pointing out the App lacked the capability to make a mobile deposit.
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Best Practice Approach to Solution Implementation In order to keep pace with unprecedented consumer and adoption of new technology, financial institutions are under tremendous pressure to launch new mobile and online banking services at breakneck speed. While technology opens the door to new markets with less reliance on brick and mortar infrastructure, these new solutions must be implemented with careful consideration to information security, operating risks, legal, and compliance requirements. This challenge is amplified by the following:  Multiple integration points required between the mobile platform, the financial institution’s authentication system, core data systems, and the various downstream processing applications  An increasing dependence on third party service providers and SaaS solutions  Growing regulatory and compliance requirements
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Understanding Mobile RDC Risk It is essential for financial institutions implementing Mobile RDC to have a clear understanding of the elements of risks associated with this service. After an end-to-end risk assessment, it is vital that the financial institutions document and adopt a Mobile RDC Policy, which establishes their strategy and the tactics that will be used to identify, measure, monitor, and control risks. At its core, Mobile RDC is a check deposit service. Financial institution should leverage their enterprise infrastructure and existing core competencies for deposit risk management. The deposit risk scenarios associated with Mobile RDC include the same risks as deposits made through traditional channels (branch/ATM). Additionally there are risks unique to remote check capture because the depositor is still in possession of the original paper check. The potential for loss comes from the risk that both the image and the original check will be presented to the clearing system and/or the check image will be presented more than once for payment. In this scenario, known as Duplicate Item Presentment, the RDC depositing financial institution has the risk of receiving a return item well after the expiration of an uncollected funds hold, if such a hold was even placed. Because of this increased level of risk, it is not only prudent but is recommended in the FFIEC Guidance on Remote Deposit Capture that financial institutions implement controls to mitigate losses caused by customers who abuse the service. The recommended controls are in addition to commercially acceptable practices for deposit risk management.
    • © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Qualifying and Provisioning Customers Best practice approaches to determine Mobile RDC eligibility is to implement an automated system that can prequalify customers for the service. Common metrics used for eligibility analysis include, length of time as a customer, average balance in accounts and incidents of NSF or overdraft activity. Financial institutions that use a prequalification system are able to offer the solution broadly without requiring customers to apply for the service and wait to be notified that they qualified after the financial institution performs analysis. Additionally, customers should be periodically re- qualified as dictated by the financial institutions Mobile RDC Policy. Item and Deposit Limits It has become a common practice for financial institutions to impose deposit limits to manage risk with Mobile RDC. Deposit limits restrict the number and dollar amount of checks deposited through the service over a defined period of time (daily, weekly and/or monthly). The purpose of this practice is to manage the bank’s exposure to losses from checks deposited by image through mobile. By limiting the value of checks in the collection process at any given time by a depositor, the bank mitigates their exposure to overdraft losses caused by depositors withdrawing funds that are later returned from the clearing system because of duplicate presentment. After a Mobile RDC user reaches their limit, they will need to use the branch or ATM for making deposits. Checks, deposited in the branch and ATM, do not carry the risk of duplicate image presentment because the bank is in possession of the paper check. Ideally, deposit limits are systematically set based on each customer’s risk score and individual deposit behavior. However, only a few financial institutions have implemented Mobile RDC Risk systems with the sophistication required to dynamically set and manage individualized limits. A fair number of financial institutions use default limits that are by definition more conservative and risk aggravating good customers. While protecting the bank against losses with service limits and restrictions, care should be taken to avoid restricting the product to the extent that good customers do not find value in the service. An overly conservative approach will undermine the commercial success of the service offering. Financial institutions that have achieved market success with Mobile RDC have found the right balance in their risk management programs.
    • Mitek Systems, Inc. 11 © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Making the Business Case Launch Approach Consumer adoption of smartphones has made mobile banking a strategic imperative for financial institutions. Offering mobile access to advanced banking features is a “table stakes” item for competition amongst financial institutions. Mobile RDC has proven to be a highly valued service. Technology also makes it easier for customers to change banks with the roll out of online account opening and electronic funding services. Financial institutions that were early adopters of Mobile RDC gained first mover advantage and also a reputation of competence by evolving their services in line with technology. Just as critical to getting to market with a robust mobile offering, financial institutions need to take care not to undermine the effectiveness of their product launch by failing to make it broadly available. Established customers in good standing will expect to be eligible for this service. Along these same lines, imposing onerous limits and restrictions creates the potential that customers will not perceive Mobile RDC as a valued convenience. As such a successful Mobile RDC launch should be broad and well marketed. Marketing Strategy Prior to launch, existing mobile and online banking customers should be taken through a prequalification process for Mobile RDC. Qualified customers can then be directly targeted with marketing in the mobile banking app and in online banking. Marketing via the financial institution’s main web site by using a public site banner ad to grab attention and direct users towards the new feature are effective in raising interest and increasing adoption. By integrating social media plug-in’s so that users can “share” or “like” the product or experience with others in their network generates interest without costly advertising. YouTube videos, integrated into mobile and online banking are effective tools to market, educate and build interest in Mobile RDC.
    • Mitek Systems, Inc. 12 © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Conclusion Smartphones have fundamentally changed the game for businesses and their customers. Financial institutions can win by leveraging the mobile channel to engage their customers, raise satisfaction, and reinforce value. A key feature toward this end is Mobile RDC. In this era, banking that is dependent on geography will not remain relevant. While mobile technology and customer expectations are evolving rapidly, financial institutions must still take the precautions necessary to ensure their solutions are secure and sound. As the early movers with Mobile RDC have proven, the service can be launched and risk management issues addressed. The risk of not offering a robust mobile banking solution with Mobile RDC is loss of market share and relevance with customers.
    • Mitek Systems, Inc. 13 © 2012 Mitek Systems, Inc. All rights reserved. This paper may not be reproduced or distributed without the express written consent of Mitek Systems, Inc. Disclaimer: This publication contains general information only and is based on the experiences and research of Mitek Systems, Inc. Mitek Systems, Inc. is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.