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Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
Mobile Remote Deposit Capture: Changing how consumers bank and banks compete
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Mobile Remote Deposit Capture: Changing how consumers bank and banks compete

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Released: October 2011 …

Released: October 2011

Without a doubt, the introduction of the mobile smartphone—specifically Apple’s release of its first iPhone
in 2007—has dramatically transformed how consumers engage with friends, family, and business.
The small hand-held device that consumers “don’t leave home without” manages social lives, provides access to music and entertainment, keeps track of appointments, and generally has become the primary tool for managing all dimensions of the busy lives of today’s consumers.

One of the most significant areas of our lives that mobile technology is transforming is how we manage our
money. Financial services providers are recognizing consumers’ mobile lifestyles and preferences and are
developing capabilities that allow consumers to have the bank in their pocket. Now we can use our phones
to check balances, transfer funds, and make payments. Moreover, these capabilities, once at the forefront of
innovation, are quickly becoming table stakes. Going forward, to effectively meet the demands of consumers
for newer, more convenient, and more relevant apps, banks must continually seek new, innovative, and relevant
mobile capabilities.

One recently introduced mobile app that is proving to be a disruptive technology and driving force in
consumers’ adoption of mobile financial services is Mobile Remote Deposit Capture, or Mobile RDC—the
ability to deposit a check using a camera-equipped smartphone. Understanding the role Mobile RDC will
play in the bank selection process of consumers, and as a result, how banks compete, has become critical.

Toward that goal, this paper explores how:
• Mobile RDC is becoming the critical element in consumer bank selection and bank mobile strategy
• Mobile banking and Mobile RDC offer compelling economics to the financial services providers
that deploy them
• The market potential for mobile banking and Mobile RDC is strong
• Mobile banking and Mobile RDC can enhance banks’ customer value proposition

Mobile RDC is becoming a critical element in consumer bank selection and bank mobile strategy:
•Smartphone adoption is accelerating:
Over 40% of U.S. adults are forecasted to have a smartphone within
the next two years which will drive mobile banking adoption and specific features such as Mobile RDC.
• Consumers are highly interested in Mobile RDC: the percentage of consumers “extremely likely or likely to
adopt” Mobile RDC has doubled from 9% to 18% from 2009 to 2011
•Consumers readily embrace the convenience offered by Mobile RDC: the top reasons that consumers adopt
Mobile RDC include the urgency to have the check deposited for safekeeping, need for cash, and ease
of use.

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  • 1. Mobile Remote Deposit Capture Changing how consumers bank and banks compete October 2011
  • 2. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 2 Consumer Research Methodology AlixPartners LLP (“AlixPartners”), as a successor to Mercatus LLC, has been tracking and evaluating consumer banking behavior and preferences and more specifically the adoption and growth of mobile financial services since 2008.The Mobile Financial ServicesTracking Study, formerly known as the Mercatus Mobile Financial ServicesTracking Study is conducted semi-annually with an online panel of consumers ages 18 and older.The study captures several emerging trends in how consumers use their mobile devices to manage their personal and financial lives.The research also explores consumer banking channel behaviors and preferences, as well as the decisions and criteria consumers use to choose their primary banking provider. The consumer research data sited throughout this report is from an AlixPartners’ proprietary research data base.The most recent survey was fielded in May 2011 to an online panel of more than 3,000 consumers over the age of 18.
  • 3. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 3 TABLE OF CONTENTS Executive Summary 4 I. The Mobile Revolution: Changing How We Live 7 Mobile Phone Adoption Accelerates 7 Consumers Exhibit High Levels of Mobile Engagement 8 Mobile Phone Applications areTransforming Financial Services 8 II. Mobile RDC: Driving the Mobile Revolution in Banking 9 Mobile RDC Growing Momentum 9 History andTimeline of Mobile RDC 13 III. Mobile Shopping and Mobile Banking: Convenience and Engagement 16 The Importance of Mobile Apps 16 Mobile Banking and Shopping Can Lead to Enhanced Consumer and Engagement 16 IV. Momentum for Consumer Adoption of Mobile Banking 19 The Early Days of Mobile Banking 19 Tracking the Growth of Consumer Adoption of Mobile Banking 20 Usage of Mobile Banking Features 20 V. How Mobile and Mobile RDC are Changing the Way Banks Compete 22 Mobile Banking Adoption and Forecast 22 Mobile’s Role in Bank Selection 22 Mobile RDC:The Critical Feature within a Mobile Banking Offering 23 Investing in Mobile RDC Awareness Drives Adoption 24 VI.The Business Case for Mobile RDC and Mobile Banking 25 Mobile Banking Adopters are Attractive Customers 25 Mobile Banking Adopters Drive Superior Customer and Channel Economics 25 Mobile RDC is a Compelling Driver of Acquisition and Retention 26 Sidebar 1:Acquisition and Retention Benefits of Mobile Banking 27 Sidebar 2: Evaluating the First-Mover Mobile Advantage 28
  • 4. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 4 VII. Outlook for Mobile RDC Adoption and the Resulting Bank Economics 30 TheTarget Market for Mobile RDC 30 Market Demand for Mobile RDC 30 Forecasting Check MigrationVolume 31 The Potential for Banking Industry Cost Reduction 32 The Fee-Based Revenue Potential for Mobile RDC 32 TheTrade-Off between Cost Reduction and Revenue Generation 33 VIII. Heard on the Street: Bank Executives’ Perspectives on Mobile RDC 33 Bank Go-to-Market Approaches 34 Defining Customer Eligibility and Activity Parameters 35 Managing Risk 36 Adoption and Operational Implementation 36 IX. Addressing Future Concerns 36 X. Conclusion and Forward Outlook 37 Table of Figures 38 Methodology Appendix 40 About this Paper 42 About the Authors 42 About AlixPartners and Mitek Systems 44 Disclaimer 45 TABLE OF CONTENTS (continued)
  • 5. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 5 EXECUTIVE SUMMARY Without a doubt, the introduction of the mobile smartphone—specifically Apple’s release of its first iPhone in 2007—has dramatically transformed how consumers engage with friends, family, and business.The small hand-held device that consumers “don’t leave home without” manages social lives, provides access to music and entertainment, keeps track of appointments, and generally has become the primary tool for managing all dimensions of the busy lives of today’s consumers. One of the most significant areas of our lives that mobile technology is transforming is how we manage our money. Financial services providers are recognizing consumers’ mobile lifestyles and preferences and are developing capabilities that allow consumers to have the bank in their pocket. Now we can use our phones to check balances, transfer funds, and make payments. Moreover, these capabilities, once at the forefront of innovation, are quickly becoming table stakes. Going forward, to effectively meet the demands of consumers for newer, more convenient, and more relevant apps, banks must continually seek new, innovative, and relevant mobile capabilities. One recently introduced mobile app that is proving to be a disruptive technology and driving force in consumers’ adoption of mobile financial services is Mobile Remote Deposit Capture, or Mobile RDC—the ability to deposit a check using a camera-equipped smartphone. Understanding the role Mobile RDC will play in the bank selection process of consumers, and as a result, how banks compete, has become critical. Toward that goal, this paper explores how: • Mobile RDC is becoming the critical element in consumer bank selection and bank mobile strategy • Mobile banking and Mobile RDC offer compelling economics to the financial services providers that deploy them •The market potential for mobile banking and Mobile RDC is strong • Mobile banking and Mobile RDC can enhance banks’ customer value proposition Mobile RDC is becoming a critical element in consumer bank selection and bank mobile strategy: • Smartphone adoption is accelerating: Over 40% of U.S. adults are forecasted to have a smartphone within the next two years1 which will drive mobile banking adoption and specific features such as Mobile RDC. • Consumers are highly interested in Mobile RDC: The percentage of consumers “extremely likely or likely to adopt” Mobile RDC has doubled from 9% to 18% from 2009 to 2011.2 • Consumers readily embrace the convenience offered by Mobile RDC: The top reasons that consumers adopt Mobile RDC include the urgency to have the check deposited for safekeeping, need for cash, and ease of use. 1 AlixPartners Analysis 2 AlixPartners Mobile Financial ServicesTracking Study
  • 6. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 6 • Consumers are willing and prepared to switch primary banks to gain access to Mobile RDC: 43% of consumers state that the number-one mobile banking feature they would switch for is the ability to take a picture of a check for deposit with their camera-equipped smartphone. • Mobile RDC adopters are more satisfied with their primary bank: 81% of Mobile RDC users state they are extremely or very satisfied with their primary bank, as compared to 72% for non-Mobile RDC users. Mobile banking and Mobile RDC offer compelling economics to the financial services providers that deploy them: • Mobile banking adopters are attractive customers: Adopters have higher average income, higher average assets, and higher bank deposits. • Mobile banking offers improved channel economics: Cost-to-serve mobile bankers is 18% lower than for non-adopters, as mobile bankers make fewer branch visits and frequent lower-cost channels. • Mobile RDC is a compelling acquisition feature: The number-one mobile feature consumers would switch banks for is Mobile RDC. • Mobile RDC users are less likely to switch: Among consumers who used mobile banking in the past year, Mobile RDC is the feature associated with zero switching. • Mobile RDC users deposit more: Mobile RDC adopters deposit 25% more checks than non-adopters, enabling higher balances. The market potential for mobile banking and Mobile RDC is strong: • Mobile banking adoption is expected to accelerate: Nearly half of U.S. adults are expected to adopt mobile banking by 2016, with the highest adoption rates among consumers between 18 and 44 years of age. • High penetration of Mobile RDC is projected by 2016: 38% penetration among U.S. adults versus 2% in 2011, with the highest adoption among the younger consumers (between ages 18 and 34). • High level of Mobile RDC check migration expected by 2016: 2.1 billion checks projected to migrate to Mobile RDC from other channels, with Mobile RDC adopters depositing 73% of their paper checks via Mobile RDC. • Mobile RDC offers potential cost savings at the branch-level: Industry-wide cost savings of $1.6 billion projected based on 2.1 billion checks migrated by 2016, from teller cost savings. Mobile banking and Mobile RDC can enhance banks’ customer value proposition: • Provides enhanced convenience for customers as Mobile RDC provides consumers with a new channel of access. • Delivers higher level of communication and engagement through more value-add and frequent customer touch points. • Addresses the needs of specific consumer segments, such as the unbanked by offering a mobile check- cashing solution.
  • 7. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 7 As banks consider the development and ultimate role of Mobile RDC in their overall mobile banking offering, there are three success factors to consider: 1. Invest in consumer awareness: Create a clear communication strategy to drive consumer awareness; there is a direct link between awareness and adoption. 2. Message on the benefits of convenience: Market the expected higher levels of service and convenience that will help customers make their financial lives easier. 3. Deploy as single app: Facilitate speed-to-market and therefore access to the positive economics offered by mobile banking by a single app deployment instead of waiting for full integration. Given consumer trends, competitive dynamics, and the challenged economics of retail banking, mobile image recognition technology—and Mobile RDC specifically—may prove to be one of the most important innovations to be deployed within the retail banking industry in this decade. How financial services providers strategically leverage Mobile RDC will profoundly shape their ability to compete and win in today’s increasingly mobile marketplace.
  • 8. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 8 THE MOBILE REVOLUTION: CHANGING HOWWE LIVE Mobile Phone Adoption Accelerates The impact mobile phones have had on our lives is revolutionary. First, we gravitated toward mobile phones just for the convenience of connecting with others anywhere anytime.Today, we do not leave our houses or offices without them. Driving this dramatic change in how we live are not just mobile phones in general, but more specifically, the rapid adoption of smartphones across all age segments. Smartphones have become the all-in-one devices that allow us to snap a photo, pay a bill, arrange a social event, purchase coffee in Starbucks, find a restaurant, search for a lower-priced item, receive a coupon as we are walking past a store, engage with friends at a social networking site, take a picture of a check for deposit, and of course, make a phone call. Smartphone ownership has grown from approximately 2% of U.S. adults in 2006 to 22% at the end of 20103 . By May 2011, 28% of all consumers owned a smartphone.As seen in Figures 1 and 2, smartphone ownership among consumers between the ages of 26 and 34 has grown to 45% in Q2 2011 versus 35% in Q2 2010. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009-Q4 2010-Q2 2010-Q4 32% 68% 35% 65% 45% 55% Mobile Phone Users, 26-34 Age Segment, Q4 2009 - Q4 2010 Conventional phone Smartphone Source: AlixPartners Mobile Financial Services Tracking Study: October 2009, May 2010, December 2010. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Conventional 45% Smartphone 45% Tablet 4% Mobile Phone Users, 26-34 Age Segment, Q2 2011 Source: AlixPartners Mobile Financial Services Tracking Study: May 2011 figure 1: Smartphone Ownership figure 2: mobile Devices Used Daily Looking forward, smartphone ownership is expected to grow to 43% of U.S. adults in the next two years, and to 60% by the year 2016.4 Ultimately, smartphones can be anticipated to be a ubiquitous device among U.S. consumers. 3 CTIA-The Wireless Association 4 AlixPartners analysis
  • 9. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 9 Consumers Exhibit High Levels of Mobile Engagement Consumers are increasingly using their mobile devices in ways that go far beyond just making phone calls. Usage of such mobile features as texting, playing games, and downloading music and video content is growing.The biggest increase in usage has been witnessed in the area of social networking, where mobile devices have come to replace many other forms of digital social interaction. Smartphone owners report a steady increase in the usage of mobile devices to access social networking sites from Q2 2010 to Q2 2011, as usage grew from 25% to 32% over the 12-month period5 . Notably, this mobile phenomenon in social networking has nearly replaced PC-based access. Facebook reported in Q1 2011 that one-third of its active users (users who have returned to the site in the last 30 days) now access their account via mobile devices rather than PCs6 .The role of mobile devices in social media is expected to continue to rise, as it has across a wide range of consumer mobile activities (Figure 3). 100% 80% 60% 40% 20% 0% 80% 74% 72% Make receive phone calls 61% 67% 65% Send receive text messages 55% 54% 54% Check send email 47% 51% 49% Access the Internet 14% 10% 10% Use GPS features 19% 17% 21% Use instant messaging (IM) 19% 17% 16% Take photos 19% 23% 23% Play games 6% 7% Purchase digital content (such as applications, ring tones, or wallpaper) 25% 32% 32% Access social net- working sites (such as MySpace, Facebook, Twitter) 7% Download music 7% Watch movies or video Source: AlixPartners Mobile Financial Services Tracking Study: May 2010, December 2010, May 2011. Q2 2010 Q4 2010 Q2 2011 Smartphone Users, Q2 2010 – Q2 2011 figure 3: Consumer Use of Mobile Phone Features on a Daily Basis Mobile Phone Applications are Transforming Financial Services One of the biggest areas of our lives that mobile has started to revolutionize is how we manage our money. Without question, the ability to use our mobile devices to review account balances, receive alerts to avoid overdraft fees, transfer funds, search for the lowest price on an item, or take a picture of a check for deposit has significantly changed how we control our finances, save, and spend. Not surprisingly, consumer adoption of mobile is also having a significant impact on how we interact and “do business” with our banks; traditional channels such as branches, online via a PC,ATMs, mail, and call centers are being challenged by consumer preference for smartphones and tablets.This phenomenon is not only changing how consumers bank, but also what they expect from their banks, and ultimately with whom they choose to bank. 5 AlixPartners, Mobile Financial ServicesTracking Study 6 Facebook Facts and Statistics- Facebook.com
  • 10. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 10 MOBILE RDC: DRIVINGTHE MOBILE REVOLUTION IN BANKING Mobile RDC Growing Momentum Banking anywhere, anytime is the expectation of today’s mobile consumer. As smartphone technology has enabled mobile devices to nearly or completely replace the PC, consumers can have their “bank” with them where ever they are. Mobile banking, first offered by Harris Bank (a division of Bank of Montreal) in 2000, is today increasingly embraced by consumers who, more and more, live their lives in a mobile way. We will discuss the role and importance of having mobile banking capabilities in an upcoming section of this paper, but we will first focus on one key mobile banking application, namely Mobile RDC. Looking to the future, Mobile RDC is likely to be a disruptive technology and driving force in consumers’ adoption of mobile financial services. Recent research points to Mobile RDC as the critical element of a bank’s mobile strategy: • Consumers are highly interested in Mobile RDC. • Consumers are willing and prepared to switch primary banks to gain access to Mobile RDC. • Consumers who use Mobile RDC are more likely to stay with their bank. • Consumers readily embrace the convenience factor offered by Mobile RDC. Consumer interest in Mobile RDC has grown steadily since 2009.As seen in Figure 4, the percentage of consumers “extremely likely or likely to adopt” Mobile RDC has doubled from 9% to 18%, with the greatest level of interest coming from 18-to-34 year olds.As compared to other age cohorts, consumers 18-to-34 years old report a 26% top-2 box “willingness to adopt”. 35% 30% 25% 20% 15% 10% 5% 0% Source: AlixPartners Mobile Financial Services Tracking Study: October 2009, May 2010, December 2010, May 2011. 18% 28% 31% 18-25 26% 19% 21% 30% 26-34 28% 10% 18% 18% 35-44 22% 6% 10% 11% 45-54 14% 4% 6% 8% 55-64 9% 3% 3% 4% 65+ 6% 9% 14% 16% All Consumers 18% Q4 2009 Q2 2010 Q4 2010 Q2 2011 figure 4:Top-2 Box Scores Consumer Willingnessto Adopt Mobile RDC By Age Segment and Overall, Q4 2009 – Q2 2011
  • 11. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 11 Mobile RDC also has the ability to drive switching. As seen in Figure 5, the ability to use a camera-equipped smartphone/tablet to take a picture of a check for deposit is the number-one feature for which consumers will switch banks; in May 2011, it was cited as such by 43% of consumers who were “at least or somewhat likely to switch primary banks to get access to mobile features”. This capability was ranked nearly twice as important as other features such as the ability to check account balances (28%), the ability to pay bills wherever you are (28%), or the ability to access statements of account history (23%). Make a deposit Check account balances 28% 18% Pay bills wherever you are 28% 19% 23% 15% Check balances on savings, checking or credit cards 23% 15% Transfer funds 20% 14% Take pictures of check or bills 20% Recent transactions 19% 14% Alerts on account activity or passing of set thresholds 19% 14% Due date of payment 14% 10% Take pictures of financial documents 13% Find location of nearest ATM along with maps and directions 12% 9% Statements of account history Status on check, stop payment on check 11% 10% Access to card statements 11% 9% Monitoring of term deposits 8% 7% Access to loan accounts 6% 4% Access to investment accounts 6% 4% Changing PINs 4% Peer-to-peer payments 4% 3% 0% 10% 20% 30% 40% 50% } figure 5: Mobile Banking FeaturesThat Would Cause Consumers to Switch Primary Banks Mobile Banking Adopters Somewhat or More Likely to Switch Primary Banks for Mobile Banking, Q4 2010 – Q2 2011 Q2 2011 Q4 2010 Source: AlixPartners Mobile Financial Services Tracking Study: December 2010, May 2011. 43% While still a nascent technology, Mobile RDC is gaining traction as a highly valued service for which consumers will switch banks. And, importantly, once consumers have access to Mobile RDC and use the service, they show the least amount of switching banks among mobile banking adopters. This retention effect is seen in Figure 6.Mobile RDC,described as a service“to deposit checks via taking a picture with a mobile device”,was associated with zero consumers switching.Clearly,mobile banking adopters value the service, will switch to a bank that offers mobile banking to get access to the service,and,once at that bank,will stay longer.
  • 12. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 12 Deposit checks via taking picture with a mobile device Other direct deposits (social security, pensions, etc.) Mobile banking Automated withdrawals (rent, mortgage payments, etc.) Online banking Safety deposit box Paper checks ATM access Due date of payment Email and/or mobile alerts for account balances or fraud Mobile payments Online bill pay In-branch services (teller, customer service, product Phone banking/through bank call center Overdraft protection figure 6: Switching Rates and retention Effect of Mobile RDC Bank Switching Rate of Mobile Banking Adopters by Services Used OneYear Ago, Q2 2011 4.7% 4.9% 5.4% 5.6% 6.5% 7.7% 8.0% 11.3% 12.6% 12.9% 14% 12.5% 14.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% Source: AlixPartners Mobile Financial Services Tracking Study: May 2011. 3.8% 0.0% While actual adoption of Mobile RDC is currently small (expected to grow from 1% in 2010 to 2% in 20117 ), Mobile RDC users readily recognize the convenience factor that the service offers.As seen in Figure 7, top reasons for using Mobile RDC include the urgency to deposit the check for safe keeping, the urgency to deposit the check due to the need for cash, and the ease of using the service. figure 7: factorsThat Would Cause Consumersto Use Mobile RDC Overall, Q2 2011 The urgency to have the check deposited for safe keeping 43% The urgency to have the check deposited due to a need for cash 43% 41% 29%The low cost of the service 19% 17% The inconvenient location of the nearest ATM 16% The inconvenient location of the nearest branch of my primary bank 15% I would never use this service 7% The ease of using the service Having one or more large checks Having one or more small checks 0% 10% 20% 30% 40% 50% Source: AlixPartners Mobile Financial Services Tracking Study: May 2011 Consumer rationale for using Mobile RDC gives it clear advantages over traditional deposit channels, namely, mail,ATM, or branch. Essentially, Mobile RDC is easy to use, it saves a trip to the bank or ATM, and it gets the check there safely. 7 AlixPartners Analysis
  • 13. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 13 Among different age cohorts, there are important differences in how important consumers view the advantages of Mobile RDC.As noted in Figure 8, 33% of younger cohorts ages 18-to-25 reported ease of using the service as a key reason for adoption, while only 14% of those 65 and older reported this advantage. In parallel, 36% of 18-to-25 year olds reported the urgency to have a check deposited due to a need for cash as a key reason for using it, compared to only 8% for those over 65. figure 8: FactorsThat Would Cause Consumersto use Mobile RDC by Age Segment The ease of using the service 14% 19% 22% 28% 34% 33% 8% 17% 23% 25% 30% 36% The urgency to have the check deposited due to a need for cash 13% 13% 19% 19% 20% 19% The urgency to have the check deposited for safekeeping 5% 8% 11% 15% 18% 16% The low cost of the service 8% 9% 12% 11% 18% 15% The inconvenient location of the nearest branch of primary bank 5% 7% 9% 11% 17% 14% The inconvenient location of the nearest ATM 4% 4% 7% 8% 9% Having one or more small checks 11% 4% 4% 6% 6% 7% Having one or more large checks 9% 1% 3% 2% 2% 1% Other, please specify 1% I would never use this service 75% 67% 60% 48% 37% 40% Q2 2011 65+ 55-64 45-54 35-44 26-34 18-25 0% 20% 40% 60% 80 Source: AlixPartners Mobile Financial Services Tracking Study: May 2011.
  • 14. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 14 History and Timeline of Mobile RDC To provide context for the Mobile RDC opportunity, it is worth briefly reviewing the history of the technol- ogy and its current position in the marketplace.The Check 21 Act, passed by Congress in 2003, allowed for a digital image of a paper check to replace it, therefore eliminating the need to physically deposit the check at a bank, and ultimately fostering the growth of Mobile RDC. On the technology front, Mitek Systems (MITK- NASDAQ) was an early pioneer in image capture software and played a key role in the development of remote deposit capture. Initially, remote deposit capture was offered to customers or business owners via use of a home or office scanner. In 2006, USAA became the first bank to offer RDC to its customers to use at home via a desk- top scanner powered by Mitek Systems. In 2009, Mitek Systems also began licensing its proprietary mobile software to other technology partners, Fiserv, JB Software, NCR and RDM.That same year, USAA began offering Mobile RDC to their customers using iPhones. From that point forward, a small group of pioneering banks and credit unions began offering this technology to their customers.The timeline of introductions and the role that Mitek has played in this rollout can be seen in Figure 9.
  • 15. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 15 figure 9: history andtimeline of mobile RDC • Congress approves Check 21 creating the substitute check and enabling remote deposit capture 2003 • USAA, powered by Mitek Systems, becomes first bank to offer remote deposit capabilities to consumers • USAA customers use approved desktop scanners to scan and deposit checks from their homes 2006 • Mitek Systems files patent on its image capture technology 2009 •Mitek Systems licenses mobile remote deposit capture software to Fiserv, JB Software, NCR, and RDM • RDM begins actively piloting mobile RDC for merchants • USAA is first major financial institution to launch mobile RDC, powered by Mitek Systems, for the iPhone directly to consumers • News of Bank of America intention to test mobile deposit capture services for consumers is released • Randolph-Brooks Federal Credit Union launches mobile remote deposit capture 2010 • Torrance Community Credit Union launches mobile RDC • Royal Bank America announces impending launch of mobile remote deposit product • Chase launches mobile remote deposit capture • Mitek Systems licenses mobile RDC software to Jack Henry, Wausau, Cachet, FIS, BankServ, Diebold, Bluepoint, Vsoft, ClairMail, Ensenta, mFoundry 2011 • PayPal launches Mobile RDC • Mountain America Credit Union adds mobile deposit capabilities to its services • TotalBank partners with Vsoft Corporation to implement remote deposit capture technology • Rockland Trust announces introduction of mo- bile banking services including RDC • Chase announces strategic agreement with Mitek Systems in order to develop image-capture technologies across multiple smartphone operating systems • US Bank extends its mobile banking services to include mobile check deposit for iPhones • Fidelity Investments announces that its mobile apps have the ability to scan and deposit checks • Charles Schwab releases an update to its Android app that adds mobile check deposit feature • PNC announces adoption of Mobile RDC for users of iPhone, iPod Touch or iPad 2 • Mitek Systems gains four additional patents for its RDC image technology • Mitek Systems adds Bank of America as a client of its Mobile Deposit technology Source: Press releases
  • 16. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 16 Today, USAA, Chase, US Bank, and PNC are among the top banks offering Mobile RDC. In addition, PayPal, several regional banks including RocklandTrust; and several credit unions including Randolph Brooks CU, and Digital FCU also now offer Mobile RDC. In the spring of 2011, two leading brokerage firms, Fidelity and Schwab, also launched the service. The deployment schedule of individual banks and credit unions can be seen in Figure 10. Q1 • State Farm Q3Q2 • Royal American Bank • WV United FCU • USAA 2009 Q4 2010 • Randolph Brooks CU • Digital FCU • Torrance Community CU • BCU • NASA FCU • PayPal • Chase 2011 • Merchant Direct • Mountain American CU • Lubbock National Bank • Rockland Trust • Oakworth Capital Bank • US Bank • Affinity Bank • MWA (Modern Woodman Bank) • Private Bank of Buckhead • TotalBank • TBA• Conestoga Bank • PNC • Summit Bank • Franklin Synergy Bank • American Chartered Bank • Town and Country Bank • Fidelity Investments • Charles Schwab • Mercantile Bank of Michigan • Commerce Bank of Arizona • Summit State Bank • First National Bank of Gulf Coast • Ohio Valley Bank figure 10: Deployment Rollout of Mobile RDC By 2012,AlixPartners anticipates that most if not all of the top banks will offer Mobile RDC to their customers. The view among many leading banks is that the technology has become a “must have” capability that will enhance communication and engagement with their customers. Mobile RDC also represents an opportunity to attract new customers and potentially reduce operating costs as banks shift consumers from high-cost branch channels to the mobile banking channel.
  • 17. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 17 MOBILE SHOPPING AND MOBILE BANKING: CONVENIENCE AND ENGAGEMENT The Importance of Mobile Apps The growing demand for mobile banking services and applications such as Mobile RDC certainly comes from the extraordinary convenience and value that mobile devices and smartphones provide. Part of what makes smartphones so compelling are the downloadable mobile apps that can turn our phones into “uber” devices and that are helping to drive consumers’ migration from conventional/feature phones to smartphones. The explosion in app downloads is testament to the voracious appetite consumers have for these applications. In 2010, IDC estimated that some 10.7 billion apps were downloaded, and that number is expected to grow to 183 billion by 20158 . In July 2011, Apple reported that, just two and a half years after launching its app store in July 2008, its app store downloads for iPhones and iPads topped 15 billion, up 50% from January 2011.9 Today the most popular downloaded apps are games and entertainment, as measured by appdata.com. In August 2011, games dominated the top ten downloaded app list with names including Cityville, Empires and Aliens,Texas Hold’em Poker, and Farmville10 .While these apps are entertaining, and help pass the time on the bus, train, or subway, the real game changers (no pun intended) will come from shopping and mobile banking apps, such as Red Laser and Mobile RDC.These apps are changing the way we shop, and how and who we bank with, and will have dramatic competitive impacts. In the world of financial services, offering the right app/mobile feature will define a successful mobile offering and enable financial institutions to deliver a compelling value proposition to attract and retain customers. Mobile Banking and Shopping Can Lead to Enhanced Consumer Engagement When not playing “Angry Birds”, consumers are actively using their mobile devices to gather information on a product or item of interest, shopping various retailers, and then making a purchase. One popular mobile shopping feature, Red Laser, has seen dramatic growth, with downloads going from one million in December 2009 to 9 million in March 201111 . Today 73% of all smartphone owners use shopping features, the most popular of which include researching information about a particular item, reading product reviews, and searching for the lowest price on an item.12 Not surprisingly, younger consumers are the biggest users of these features. Further, beyond using these apps for research, consumers are changing their purchase decisions, sometimes right there in the store while shopping.This activity is particularly strong among 18-to-25 year olds. 8 IDC,App Growth Report, June 28, 2011 9 Apple press release July 7, 2011 10 Appdata.com,August 24, 2011 11 techcrunch.com,“eBay’s Barcode Scanning App RedLaser Nearing 9 Million Downloads”, March 14, 2011 12 AlixPartners, Mobile Financial ServicesTracking Study
  • 18. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 18 As seen in Figure 11, after using mobile shopping apps, 40% of these consumers said they made a purchase of an item in a nearby store at a lower price, 27% said they purchased an item from a cheaper online alternative, and 15% said they requested a price match. Overall, 80% of consumers in this age cohort said that usage of mobile shopping features changed their shopping decision/behavior13 . 65+ 55-64 45-54 35-44 26-34 18-25 Purchased the item I was interested in from a nearby store with a lower price 17% 28% 28% 35% 31% 40% Purchased the item I was interested in from a cheaper online alternative 6% 33% 26% 35% 39% 27% They did not impact my shopping decisions 67% 44% 48% 31% 25% 20% Used product reviews to buy a different item 17% 11% 20% 19% 27% 16% Requested a price match from the retailer 11% 6% 6% 31% 19% 15% 0% 20% 40% 60% figure 11: Impact of Using Mobile Shopping Apps on Shopping Behavior Smartphone Users By Age, Q2 2011 Source: AlixPartners Mobile Financial Services Tracking Study: May 2011. Strong parallels can be drawn between mobile shopping apps and mobile banking apps such as Mobile RDC. Fundamentally, consumers seek convenience in all areas of their lives and mobile device technology gives them that convenience. However, this mobile capability also provides shoppers with the ability to change their purchase behavior at the point of purchase and, in the case of banking, can drive consumers to switch banking providers to get access to newer technologies.While representing potential competitive threats, mobile capabilities also offer significant opportunities to enhance engagement and communication with customers. 13 AlixPartners, Mobile Financial ServicesTracking Study
  • 19. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 19 Mobile devices can enable banks and retailers to have both more touch points of communication with their customers and to interact more often. For banking customers, instead of waiting to go online with their PC, visit a branch or ATM, or call into a customer service center, consumers can simply use their mobile device wherever and whenever convenient to make an inquiry, complete a transaction, or resolve a problem. No doubt this will lead consumers to have more interaction with their bank.And conversely, banks can use consumers’ new preferred channel— their smartphone—for example, to send value-added alerts and messages more often, and more efficiently.The potential for increased engagement is significant.
  • 20. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 20 MOMENTUM FOR CONSUMER ADOPTION OF MOBILE BANKING The Early Days of Mobile Banking To understand the mobile imperative for banks and other financial institutions, it is important to review where banks have come from in their mobile offerings and what they must strive toward in the future. Mobile banking generally refers to the ability of an individual to use a mobile device to access their bank account to check balances, transfer money, and pay bills. In the late 1990’s, mobile banking was initially offered via Short Message Service (SMS). Banks moved to this format because consumers were quite familiar with, and had readily embraced, texting and instant messaging. In this early version of mobile banking, consumers could perform only limited banking activities.Today, many banks continue to also offer SMS-based mobile banking. Some of these applications include the ability to send an alert to a customer when they are approaching their overdraft limit. SMS applications can also enable banks to instantly alert customers to potential fraudulent activity. Banks such as Key Bank and Capital One offer text-based mobile banking to enable customers to bank any way they want and also not require them to be online. Over time, as smartphones were developed that could support Wireless Application Protocols (WAP), banks began to offer their customers mobile banking via the mobile web. Until recently, most mobile banking was performed via SMS or mobile web.The development of the iPhone and Android operating systems has transformed mobile banking through the increased use of special programs for mobile banking, namely specific banking applications (apps) that have transformed mobile banking. As banks have come to recognize the importance of offering mobile banking as a key part of the customer relationship, they continue to offer their services via the dominant device protocols—Android, Blackberry and iPhone. After device protocol decisions, designing an effective deployment strategy is key. The specific question centers on whether to roll out a series of separate apps for specific services over time or to roll out a complete integrated solution all at once.There is seemingly good rationale for each approach. Some banks believe that offering separate apps, rather than building a related suite of products, decreases time-to-market. Others argue that multiple independent apps will risk user fatigue and confusion, whereas an integrated solution offers continuity and ease of use.As a note, 90% of the Mobile RDC solutions in the market today are stand-alone rather than integrated apps.
  • 21. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 21 Looking ahead to the future, as protocol and standards issues fade, banks will likely focus their efforts on managing engagement and communication.The future is going to be about how mobile enhances the customer experience. Mobile RDC’s compelling convenience will play a critical role. Tracking the Growth of Consumer Adoption of Mobile Banking Since 2000 when the first mobile banking services were introduced by Harris Bank, mobile banking adoption has come a long way. In 2008, 7% of adult U.S. consumers reported conducting mobile banking. By 2011 that rate had jumped to 12%. Driving this adoption are several factors, including increased awareness of mobile banking and increased comfort with the technology. However, one of the biggest drivers is the aggressive adoption of smartphones by consumers. By the end of the decade, most if not all phones will be smart- phones, and this can be expected to fuel further adoption. Not surprisingly, the rate of adoption varies widely by age (Figure 12). Given the higher rate of smartphone adoption among younger consumers, the biggest increase in mobile banking adoption occurred among 18-to-25 year olds, tripling from 7% in 2008 to 23% in 2011. On the other hand, mobile banking adoption among older consumers is much slower. Between 2008 and 2011, 35-to-44 year olds’ adoption of mobile banking has ranged from 10-14%; for those over 45, adoption rates have hovered around 5-7%. 25% 20% 15% 10% 5% 0% 18-25 26-34 35-44 45-54 55-64 65+ All Consumers 7% 13% 16% 18% 21% 22% 23% 7% 12% 16% 20% 22% 23% 21% 10% 11% 10% 11% 10% 13% 14% 4% 11% 12% 7% 7% 8% 6% 5% 7% 6% 5% 5% 6% 5% 3% 5% 4% 2% 1% 2% 1% 7% 10% 10% 10% 10% 12% 12% Q2 2008 Q4 2008 Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q2 2008 – Q2 2011 figure 12: Mobile Banking Adoption Rates By Age Segment Source: AlixPartners Mobile Financial Services Tracking Study: May 2008, October 2008, May 2009, October 2009, May 2010, December 2010, May 2011. Usage of Mobile Banking Features Consumers are becoming increasingly more sophisticated in their use of mobile banking services.At first, consumers used mobile devices to search for nearby ATMs and to check account balances.Today they are transferring money between accounts, making purchases, and taking pictures of checks for deposit.This increasing use of more sophisticated features reflects growing comfort with the technology and the desire for greater convenience.As we discussed earlier, there are clear differences in use of mobile banking features by age.As seen in Figure 13, younger consumers are more likely to pay bills via their phones while older consumers are more likely to look at monthly statements.
  • 22. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 22 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Look at monthly statements Locate ATMs or bank branches Take a picture of a check for deposit Pay bills 65+ 55-64 45-54 35-44 26-34 18-25 Check for alerts 10% 13% 16% 17% 6% 14% 10% 8% 13% 10% 6% 10% 8% 11% Transfer money from my account to another individual or organization 7% 10% 8% 11% 3% 8% 7% 13% 9% 8% 7% Take a picture of a check or bill, but not for deposit 7% 7% 11% Take a picture of a financial document other than a check or bill 5% 8% 10% Transfer money between accounts at my bank 8% 5% 6% Q2 2011 figure 13: Mobile Banking Feature Usage by Age Segment Source: AlixPartners Mobile Financial Services Tracking Study: May 2011. Due to this rapid adoption of mobile technologies, changes in the delivery of financial services will accelerate.ATMs have transformed banking by giving us access to our cash 24 hours a day, wherever we travel. Mobile RDC represents that next banking feature that will transform how we bank with our bank. With Mobile RDC we can deposit a check from the comforts of our home or office, have quicker access to our cash, and get updates on our accounts in real-time.This capability will change how we interact with our bank, the frequency of those interactions, and potentially whether or not we stay with our bank.As a result of consumer adoption, this capability has the potential to change the way banks compete.
  • 23. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 23 HOW MOBILE AND MOBILE RDC ARE CHANGING THEWAY BANKS COMPETE Mobile Banking Adoption and Forecast Mobile banking adoption is on the verge of a rapid acceleration in growth, based on the increased trend toward smartphone adoption, increasing consumer confidence in the safety of transacting with their mobile phone, and increased awareness and availability of mobile banking services.Today, there is widespread availability of mobile banking among leading banks: 41 of the top 50 banks currently offer mobile banking, including all of the top ten banks14 . In 2016,AlixPartners forecasts a 46% overall adoption rate for mobile banking among U.S. adults. As seen in Figure 14, the biggest change in mobile banking adoption will occur in the younger group, where we expect 76% of 18-24 year olds to adopt as compared to only 5% of those over 65. figure 14: Mobile Banking Adoption Forecast by Age Segment 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010 Q2-2011 2011 2012 2013 2014 2015 2016 65+ Average 45-64 26-44 18-25 76% 68% 46% 36% 5% By Age, 2010 - 2016 Source: AlixPartners Mobile Financial Services Tracking Study: May 2011; AlixPartners analysis. 69% 59% 39% 31% 4% 61% 51% 33% 23% 3% 52% 40% 26% 16% 3% 43% 29% 19% 11% 2% 33% 22% 15% 8% 1% 18% 12% 6% 1% 25% 17% 11% 7% 1% 20% Mobile’s Role in Bank Selection Increasingly, mobile banking is becoming a critical factor for consumers in choosing their primary bank.As shown in Figure 15, in May 2010, 20% of consumers reported that mobile banking was extremely important or important in their decision to switch primary banks. One year later, that figure grew to 35%.The acceleration of consumer demand for Mobile RDC is clear. 14 AlixPartners analysis
  • 24. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 24 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Consumers That Switched Primary Banks in the Previous 6 Months, Q2 2010 – Q2 2011 figure 15: Importance of Mobile inthe Decisionto Switch Primary Banks Q2 2010 Q4 2010 Q2 2011 Source: AlixPartners Mobile Financial Services Tracking Study: May 2010, December 2010, May 2011. 32% 75% 5% 5% 0% 32% 46% 13% 5% 0% 5%14% 22% 32% 39% 11% 0% 5% 24% 11% 15% Slightly important Not at all important Extremely important Important Somewhat important 5% Mobile RDC: The Critical Feature within a Mobile Banking Offering Given the importance of mobile in bank selection, it is essential to have a strategy that incorporates the right features and applications. Few mobile banking applications have the ability to change the landscape as does Mobile RDC.Therefore, it is a critical feature of a financial services provider’s mobile banking offering.As discussed earlier, Mobile RDC is the mobile banking feature for which consumers will switch banks, and once they have it they are less likely to switch. In addition to enhancing acquisition and retention, other important benefits for deploying a Mobile RDC capability exist. Based on data gathered from Mobile RDC users, Mobile RDC can strengthen deposit balances and it is important for overall satisfaction with the consumer’s primary banking provider. A significant pattern is evident in consumer behavior to support Mobile RDC: • One third of Mobile RDC users deposited a check via Mobile RDC in the past month as of May 2011, up from 24% at the end of 2010. • Adopters of Mobile RDC deposit 25% more checks than non-Mobile RDC adopters, and overall they frequent the less expensive channels as compared to non-Mobile RDC adopters. Over time this can translate into higher deposit balances and lower costs to serve. • 81% of Mobile RDC users stated they were extremely or very satisfied with their primary bank, as compared to 72% for non-Mobile RDC adopters15 . 15 AlixPartners, Mobile Financial ServicesTracking Study
  • 25. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 25 Investing in Mobile RDC Awareness Drives Adoption Today, overall level of consumer awareness of Mobile RDC is 45%. It is imperative for banks to invest in increasing customer awareness of Mobile RDC through digital communications with customers via mobile devices and online, through traditional mass media channels, and via their banking channels.Among the leading national banks, 62% of Chase primary bank customers reported being generally aware of Mobile RDC.Across banks the general level of awareness ranges from 27% to 62%. Chase’s strong branding and media campaigns supporting Mobile RDC contribute to this awareness, and most likely to their customers’ adoption.
  • 26. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 26 THE BUSINESS CASE FOR MOBILE RDC AND MOBILE BANKING As described earlier, there is now widespread availability of mobile banking among the leading banks. Increasingly, banks are building out their mobile offerings—no longer as an innovation play, but as a core element of their overall retail strategy. Banks recognize the imperative to serve the needs and expectations of their increasingly mobile customers. Underlying these strategic efforts is a solid business case for both mobile banking and Mobile RDC.The mobile business case is built on four factors: • Mobile banking adopters are attractive customers. • Mobile banking adopters drive superior channel economics. • Mobile RDC is a compelling driver of customer acquisition. • Adopters of Mobile RDC have lower attrition rates. Mobile Banking Adopters are Attractive Customers An important element of the general business case for mobile banking, and Mobile RDC specifically, is the positive impact that building a base of mobile banking customers can have on a bank’s operating performance. On several dimensions, mobile banking adopters are more attractive customers16 than non- mobile adopters. Specifically, mobile banking adopters demonstrate the following characteristics: higher aver- age incomes ($73,000 versus $60,000), higher average investable assets ($450,000 versus $225,000), greater average savings and DDA balances ($15,000 versus $11,200), and more products and services held with their bank (3.5 versus 3). Mobile Banking Adopters Drive Superior Customer and Channel Economics In addition to having favorable revenue characteristics, mobile banking adopters are also a lower-cost-to- serve group of customers. Overall, mobile adopters tend to interact with their banks more frequently than non-adopters, but they disproportionately use lower-cost-to-serve channels (namely, online and ATM) and make fewer higher-cost-to-serve branch visits. Based on the type and frequency of channels used during a 12-month period, service transaction cost-per- customer is 18% lower for mobile banking customers than for non-mobile banking customers ($161 versus 16 AlixPartners, Mobile Financial ServicesTracking Study
  • 27. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 27 $197 per customer annually).When average deposit balances are also considered, there is a decrease of 67bp in the cost to serve mobile banking adopters versus non-mobile banking adopters. This implies that a 10% increase in mobile banking adoption translates into a 1.6% decrease in overall bank service transaction costs. On this basis, a bank with one million customers attaining 20% mobile adoption would save $7.2 mil- lion in annual operating expenses.17 Mobile RDC is a Compelling Driver of Acquisition and Retention The benefits described above reflect the positive impact that an overall mobile banking offering has on a bank’s performance. However, to capture the full business benefit, banks should offer the mobile banking services and capabilities that will drive consumers’ choice of bank. As illustrated in Figure 5, among consumers “at least or somewhat likely to switch primary banks to get access to mobile banking features”, 43% reported that the number-one feature was the ability to make a deposit with their phone, or Mobile RDC.To consumers, Mobile RDC is a dramatically differentiating service capability.As a result, Mobile RDC offers banks a compelling acquisition tool that can be deployed as part of an overall strategy to acquire customers that drive superior economics. At the same time, Mobile RDC has a strong positive impact on retention (Figure 6).Among those mobile banking adopters who had used mobile banking services in the past year, using their phone to make a deposit was associated with zero switching. Mobile RDC can be used not only to attract customers but also to retain them. As noted earlier, Mobile RDC customers are more satisfied than non-Mobile RDC customers, reinforcing that customers are more likely to remain with their bank when their needs are being met and the services offered to them are highly valued. 17 Utilizing proprietary consumer data and industry cost benchmarks,AlixPartners analyzed the channel cost impacts of mobile banking adoption.
  • 28. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 28 Acquisition and Retention Benefits of Mobile Banking In addition to reducing distribution costs, mobile banking favorably impacts customer acquisition and retention, with a mobile acquisition lift estimated to be approximately 100%1 . There is also an observed relationship between mobile banking and increased retention rates. Mobile banking adopters appear to switch primary banks at approximately half the rate of non-adopters. Illustrative Example: To demonstrate the potential impact of mobile on a bank’s economics, consider this illustrative example which brings together acquisition, retention, and channel cost savings: • A bank with one million customers has a new-customer acquisition rate of 5% and an attrition rate of 5%. With a new-customer acquisition marketing budget of $15 million, and without a mobile banking offering, it will acquire 50,000 customers at an implied cost of $300 per customer acquired. • By deploying and promoting mobile banking services, the mobile lift on acquisition would enable the bank to generate this same rate of acquisition (5%) with only 50% of the marketing dollars ($7.5 million), implying a cost of acquisition per customer of $150 and a cost savings of $7.5 million. The bank should see an approximate doubling of the yield of its new customer acquisition marketing spend and acquire 100,000 new customers, versus 50,000. • Mobile banking would similarly provide benefits by increasing customer retention. Because mobile banking adopters switch banks at only half the rate of non-adopters, attaining a 20% mobile-banking adoption rate would effect a 10% reduction in the bank’s attrition rate, driving it down to 4.5% from 5%. • As a result of the retention benefits, the bank would need to replace 5,000 fewer customers (45,000 vs. 50,000) to maintain a stable customer base. At the new cost of acquisition per customer of $150, this increase in retention translates to $750, 000 in marketing cost savings. • Collectively, mobile banking’s impact on acquisition and retention would reduce the bank’s new customer acquisition costs by an estimated $8.25 million—a 55% savings based on the project saving rate set forth above. In addition, distribution cost savings should result. Considering the cost advantage in serving mobile banking adopters vs. non-adopters ($161 vs. $197 per customer), with a 20% mobile adoption rate, the bank could save an additional $7.2 million. In total, by adding mobile banking services, the bank could save approximately $15 million annually. 1 AlixPartners quantified mobile’s impact on acquisition and retention through an analysis of proprietary consumer data on acquisition rates and consumer bank selection decision-making.
  • 29. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 29 OUTLOOK FOR MOBILE RDC ADOPTION ANDTHE RESULTING BANK ECONOMICS The Target Market for Mobile RDC Looking ahead at the opportunity and market potential for Mobile RDC, it is clear that adoption and usage will be driven by the enthusiastic consumer adoption of smartphones. Given that smartphone penetration among U.S. adults is expected to exceed 40% in the next two years, the outlook for mobile banking and Mobile RDC is very strong. However, it is important to note that while today most Mobile RDC adopters are also mobile banking users, the growth and potential of Mobile RDC is not limited to consumers adopting mobile banking first and then later adopting various features such as Mobile RDC. Rather, the Mobile RDC application is an opportunity for banks to attract online customers who do not use mobile banking as well as completely offline customers. Importantly, Mobile RDC is also not just an opportunity for the banked population. Rather, a significant op- portunity for Mobile RDC exists in the unbanked market as well.Today, the unbanked population is approxi- mately 8.5% of U.S. population, or 20 million adults.These consumers essentially operate outside of the tra- ditional banking system, relying on high-cost wire transfer services to move money and check-cashing stores to cash checks. Unfortunately, the financial services available to the unbanked are generally very expensive. Typical check cashing costs range from 1% to 4% depending on the size of the check1 . In addition, transfer- ring money via wires such as Western Union can cost between 400 to 600 basis points of the wire amount.2 Mobile RDC can change the equation dramatically for the unbanked by offering them a much lower-cost alternative to check-cashing stores. Mobile check cashing, the term used for an individual taking a picture of their check with their phone and adding the value to a prepaid card that is loaded on their phone, repre- sents a significantly lower-cost approach to check cashing.This capability can tap into the unbanked consum- er market and further enhance the overall opportunity for Mobile RDC. Market Demand for Mobile RDC 1 MoneyGram 2 Western Union Evaluating the First-Mover Mobile Advantage Mobile banking, and Mobile RDC in particular, can have a powerful impact on bank performance. However, the gains to be achieved are predicated on the timing of when banks deploy these mobile services. The timing of the introduction of a mobile banking strategy impacts performance1 . For banks that move quickly, there should be significant first-mover advantages. This impact can be illustrated by looking at the change in market share for three fictitious banks, each with a starting market share of 10% in their region: Bank A is the early deployer and offers mobile banking in a market where only 20% of customers conduct business at a financial services provider that offers mobile banking.This bank captures a sub- stantially higher rate of the churn than banks not offering mobile banking in that market. This higher acquisition rate leads to a potential increase in Bank A’s market share of 27% (12.7% market share) over five years, and 45% (14.5% market share) after 10 years. Bank B deploys mobile banking in the middle of the cycle. It also sees higher acquisition rates but these remain lower than those of the early deployer. Bank B also sees more modest gains in market share; 11% (11.1% market share) in five years, and 14% (11.4% market share) after 10 years. Bank C is the late deployer, and waits to offer mobile banking until 80% of banks offer mobile bank- ing. For this bank, the lift in acquisition rate is significantly smaller and, over time, it loses market share. Market share loss occurs because the late deployer starts out with a non-mobile customer base that is actually more likely to switch away.As a result, Bank C experiences market share losses of 3% (9.7%) market share) in year five and 5% (9.5% market share) in year 10. Figure 16 demonstrates the projected market share results for a three-to-five and a 10-year period of three market competitors: the early mobile deployer, the middle mobile deployer, and the late mobile de- ployer.The changes in market share over time demonstrate that early deployers should have the greatest advantage, making the decision regarding timing of entry into mobile banking a critical strategic one. figure 16: CHANGE IN MARKET SHARE BY THREE ENTRY POINTS OF MOBILE BANKING Starting Point Initial Market Share 10% Change in Market Share Ending Market Share Late DeployerEarly Deployer After 3 Years After 5 Years +27% 12.7% +15% 11.5% 10% +11% 11.1% +7% 10.7% 10% -3% 9.7% -2% 9.8% Middle Deployer Change in Market Share Ending Market Share Change in Market Share Ending Market Share After10 Years +45% 14.5% +14% 11.4% -5% 9.5% 1 AlixPartners developed the Dynamic Market Model to identify the impact that the timing of introducing a mobile banking strategy has on performance.The factors in the Model include: how many people have adopted mobile banking (both at the bank and in the general mar- ket), how prevalent mobile banking offerings are among banks, and how likely customers are to switch banks based on whether they use (a) mobile banking, (b) want to use mobile banking, or (c) are currently uninterested in mobile banking.A key assumption of the Model is that customers switching to use mobile banking would only switch to banks offering mobile banking. Therefore, the early entrants to the mobile banking marketplace capture a greater share of this mobile banking-oriented churn, while late entrants have to share the mobile banking churn with more banks offering mobile banking services.
  • 30. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 30 OUTLOOK FOR MOBILE RDC ADOPTION ANDTHE RESULTING BANK ECONOMICS The Target Market for Mobile RDC Looking ahead at the opportunity and market potential for Mobile RDC, it is clear that adoption and usage will be driven by the enthusiastic consumer adoption of smartphones. Given that smartphone penetration among U.S. adults is expected to exceed 40% in the next two years, the outlook for mobile banking and Mobile RDC is very strong. However, it is important to note that while today most Mobile RDC adopters are also mobile banking users, the growth and potential of Mobile RDC is not limited to consumers adopting mobile banking first and then later adopting various features such as Mobile RDC. Rather, the Mobile RDC application is an opportunity for banks to attract both online customers who do not use mobile banking and those who are completely offline. Importantly, Mobile RDC is also not just an opportunity for the banked population. Rather, a significant op- portunity for Mobile RDC exists in the unbanked market as well.Today, the unbanked population is approxi- mately 8.5% of U.S. population, or 20 million adults.These consumers essentially operate outside of the tra- ditional banking system, relying on high-cost wire transfer services to move money and check-cashing stores to cash checks. Unfortunately, the financial services available to the unbanked are generally very expensive. Typical check cashing costs range from 1% to 4% depending on the size of the check18 . In addition, transferring money via wires such as Western Union can cost between 40% to 60% of the wire amount.19 Mobile RDC can change the equation dramatically for the unbanked by offering them a much lower-cost alternative to check-cashing stores. Mobile check cashing, the term used for an individual taking a picture of their check with their phone and adding the value to a prepaid card that is loaded on their phone, represents a significantly lower-cost approach to check cashing.This capability can tap into the unbanked consumer mar- ket and further enhance the overall opportunity for Mobile RDC. Market Demand for Mobile RDC Given the compelling value proposition of convenience and engagement offered by mobile banking and Mo- bile RDC, adoption is expected to accelerate over the next five years20 .This mobile capability represents an exciting opportunity for banks to attract and retain customers, lower their cost-to-serve, and ultimately gain greater market share. 18 MoneyGram 19 Western Union 20 The AlixPartners Mobile RDC Model utilizes proprietary consumer data and publically available information to forecast the adoption of Mobile RDC and the corresponding check migration volume in the U.S.The methodology for this analysis is described in detail the Methodology Appendix.
  • 31. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 31 As shown in Figure 17, Mobile RDC penetration is expected to grow from 1% in 2010 to 38% of all U.S. adults in 2016. Similar to the factors that are driving the adoption of mobile banking, increased penetration of smartphones, increased availability of Mobile RDC in the marketplace, and increased comfort with the technology will also drive the adoption of Mobile RDC. 2010 2011 2012 2013 2014 2015 2016 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Penetration Forecast for Mobile RDC figure 17: Mobile RDC Adoption Forecast Source: AlixPartners Mobile Financial Services Tracking Study: May 2010, December 2010, May 2011; AlixPartners analysis. Forecasting Check MigrationVolume In order to fully understand the impact of the expected accelerated adoption of Mobile RDC on the bank- ing industry, adoption needs to be translated into the potential number of checks that could be deposited via Mobile RDC versus traditional channels.To quantify the impact of the expected check migration, several factors were considered including: • Future expected volume of checks received by consumers • Check deposit behavioral differences between early Mobile RDC adopters and non-adopters •The portion of a Mobile RDC user’s check volume that would be deposited via Mobile RDC versus other traditional channels such as ATM, branch, or mail. Based on consumer adoption, and as presented in Figure 18, 2.1 billion checks are forecast to migrate to Mobile RDC by 201621 . The check migration analysis reveals the following trends: • Consumer-as-recipient check volume will decline from 7.15 billion in 2010 to 6.85 billion in 2016. • Mobile RDC adopters will deposit 25% more checks than non-adopters. • 73% of checks received by Mobile RDC adopters will migrate to the Mobile RDC channel. • Potential industry cost savings of $1.6 billion can be captured via deployment of Mobile RDC. 21 The methodology and analysis for the check migration forecast, including the factors and assumptions that drive it, are described in detail in the Methodology Appendix.
  • 32. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 32 2010 2011 2012 2013 2014 2015 2016 2.5 2.0 1.5 1.0 0.5 0 Number of Checks Migrated to Mobile RDC Channel (B), 2010 - 2016 figure 18: Mobile RDC Check Migration Forecast Source: Source: AlixPartners Mobile Financial Services Tracking Study: October 2009, May 2010, December 2010, May 2011; Federal Reserve; AlixPartners analysis. The Potential for Banking Industry Cost Reduction Given the sizeable check migration potential for Mobile RDC, the check migration volume can be translated into an estimated total potential cost savings available to the financial services industry22 . Based on the projection of 2.1 billion checks deposited via Mobile RDC by 2016, at $0.75 of savings per check, the banking industry can potentially save $1.6 billion annually. The Fee-Based Revenue Potential for Mobile RDC To explore the revenue potential for Mobile RDC, consumers were asked the following question: “If the ability to use your mobile device to take a picture of a check for deposit was only available for a fee how would you like to pay for it?” Respondents could choose to pay a monthly or a per-check fee, or state they were not interested in the service if they had to pay. Using the consumer response data, we estimated the optimal price that banks could charge. Per-check fees of $0.10, $0.20, $0.50, and $1, and monthly fee options of $2, $5, and $10 were tested in the analysis. The greatest revenue potential was captured at the $0.50 per-check fee and $5 monthly fee levels23 . The analysis revealed that Mobile RDC users who prefer a monthly fee and are willing to pay at least $5 represent 7% of Mobile RDC users, while those who prefer a per-check fee and are willing to pay at least $0.50 represent 11% of Mobile RDC users. Based on these participation rates, the Mobile RDC revenue opportunity is forecasted to be approximately $500 million by 2016. 22 The model estimated cost savings attributable to consumers making deposits via a smartphone rather than utilizing a branch or another traditional channel.The model assumes that the costs of processing check deposits in traditional channels (branch,ATM, mail) exceed Mobile RDC processing costs by an average of $0.75 cents per check. 23 Note that customers who prefer a monthly fee, and are willing to pay for Mobile RDC, may in fact also be willing to pay a per-check fee or vice versa but, to be conservative in our estimates, assumptions about such willingness are not included.
  • 33. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 33 The Trade-Off between Cost Reduction and Revenue Generation Consumers’ willingness to pay a fee for a service that is currently free for most users suggests that they highly value the convenience represented by the service. Being able to charge a fee for this service is an important consideration for banks looking to generate additional fee income. However, charging fees for the service will lower adoption rates.At the $5 monthly / $0.50 per-check price level, Mobile RDC adoption falls to 18%, as compared to 38% when Mobile RDC is offered at no fee. Lower adoption will translate into a reduction in checks deposited via Mobile RDC from 2.1 billion checks to only 375 million checks by 2016, and a revenue pool of $470 million. Importantly, under this scenario, the associated bank cost savings at $0.75 per check are reduced to $280 million based on processing fewer Mobile RDC checks, versus $1.6 billion in savings associated with the pro- cessing of 2.1 billion Mobile RDC checks. This reduction in savings of more than $1.2 billion is the potential tradeoff in exchange for the $470 million in revenue generated by charging fees for Mobile RDC.This analysis assumes all institutions offering Mobile RDC in the marketplace charge a fee, and calculates the trade-offs at the market level. How any individual bank will charge for Mobile RDC will depend on their own strategy for managing the trade-off between cost reduction and revenue generation.
  • 34. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 3434© 2011 AlixPartners LLP HEARD ONTHE STREET: BANK EXECUTIVES’ PERSPECTIVES ON MOBILE RDC During August and September 2011,AlixPartners interviewed a cross-section of national and regional bank executives on how they are approaching Mobile RDC24 . These interviews reveal a clear industry perspective emerging regarding the role and value of Mobile RDC: • Mobile RDC is about engagement and increasing value-added interactions with customers. • Mobile RDC will quickly become “table stakes”. • Strong consumer demand is seen for Mobile RDC; marketing will be broad-based. • Managing the parameters of the customer experience and risk will be key. • Cross-channel integration and a seamless customer experience are implementation goals. •The potential for, and safeguards against, fraud are being closely examined. Industry executive attitudes are increasingly bullish on the outlook for Mobile RDC. Executives readily describe Mobile RDC as “table stakes” and “a standard offering”. Most feel that Mobile RDC will become a standard retail banking service and share the view that it is inevitable that all organizations will eventually offer Mobile RDC. According to one executive,“Mobile deposit capture is the killer app that brings people into the mobile fold.” Bank Go-to-Market Approaches Many executives echo the awareness of consumer demand for Mobile RDC, saying,“research is showing that customers want Mobile RDC.” As a result, Mobile RDC is rising to the top of banks’ strategic planning agen- das and product development plans. From a marketing perspective, most banks intend to market Mobile RDC to a broad customer base, and for some they will also target key segments such as “individuals with smartphones who are comfortable with the technology” and “younger adults, just out of college”. In their messaging, banks are emphasizing “enhanced convenience” as the primary consumer benefit. Many banks see Mobile RDC as an additional, rather than substitute, channel for customer engagement.The ability to deposit checks anywhere, anytime makes it easier for customers to bank. In addition to the consumer market, several executives mentioned the attractiveness of offering Mobile RDC to specific segments of the small business market.This would include, for example, individual contractors and sole proprietors, where the convenience factor of any time/place deposits offered by Mobile RDC is a highly valued benefit. 24 The banks represented the full spectrum of Mobile RDC deployers—those that have already deployed Mobile RDC, those that are in the process of deploying, and those that currently have this capability on their radar screen.
  • 35. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 35 Defining Customer Eligibility and Activity Parameters Customer eligibility standards and transaction parameters being developed for Mobile RDC vary by organization.“Striking a balance” is a key theme stressed by bankers. According to one senior banker, “At this point we are walking a fine line between making sure the customer has a great user experience and prudently ensuring we have appropriate fraud control measures in place for a very new service, which, by definition, has few data points.” Executives consider carefully developed, straight-forward messaging about deposit limits and funds availability to be an important part of establishing a good customer experience. Managing Risk Closely tied to strategies around customer eligibility and activity parameters is the critical function of managing risk. Uniformly, banks are expending considerable effort in closely examining the issue of fraud and building safeguards to mitigate potential financial losses.While some bankers say they identified good fraud management procedures for their institutions, others are still looking for improved controls and industry-wide analytics and solutions. In the words of one executive,“It’s not that mobile capture is inherently risky, it’s that it is new.” By far the most discussed type of fraud was duplicate presentation of a check for deposit.With regard to duplicate-check fraud, several bankers mentioned the need for an industry-wide solution that would guard against losses stemming from checks being fraudulently deposited in multiple institutions. Adoption and Operational Implementation Many executives predict that the pace of Mobile RDC deployment and the rate of customer adoption will far exceed that of online banking.The combination of rapid market penetration of smartphones, along with consumers’ experience and comfort level with self-service technologies like online banking and image ATMs, are predicted to accelerate the speed of adoption. In addition, several executives stated that bank messaging around Mobile RDC security safeguards, along with bank guarantees against customer losses, would further reduce adoption barriers and accelerate consumer adoption.
  • 36. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 36 Addressing Future Concerns The arguments for promoting mobile banking and deploying Mobile RDC are compelling.Yet, to date, availability of Mobile RDC is limited due to banks’ uncertainty about consumer demand and concerns about the technology. Today, it is expected that most of the top banks will have deployed Mobile RDC over the next one to two years. However, there is a large contingent of smaller banks that expressed concern over the potential fraud that could occur with Mobile RDC.This concern was reflected in the bank executive interviews discussed earlier. Among the mid-market and smaller banks, one of the biggest concerns is the fear of cross-channel fraud, whereby a consumer deposits the same check via a mobile phone into one bank account and then immediately walks across the street to deposit it at a physical branch or ATM of another bank. Banks are concerned about the potential write-offs associated with this fraud, and the time and expense required to manage it. Banks who currently offer the service believe they effectively manage fraud through a variety of means including careful surveillance of deposit activity; careful selection and screening of customers who are offered the service; strict customer eligibility requirements, such as having a loan account or multiple accounts with the bank; and/or putting limits on check size. At present, technology solutions are being developed and deployed that can directly address the multi- channel fraud that can take place between banks.These solutions leverage capture software that is able to validate the check presented for deposit against a duplicate detection database. If the check has already been deposited in one institution, the check will be identified as a duplicate to prevent the second deposit.These solutions can reduce if not completely prevent duplicate check deposit fraud from occurring. As duplicate check deposit solutions are deployed, the primary risk management concern for small and mid-size banks will be addressed, clearing the way for more widespread deployment of Mobile RDC.
  • 37. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 37 CONCLUSION AND FORWARD OUTLOOK Today’s mobile-oriented consumers seek convenience in all aspects of their lives, and the management of their money is no exception. Reflecting this consumer priority, deploying mobile capabilities has become a critical competitive imperative for financial services providers. As financial services providers plan and develop their mobile banking programs to meet the needs of today’s consumers, having the most relevant apps is critical. In today’s marketplace, where basic mobile banking functionality is quickly becoming table stakes, Mobile RDC capabilities represent an opportunity for banks to increase relevancy with their customers, enhance engagement and communication, and stay at the leading edge of the mobile app game. Mobile RDC delivers that unique combination of real consumer utility and marketplace sizzle. Mobile RDC within an overall mobile banking offering provides banks with many attractive benefits. It: • Attracts customers with higher balances and assets • Enhances acquisition and reduces attrition • Provides compelling economics to reduce operating costs The market outlook for Mobile RDC will be fueled by the aggressive adoption of smartphones among consumers and the growing consumer perception, driven by high-visibility implementations of market leaders, that Mobile RDC is a core capability within a suite of mobile banking capabilities. By 2016, 38% of U.S. adults are projected to adopt Mobile RDC and to migrate over two billion checks to this deposit channel. Given this rate of adoption, the banking industry has the potential to save approximately $1.6 billion and to fundamentally re-think the infrastructure requirements of retail distribution. The consumer marketplace opportunity is compelling. The banking industry’s infrastructure overhauling need is imperative. Looking forward, Mobile RDC represents the first wave of mobile image-capture applications that will redefine how consumers engage with their financial services providers. In addition to using the smartphone to take a picture of a check for deposit, the consumer of tomorrow may be able to: •Take a picture of a credit card bill and receive a balance transfer offer •Take a picture of a 401K statement and receive a Rollover offer •Take a picture of a car loan statement and receive a refinancing offer •Take a picture of an annuity statement to initiate a 1035 exchange •Take a picture of an investment portfolio to initiate an asset allocation “check-up”
  • 38. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 38 Viewed in the context of a broader suite of mobile capabilities, mobile imaging technology provides financial services providers with the opportunity to fundamentally re-wire how they engage with consumers, and to achieve both higher levels of consumer engagement as well as efficiency benefits.Those competitors that move quickly to deploy mobile image capture and recognition technologies will reap the rewards offered to first movers—improved marketshare and an attractive mobile-oriented customer base.And it all starts with the deployment of a single app.
  • 39. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 39 TABLE OF FIGURES 1. Smartphone Ownership, Mobile Phone Users Age Segment 26-34 p. 8 2. Mobile Devices Used Daily, Mobile Phone Users Age segment 26-34 p. 8 3. Consumer Use of Mobile Phone Features on a Daily Basis p. 9 4. Top-2 Box Scores Consumer Willingness to Adopt Mobile RDC p. 10 5. Mobile Banking FeaturesThat Would Cause Consumers to Switch Primary Banks p. 11 6. Switching Rates and Retention Effect of Mobile RDC p. 12 7. FactorsThat Would Cause Consumers to Use Mobile RDC p. 12 8. FactorsThat Would Cause Consumers to Use Mobile RDC by Age Segment p. 13 9. History andTimeline of Mobile RDC p. 15 10. Deployment Rollout of Mobile RDC p. 16 11. Impact of Using Mobile Shopping Apps on Shopping Behavior p. 18 12. Mobile Banking Adoption Rates by Age Segment p. 21 13. Mobile Banking Feature Usage by Age Segment p. 22 14. Mobile Banking Adoption Forecast by Age Segment p. 23 15. Importance of Mobile in the Decision to Switch Primary Banks p. 24 16. Change in Market Share byThree Entry Points of Mobile Banking p. 29 17. Mobile RDC Forecast p. 31 18. Mobile RDC Check Migration Forecast p. 32
  • 40. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 40 METHODOLOGY APPENDIX Mobile RDC Penetration Model Methodology The Mobile RDC forecast is based on the following drivers: The number of U.S. adults over the age of 18, banked and unbanked The AlixPartners Mobile RDC Forecasting Model is developed from U.S census data regarding the population of U.S. banked and unbanked adults over the age of 18. The model assumes that the unbanked population will decrease over- time and become“underbanked” via mobile check cashing or some other banking-like solution that relies on mobile phones as the primary delivery channel. Our forecast assumes the unbanked population will decrease from 20 million consumers (8.5%) in 2010 to 13 million (5%) in 2016. The percentage of U.S. adults who deposit checks The Mobile RDC Forecasting Model assumes 93% of adults will deposit at least one physical check monthly, as paper checks will continue to exist for use in cases where there is no better option for payment.This percentage is held constant. The availability of Mobile RDC in the marketplace Availability in the marketplace is based on the percentage of banked and underbanked adults that conduct business at financial services providers that offer Mobile RDC. In 2010, the Model assumes USAA, Chase and a limited num- ber of credit unions were offering Mobile RDC. In 2011, the Model assumes USAA, Chase, PNC, US Bank, Schwab, Fidelity, several regional banks and credit unions, for most or part of the year, and one or two additional major banks in the fourth quarter are offering Mobile RDC. In 2012 and beyond, the availability of Mobile RDC expands. The penetration of camera-equipped smartphones/tablets The camera-equipped smartphone/tablet adoption forecast is based on industry data for 2010 and forecasted forward.Adoption is forecast to grow from 22% in 2010 to 60% by 2016. The likelihood of consumers to adopt Mobile RDC The likelihood of adoption is a calculation based on proprietary consumer research data regarding the percentage of consumers with a camera-equipped mobile device, the percentage of consumers that reported they would at least be likely to adopt Mobile RDC if offered, and the degree of Mobile RDC availability in the marketplace. The impact of “word-of-mouth” or viral marketing Our model also considers the impact that word-of-mouth or viral marketing has on the adoption rate of Mobile RDC.This factor captures the dynamic that as more consumers know someone else who uses Mobile RDC, the likelihood of adoption among more consumers will increase. Early digital applications such as Hotmail, Paypal, and Ebay- benefitted from the viral marketing. The Mobile RDC model forecasts each of the drivers described above at the individual age cohort level (e.g., 18-to-25, 26-to-44, 45-to-64 and 65 years and older) and aggregates them to create an overall forecast.
  • 41. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 41 Mobile RDC Check Migration Methodology As earlier described, 2.1 billion checks are expected to migrate to Mobile RDC by 2016.The under- lying analysis for this forecast is presented below: Overall CheckVolume Federal Reserve research suggests a steady 6% decline of checks received since 2000.This decline is driven by consumers turning to electronic payments alternatives such as PayPal, and businesses moving to other forms of payment such as direct deposit, rebates via debit cards, and ACH. However, in the most recent data offered by the Fed, not all consumer-related checks declined. In fact, con- sumer-to-consumer checks have increased from 2.2 billion in 2006 to 2.4 billion in 2009. Our model leverages historical data and projects forward. It assumes that check volume will continue to decline, but at a slower rate than in the past, due to transactions that will continue to require paper checks. It is expected that consumer-as-recipient check volume will decline from 7.15 billion in 2010 to 6.85 billion in 2016. Mobile RDC Adopter Check Deposit Behavior Analysis of proprietary consumer data revealed that the total number of checks deposited by Mobile RDC adopters was 25% greater than for non-adopters. Our model assumes this ratio of 1.25 re- mains constant over time. Channel Usage Based on proprietary data regarding Mobile RDC adopters’ current deposit channel behavior, which includes branch,ATM, mail and Mobile RDC, our model assumes that approximately a quarter of Mobile RDC adopters’ total checks will be deposited via Mobile RDC, and that the percentage de- posited will increase over time. Our model assumes that Mobile RDC adopters deposited 26% of their checks via Mobile RDC in 2010, and this percentage will grow over time to 73% by 2016. Size and number of checks received will impact the actual migration as some banks may put upper limits on the size of the check that can be deposited via Mobile RDC. In addition, consumers or small businesses with a large number of checks may decide not to deposit all their checks via Mobile RDC.
  • 42. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 42 About this Paper AlixPartners LLP has produced this white paper with the sponsorship of Mitek Systems. The white paper examines the state of Mobile Remote Deposit Capture and its impact on the banking marketplace. About the Authors Robert Hedges Robert Hedges is a Managing Director in the Financial Services Practice at AlixPartners. Bob has 15 years of experience in consulting and more than 12 years of experience in senior operating and leadership roles at multiple financial institutions. Teresa Epperson Teresa Epperson is a Managing Director in the Financial Services Practice at AlixPartners.Teresa has spent over 15 years in the financial services industry, as both a consultant and senior manager at major financial services institutions. Gina Paglucia Morrison Gina Paglucia Morrison is a Director in the Financial Services Practice of AlixPartners. Gina has more than 20 years of experience in strategic analysis, market research, consulting and business strategy development in Retail and Retail Financial Services industries. CONTRIBUTING AUTHORS The following members of the AlixPartners Financial Services practice contributed to this paper: JimTylenda, Director; Mary Unsworth,Vice President; and Charvak Karpe,Associate.
  • 43. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 43 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 in- vestments. The Financial Services Practice team has extensive experience in mobile banking and mobile pay- ments 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. ABOUT MITEK SYSTEMS Mitek Systems is the leader in mobile-imaging applications using smart phone cameras for check deposits and bill payments. Its customers include Chase Bank, PayPal and USAA. For more than 20 years, Mitek has provided financial institutions with advanced imaging and analytics software to authenticate and extract data from imaged checks and other financial documents.Additional information is available at miteksystems.com.
  • 44. Mobile Remote Deposit Capture © 2011 AlixPartners LLP 44 DISCLAIMER - IMPORTANT INFORMATION ABOUT THIS WHITEPAPER This Financial Services Industry white paper regarding Mobile Remote Deposit Capture (“White Paper”) was prepared by AlixPartners, LLP (“AlixPartners”) for general information and distribution on a strictly confiden- tial and non-reliance basis.The recipients of the White Paper accept that they will make their own investiga- tion, analysis and decision relating to any possible transactions and/or matter related to such and will not use or rely upon this White Paper to form the basis of any such decisions. Accordingly, no liability or responsibil- ity 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 White Paper. This White Paper 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 White Paper 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 White Paper to reflect events, circumstances or changes that occur after the date the White Paper was prepared. In preparing this White Paper,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. Alix- Partners has not audited or verified the data reviewed in connection with the preparation of this report. This White Paper is the property of AlixPartners, LLP, and neither the White Paper nor any of its contents may be copied, reproduced, disseminated, quoted or referred to in any presentation, agreement or docu- ment 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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