Mobile Check Deposit: A Modern Day Gold Rush for Financial Institutions April 20, 2012 Copyright 2012 Vantiv, LLC. All rights reserved. Vantiv, the Vantiv logo and all other Vantiv product or service names and logos are registered trademarks or trademarks of Vantiv, LLC in the USA and other countries. indicates USA registration.
Executive Summary Enabling consumers to use their smartphones to take a photo of a check and deposit it into their account delivers instant gratifi cation. And saving them a special trip to the branch or ATM is a way for a financial institution to provide a valued service. A Mercatus LLC study of more than 2,100 U.S. consumers found that about three out of five mobile banking customers are interested in mobile check deposit services. Younger consumers are even more likely to be interested, with nearly 70 percent of mobile banking users aged 35 to 44 ready to adopt the technology and two-thirds of those aged 26 to 34 interested. The study also found strong interest even among consumers who weren t yet using mobile banking in these two age brackets. Similarly, a mid-2011 report by Javelin Strategy & Research showed that one out of every four consumers, and half of mobile bank service users, would like to see their fi nancial institutions offer mobile check deposit. Check volume may be declining, as part of the wider consumer trend toward paperless fi nancial transactions, but the volume of checks remains substantial. U.S. consumers still get hundreds of millions of checks each month, typically requiring visits to a bank branch or ATMs to submit them for processing. With mobile device use skyrocketing, and consumers eager to transact as much business as they can using smartphones, the use of mobile check deposit applications is rapidly expanding among fi nancial institutions. The Financial Case for Mobile Check Deposit There is little argument in the fi nancial services industry about the long-term decline in the number of checks. Direct deposits of paychecks and online bill pay are just two examples of the trend away from paper checks and toward digital transactions. But the cost of handling a check for fi nancial institutions is inversely related to check volume, so that as the number of checks falls, the cost to accept and process those checks is rising on a per-check basis. Mobile check deposit offers significant potential for a long-term cost reduction by eliminating the handling of paper checks. Mobile check deposit can be offered as a convenient service to any and all debit cardholders. They don t need to be enrolled in any specifi c online or mobile banking program, but if they are, offering mobile check deposit as a standalone application complements those programs. 2
Those fi nancial institutions who have been the earliest to recognize this opportunity are fi nding that the users of mobile check deposit tend to be the more affl uent and profi table customers. This aligns naturally with the demographics of smartphone users. With the software-as-a-service approach such as Vantiv has taken for Mobile Check Deposit, there are no capital expense hurdles to implementing this service for fi nancial institutions. And because consumers who use the service are enthused about it and highly value its convenience, it can generate additional fee income even as it creates yet another reason for existing cardholders to stay with their fi nancial institution and for consumers to open new accounts with a particular fi nancial institution. As Javelin Strategy & Research notes, mobile check deposit enables fi nancial institutions to lower their check processing costs by directing consumers away from branches and ATMs. It can be positioned as a premium service that offers value to customers and thus a source of additional fees. Another Mercatus study in 2011 noted that the consumers who are most likely to embrace mobile check deposit account for about 30 percent of branch consumer deposit check volume. Mercatus concluded that with only moderate adoption of mobile check deposit by cardholders, banks can expect to see dramatic reductions in the volume of branch deposit transactions. The incredible convenience benefi t to consumers is equally matched by the strategic cost structure benefi t to banks. Mercatus also forecasted that thanks to mobile check deposit, some 1.5 billion checks are likely to be eliminated from branches by 2014. A Mercatus study notes that the consumers who are most likely to embrace mobile check deposit account for about 30% of branch consumer deposit check volume. How it Works Enrollment for mobile check deposit begins with an application through a secure and non-mobile website interface, to which the cardholder can link from the fi nancial institution s website. The cardholder enters basic information and chooses their logon credentials. Once that information is submitted, Vantiv establishes that the account is valid and the cardholder is legitimate. Then the cardholder s debit card number is tokenized for security purposes and the fi nancial institution is notifi ed, with the opportunity to approve the cardholder for mobile check deposit or reject the application. The financial institution is advised to be selective when it comes to enrollment for the mobile check deposit application, with certain minimum requirements for enrollment and for unenrollment for those who misuse the system. Once a financial institution approves a cardholder for mobile check deposit, the transactions are done through a standalone application on the mobile device. There is no need for a separate mobile banking application. 3
When depositing a check, the user takes a photo of both the front and back of the check. Upon receiving the check image, the mobile check deposit application software analyzes the photograph, doing a real-time image quality check that takes at most a couple of seconds. If the image is poor quality or otherwise unsuitable for clearing, the user is prompted to try another photo. If it is acceptable, the user receives a verifi cation notice, indicating the deposit is pending and they have a temporary credit. Vantiv Mobile Check Deposit integrates seamlessly with current check clearing processes. The fi nancial institution is notifi ed via e-mail that there are items waiting for review, and the items are posted only following review and approval. If the fi nancial institution declines the deposit for any reason, the user is notifi ed and told that they need to bring the check to a branch for deposit. At the end of the business day, all items approved for deposit go into the image cash letter (X9.37) fi le. Vantiv delivers the fi le to the fi nancial institution, or alternatively sends it to the check clearing agent on the fi nancial institution s behalf, and those items are processed like any other image cash letter. By clearing items using a fi nancial institution s check clearing agent as a standard image cash letter, mobile deposits integrate seamlessly with current check clearing processes. The Question of Security Financial institutions are understandably concerned that cardholders may unwittingly or even knowingly try to deposit a check twice from their mobile phone. Or, try to deposit it at a branch after already depositing it via the mobile check deposit application. Because the cardholder retains the paper check even after a mobile deposit, there is a greater risk for duplicate deposits. However, this risk is mitigated by two things. First, the gain for attempted fraud is limited, and second, because the cardholder is easily identifi ed, a fi nancial institution has a high level of confi dence that any fraudulent funds would be recovered. Even if a cardholder intentionally attempted to circumvent the built-in safeguards by taking the check to the branch of another institution for deposit, that ruse would eventually be discovered and action taken against the user. Proper review of cardholder applications for the mobile check deposit service is part of the prevention of this type of activity. A fi nancial institution needs to be sure that the users they are accepting into the system aren t likely to purposely attempt multiple deposits or other fraudulent behavior. 4
There are a number of built-in safeguards with mobile check deposit as well. From the start the fi nancial institution has the option of offering mobile check deposit only to certain cardholders, and can review each cardholder request before granting access to the downloaded application. In addition, the fi nancial institution can set limits on the amounts and frequency of deposit items for each individual cardholder. For example, some institutions place a limit of three deposits per day, with a maximum amount per single deposit or aggregate daily deposit. Further, many fi nancial institutions give limited or no provisional credit on mobile deposit items until deposited funds are cleared. The four keys to mobile check deposit security are enrollment, card number handling, review and approval, and terms and conditions. Proper handling of the card number is essential, which is why Vantiv s approach prevents users from entering card numbers or other vital information from their mobile device. With the card number tokenized at the time of enrollment, Vantiv becomes the system of record for card and account numbers. A key control point for fraud prevention is review of mobile check deposit transactions, in terms of thresholds, MICR recognition, CAR-LAR mismatches, endorsement, or other issues. The Vantiv mobile check deposit system fl ags potential problems such as these as part of its presentation of deposit items for review to the fi nancial institution. Users must agree to specifi c terms and conditions at the time of enrollment, which helps to maximize the fi nancial institution s leverage regarding limited provisional credit and extended clearing timeframes. It also allows the fi nancial institution to stipulate strict penalties for returned items, whether accidental or intentional.. Conclusion Consumer use of mobile banking skyrocketed in 2011, according to numbers from Javelin Strategy & Research. There were 57 million users by the end of the year, a 63 percent increase from 2010. Calling mobile check deposit a gold rush opportunity for first-mover fi nancial institutions, Javelin said the service offers a way to lure consumers away from competitors and can serve as one of the foundations of a retention and growth strategy. Those consumers who are interested in mobile check deposit are a desirable demographic, and offering the application gives fi nancial institutions the chance to satisfy clear consumer desires. For instance, studies show that those consumers most interested in mobile check deposit are enthused about the convenience and accessibility of mobile phone-enabled deposits. They also like the fact that mobile deposit saves them signifi cant time over other deposit options. According to Javelin Strategy & Research, Mobile Check Deposit can serve as one of the foundations of a retention and growth strategy. 5
For fi nancial institutions, mobile check deposit offers the opportunity to improve the consumer experience while at the same time minimizing the costs of handling checks. The day may come when there are no paper checks, but for now the challenge is how to best handle them in a way that benefi ts both consumers and fi nancial institutions. Mobile Check Deposit is convenient, secure and cost effective. Give your account holder s the power to deposit checks remotely anytime and from anywhere. Call your Vantiv relationship manager today to learn more, or visit us online at www.vantiv.com. A Success Story: Mobile Check Deposit Offers a Competitive Edge Without Mobile Check Deposit, Town and Country was at a competitive disadvantage. Town and Country s customers could only make deposits by going to a branch, or at one of its ATMs. This limited how quickly some account holders could make deposits and access their money. We realize that if we are going to move forward in our market and be competitive in all the areas where we have branches, we need to be able to offer a banking service that allows cardholders to bank anywhere and anytime, explains Diane Glastetter, Senior Vice President and Senior Operations Offi cer for Town and Country Bank. That includes having a product that lets cardholders use their smartphones or mobile device to deposit checks. For example, one cardholder operates a concrete recoating and resurfacing business. His work hours make it almost impossible to get to a branch and deposit checks more than once a week. Now, Glastetter says, he uses his smartphone to photograph checks and make deposits at least three times each week. Another lives in California, but owns rental properties in Missouri and gets checks from her renters. She no longer has to mail the checks to the bank. Instead she can deposit them instantly by photographing them using the Mobile Check Deposit application. We expect a lot of interest in Mobile Check Deposit among customers who work outside of the areas we cover with our branches, Glastetter explained. We see it as a good way to retain customers. Offering a service like this makes it possible for them to continue to bank with us even if they move out of the region. Glastetter adds that for Town and Country Bank, a family-owned bank with 11 branches and about $520 million in assets, this service gives us the upper hand in terms of competing with other local banks in many of our market areas. We really do feel that this is something we need to do to continue to stay competitive. 6