ET Phone Home

Posted by Mark Brousseau

Vijay Balakrishnan, president of StratEx LLC (770-598-5747, www.stratexllc.blogspot.com) passes along an article he wrote on the recent announcement by USAA that it will allow its customers to make deposits by iPhone:

Mobile phone cameras have captured images of everything from election protests in Iran to the recent tragic collision of a helicopter and a small plane over the Hudson River. So, what could one possibly add to the list of things that would intrigue mobile shutterbugs? With apologies to Mr.McGuire in the movie The Graduate, "I have just one word for you. Just one word.....checks."

The recent announcement from USAA, allowing its customers to make deposits by sending images of checks taken with their Apple iPhones, brings together technologies from the 19th and 21st centuries. Until the advent of Check 21, the movement of deposited funds depended on the physical transport of paper. An extensive retail branch network was developed to act as collection points for deposited paper. USAA, which serves 7.2 million active and retired members of the U.S. military and their families from one branch in San Antonio, has consistently used technology to turn conventional wisdom on its head. Three years ago, it announced its Deposit @Home service that allows customers to make deposits by sending images of checks scanned at home. Despite early scepticism from many, USAA claims 150,000 users. The addition of mobile smart phones takes the remote capture notion even further.

In addition to this announcement, mobile deposit technology provider Mitek Corporation has announced relationships with Fiserv, RDM, NCR, and J&B Software to take the capability to their customers. As these formidable players get past their pilots and launch offerings, we will likely see more financial institutions make mobile deposit services available.

What about fraud, you say? Doesn't Check 21 require account and transit information to be read magnetically to ensure security? While I admit that the prospect of sensitive check images flying through the air can be unnerving, and there are issues of authentication, privacy and data integrity that need to considered (another post, another day), the fact is that there is no regulation that requires that the magnetic ink character recognition (MICR) information be read magnetically. In fact, Check 21 is silent on the subject. Thus absent regulation, it falls to the individual financial institution's tolerance for risk, versus the obvious convenience of the service.

There are two factors that can mitigate risk to some extent: the old dictum of knowing your customer (KYC), and the option to delay funds availability until the check has cleared. I believe we will see the adoption of mobile deposit capture in defined communities such as the USAA customer franchise, where the financial institution has a very good idea of risk exposure. Credit unions with well defined memberships are more likely to offer this service than banks (and like USAA, most credit unions are also not extensively branched allowing them to make virtue out of necessity). We will likely see the service offered to the "safest" customers first, based on their deposit history, followed by a gradual expansion using funds availability agreements as a tool to calibrate exposure.

The banking community at large has a different challenge. Deposit acceptance is arguably the raison d'etre for large retail branch networks. Remote capture in general, and mobile deposit in particular, poses an interesting channel conflict paradox (see BAI Insights for a summary of a presentation I did with Bob Meara from Celent on the RDC/Branch paradox). Thus, my take is that banks (particularly the larger ones) will perceive mobile deposit as a bridge over troubled waters and be reluctant to put their branch network at risk.

While I don't see the airways saturated with check images from mass deployment, I believe mobile deposit will do well through niche (not necessarily small) adoption. Technology providers, transaction processors, and financial institutions all have different but related niche marketing challenges ahead. Astute target market selection will likely govern success. The alignment of factors like service and product features, pricing (ex: who pays for the data plan for zapping all those images, and what's the payback?), as well as path-to-market partnerships, are imperatives to be carefully considered.

What do you think? Post your comment below.

Impact of the Economy on Online Banking Systems Purchasing Decisions

By Mark Brousseau

Today’s economy has presented challenges for banks to invest in new technologies, such as online banking solutions. However, for those banks that can, now is the time to do so, says Joe Spatarella, vice president, sales & marketing, Online Banking Solutions (OBS).

"With minimal activity and deal flow, this is an opportune time to move forward and negotiate an ideal vendor partnership to take you well into the future," Spatarella says.

Below are best practices that Spatarella offers for acquiring and deploying online banking solutions in a challenging and transforming economic climate. "With little or no margin for error, the following could help you win a greater share of customer revenue with a contemporary solution when others are afraid to move," he says.

1. Set your goals: Identify a solution that can differentiate the financial institution in a crowded market. Focus on improved user experience: semantics, navigation and ability to customize at the user level without expensive vendor modifications.

2. Walk a different path to success: Find a vendor that is truly willing to partner and share project risks rather than the 800 pound gorilla who is less likely to negotiate favorable terms or who makes promises that cannot be met.

3. Go with a fixed cost model: Annual license fees and fixed per user pricing is much easier to manage than variable transaction pricing.

4. Purchase in the present, not the future: While product roadmaps are important, be sure the vendor can deliver the product version you purchased at the time you need to deploy it

5. Share in project success: A vendor will be more likely to share the risk and contribute specialized resources if there is also an opportunity to benefit from project success.

6. Watch the clock: Give yourself enough time to make a decision and give the vendor a reasonable timeframe to deliver. Don’t use so much of the project timeline on evaluation that the vendor is left with a highly compressed window for implementation.

7. Minimize the frequency: The solution must be sustainable and scalable so that in 3 to 5 years, you are not looking for another vendor and having to repeat the process with valuable time and resources. Plan for continued success, not failure.

What do you think? Post your comments below.

Treasurers Moving to Electronic Banking

Posted by Mark Brousseau

An Aite Group, LLC study finds that many corporate treasurers are anticipating a move toward expanded use of electronic banking, with more than half of the treasurers surveyed saying they expect to see electronic payments expanded, and more than a third saying they expect to make greater use of online banking services.

A third also foresees a move to real-time balancing reporting.

What do you think? Post your comments below.