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Remote Deposit Capture: Really That Big A Deal?

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

A recent American Banker article titled The Power of Mobile Remote Deposit Capture quotes a fellow industry analyst who states that:

“Mobile remote deposit capture (RDC) is one of the reasons people understand the value of mobile banking. Mobile RDC — in which people use the smartphone’s camera to take a picture of a check to commence a deposit — is becoming so popular, banks may actually be able to charge for the product while saving overhead costs at the same time.”

My take: I disagree. 

According to research recently completed by Aite Group, using a generous definition of mobile banking adoption, about one in four US consumers are mobile bankers (a more conservative definition puts the adoption rate at 20%). Of these mobile bankers, about one in five used a smartphone to take a picture of a check in the past three months, one in ten used a feature phone to perform the task, and 7% used a tablet to do it.

Based on this rate of usage, it’s hard for me to agree the RDC is a major reason why people “understand the value of mobile banking.”  More than half of all mobile bankers are Gen Yers — a generation that is already a major user of everything mobile-related. These folks don’t need RDC to convince them of the value of mobile banking.

Furthermore, the assertion that banks “may actually be able to charge for the product” should be reconsidered for (at least) four reasons:

1. Consumers always overestimate their willingness to pay. I can’t even begin to count the number of surveys I’ve seen — and done — where consumers have expressed a willingness to pay for something, but when the rubber meets the road, those intentions never materialize.

2. The demographics of RDC users. About seven in 10 RDC users are Gen Yers — also known as the generation least able to pay for more banking-related fees. In fact, an analysis I did of consumers who switched banks last year found that the addition of account-related fees was the number one reason why people switched. 

3. The potential political backlash. When a number of banks tried to assess a fee for debit card usage (used by a very high percentage of Gen Yers in particular), the political reaction was fierce. One politician even went public saying that customers of one of those banks should pull their money out of the bank. 

4. The cost savings opportunity. The AB article says that “RDC check deposits cost as little as four cents per check, [while] it costs between 75 cents to more than three dollars to process check deposits via traditional means.” Let’s do a little math here, shall we? At the conservative end of those estimates, the cost savings of an RDC-deposited check is $0.74/check. It seems very unlikely to me that, even if consumers were willing to pay for RDC, they’d pay $0.75 per check. What does seem likely to me is that if a bank charges a fee for RDC, the percentage of customers that will adopt the service will likely be in the single digit percentages. So sure, there will be some revenue generated. But with smartphone adoption skyrocketing, the opportunity to generate significant cost savings — if these estimates are correct, and represent variable costs — by giving it away for free is far more significant than the revenue generating opportunity.

Bottom line: Don’t get me wrong. RDC may be a very important feature when it comes to attracting customers to mobile banking. But it’s not why people “understand the value” of mobile banking, and is unlikely to be a significant revenue generator.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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  1. Thank you for sharing this, Ron. No, reaaally… I am seeing a kinder, gentler Mr Shevlin. It made me think…and smile, as a credit union passionista and everyday jill and joe consumer advocate.

    Seriously though….
    When will banks start to understand that the public no longer ‘trusts’ pricing methods of the banks on basic transaction services? Psssst. 2B2Fail banks are dying a slooow death if they don’t understand this ‘short term’ pricing uninnovative idea will eventually be exposed from the very people they serve…poorly for poorer (in thought and ‘modified’ wallet).

    My take: just 3 minor edits to your piece for me only… The title switch~up. Move the word ‘Really’ to the end. Scratch the word ‘respectfully’, respectfully speaking of course. And…. Last sentence, instead of ‘unlikely to be an insignificant revenue generator’ (albeit short term only) change to ‘likely to be a significant long term profit~loss writeoff’ (as in account retention and/or growth) of existing ‘trust is almost gone’ group and new ‘we can find it quicker and more relevant elsewhere’ gen~connected group

  2. Lisa: Thanks for comments and suggestions. One of the edits made. Respectfully going to leave the other two as is. 🙂

  3. Love the assessment, Ron. I can’t tell you the number of times I’ve heard “the dream” of a new product to be jolted from its sleep by the cold water of consumer reality. If banking is at all wrestling to be relevant in a world of changing technology, I also suspect it will be much better off treating mobile like another critical touchpoint, just like online banking was (and branch-location convenience before that). As I see it, the real revenue generated here is the revenue RETAINED by keeping up with the times. (The potential cost savings would appear to be the instant incentive to banks as a way to offset the potential cost/risk if this particular check-photo service isn’t adopted as widely as hoped.)

  4. People will not pay for RDC, nor will it ever be a source of revenue.

    There are a few studies out there right now about what “new services” banking consumers are willing to pay for and how much. The results have all been wildly unrealistic.

  5. Thanks for the mobile RDC penetration numbers, around 5% of U.S., if I read that right. Do you have any findings on whether normal users actually like as much as we think they should.

  6. JB: What’s a “normal” user?

  7. Ted Josephson says:

    Timely perspective as always Ron – Just had a co-worker forward me a stat from a webinar on Fees from a well-known research group – saying customers are willing to pay up to $2/mobile-deposit. The unasked question they forgot to survey was “Would you pay a fee of $2/deposit at Bank A, if Banks B, C & D all were charging $0 or would you move banks?”

  8. Ted: It’s like expedited bill pay. Sure, if someone is in a bind, and HAS to get a bill paid IMMEDIATELY, they’d pay a fee. Similar w/ RDC. If I HAVE TO have a check deposited in my acct, and can’t get to branch/ATM, then I might be willing to pay a fee to use RDC. And MAYBE there’s a segment of consumers who don’t have direct deposit who would be willing to pay $2 each month to use RDC for their paychecks. There are some issues/concerns with going down this route.

  9. Ok Ron, here’s how I see it:

    I can understand how the big-B would see charging for RDC as an opportunity, because they would fee for breathing if they could. However, as credit unions, I think we need to consider RDC as an alternative to increased fixed assets, which is a savings of resources rather than a lag.

    I say this because my credit union is in rural West Tennessee. Although we’re in what is considered a hub city, 25%+ of our membership lies outside the city limits and doesn’t want to commute in just to conduct transactions. Many do though, and it’s a frustration for them. The masses have said that they want an increased branch network, but in this market landscape, increasing operational expense is frowned upon by the NCUA and state regulators.

    On the other hand, your website, RDC and partner ATM networks are the perfect solution: offer “virtually” (pun intended) everything that you can do in-branch with three resources. RDC completes the trifecta: you can apply for membership, deposit accounts and loans on your website now, you can get cash from ATMs, and now you can deposit checks with your phone through RDC. I’m not certain there’s much left that a branch can do that these three services don’t cover. Consider it an expense savings rather than a revenue stream. In either case, your balance sheet reflects the benefit. The only difference is that your member/customer doesn’t suffer for it.

  10. Now that’s the essence of service right there for your membership. No gimmicks. So straight up it is crystal clear to a member…..with technology that enables a real and mutually beneficial relationship to continue, if so desired. And it should if you ‘Know your member’ as much as they believe they know you too.

  11. I agree Ron. I live some distance from the closest branch of my PFI, and there are definitely times where I probably would have paid $0.50 to $0.75 to deposit the check with RDC, but only when I knew I would not be near that branch for a while. Even if I did RDC every check I got, I estimate I would deposit maybe five checks a year…not exactly a huge money maker for my PFI is it?

    I think you hit on something with the non-direct deposit group. RDC could be seen as a cost-effective way to offer services to the underbanked…a pre-paid debit card that you can load using RDC anyone?

  12. Couldn’t agree more with your take on RDC. Paying for RDC is about as likely to be accepted as people paying a fee to have a debit card…maybe Bank of America would like to test that for the rest of us. Even businesses really don’t want to pay for RDC and it can save them money.

  13. Josh: Don’t get me wrong. I think RDC is, could be, and will be, an important mobile banking feature. My argument is with the statement that it’s a major reason why people understand the value of mobile banking (I think they get it just fine) and the revenue opportunity (which I’m not optimistic about). One thing, though. While a number of your members may very benefit from RDC, you’ve got to look at their demographics. If the out-of-towners are predominantly older consumers, then: 1) They’re less likely to have a smartphone, and 2) If they do have a smartphone, you’ve probably got an education challenge on your hands to get them to understand it and use it.

    Jim:There is a potential issue w/ the “underserved.” Charging them for RDC may invite some political backlash.

    Andy: You’ve hit on something. Let’s make Bank of America test out every cockamamie idea that comes along. If it works, everyone else can be a fast follower. If it doesn’t work, Dick Durbin has something to talk about.

  14. Matthew says:

    Mitek already has it in the works. RDC enabled deposit on prepaid cards, demonstrated at FinovateSpring 2012:

  15. Very cool. A great solution to a niche need…albeit a goodly sized niche.

  16. Depends on how you position the product. Priced right the product could save the underbanked $100 or more a year in fees compared to using check cashers and over the counter prepaid cards.

  17. Alex Jimenez says:

    I agree that it would be difficult to charge for this, however US Bank has done so at $0.50 cents per deposit and has had pretty good adoption, per their own product folks. I agree with the statement that mobile capture helps people to understand the value of mobile. That has nothing to do with the actual adoption of the function, but all about people’s perception of mobile being a different channel than the internet. Finally, I don’t believe the demographics for mobile capture are correct. In my experience, adopters tend to be Gen X and Boomers, not Gen Y, by a huge margin. Maybe my experience is not the average, but I doubt it.

  18. Alex —

    Thanks for commenting. Let me clarify that I’m not saying the RDC doesn’t help people understand the value of mobile, but that my contention is that they get the value just fine, with or without RDC.

    Regarding your experience that adopters tend to be Gen Xers and Boomers, could you be more specific? Are you saying that at YOUR bank, RDC users tend to be Gen Xers and Boomers? If so, could that be because of the underlying demographics of your bank’s customer base?

    I’m not sure what you mean by “your experience.” Have you been a product manager for RDC at a vendor or bank, or have you been at other banks where RDC has been offered?

    — Ron

  19. I manage the digital channels at a community bank, which includes RDC and mobile RDC. We have had mobile RDC well over a year, and those that have adopted are more likely to not be Gen Y. Anecdotally, we find that Gen Y are not great users or receivers of checks, and are even less likely to be using smartphones for banking. It might be a stage in life difference, rather than a true generational difference.

  20. By the way, I’m Alex. I didn’t realize I had signed on with my WordPress account.

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