Now Might be Time to Reexamine Consumer Remote Deposit Capture

Remote deposit capture (RDC) for consumer customers is not old news. According to Celent senior analyst Bob Meara, the consumer capture area still has some life left in it and may be worth another look.

Consumer capture enables non-commercial customers to deposit checks from the comfort of their own homes using the typical scanners one would buy in any electronics store. During a webinar, Meara told attendees that banks' attitudes toward this delivery channel are changing. Once a source of derision by many FIs, consumer capture is slowly winning over advocates as banks struggle to grow deposits in the tough economic environment.

Historically, Meara said, banks felt consumer RDC was nothing but a risky boondoggle that just was not worth the bother. Complaints like a scanner's inability to read MICR lines, the perceived cost of deploying these solutions and the training required for consumers and staff were turn-offs for many FIs.

Now, however, time has passed and efforts by early adopters have actually borne favorable results. According to Meara, these FIs, primarily credit unions and small banks, have seen notable uptake in the use of consumer capture. For the most part, all a consumer needs to use this kind of service is a home scanner that is TWAIN compliant—a widely used program that allows users to scan an image directly into an application—which most are.

As a result, FIs like USAA, First Command Bank and Digital Federal Credit Union have had notable success with these programs. According to Meara, USAA nearly doubled the rate of its deposit growth since deploying Deposit@Home in 2005. First Command signed up 550 users in the first month and expects 50 percent of its online banking users to sign on. And Digital FCU enrolled 3,000 users in the first week and saw figures surge to 16,000 users in the first five months of offering its consumer capture product.

What these early adopters found was that consumer capture, contrary to popular belief, has exception rates that are similar to branch deposits in that they are modest and manageable, said Meara. Duplicate checks tend to be caught and corrected early, prior to posting. This self-service channel has also helped lower processing costs for FIs. And there has been no evidence of fraud unique to this channel.

Banks and credit unions are taking different approaches to managing the risk around this service too. On the bank side, Meara said there is a tendency to rely on client risk management, which vets enrollees based on such factors as account longevity, credit score and deposit history. It is difficult to enroll, but once in, little attention is given to the deposits.

Credit unions, on the other hand, use a more balanced risk management approach, stated Meara, where they make it easier for people to sign up but employ an array of deposit monitoring tools once they are enrolled, such as monitoring velocity and deposit totals, and setting daily and monthly transaction limits.

Be that as it may, FIs are taking it slow for now when it comes to consumer capture. However, they should still give it serious thought in light of the financial crisis. "They have to take it seriously because the nature of deposit gathering in the U.S. has changed," noted Meara. "The events of 2008 created a growing demand for liquidity; there's a concurrent decline in household deposits; and with new market entrants like American Express and Morgan Stanley, the supply [of potential customers] is shrinking."

He added, "Forty percent of U.S. households have brokerage accounts. Now the brokerages have bank charters and are hungry for core deposit growth. You can bet these brokerages will look to consumer capture."

Still, consumer capture could be relegated to a niche product, albeit an important one, he continued. High net worth households comprise one attractive market for RDC, according to Meara, since many of them have brokerage accounts, use online banking and are small business owners. And small business owners are another segment that can benefit from consumer capture since they generally deal with small volumes of checks, similar to consumers.