Smartphone deposits gain interest

The use of mobile devices such as smartphones and tablets to deposit checks is catching up in popularity among consumers, according to recent surveys commissioned by the Federal Reserve and the American Bankers Association.

One in eight Americans deposited a check using a mobile device within the past year, according to a national survey released earlier this month by the association.

As more consumers begin to take advantage of online banking, the industry has been pressed to keep up with the demand, pouring money into the technology to provide convenience and security for customers.

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The most common mobile-banking activities continue to be reviewing account balances, monitoring recent transactions or transferring money between accounts. More than 75 million Americans use their smartphones for mobile banking, and 38 percent of those tried depositing a check using their smartphone in the past year, up from 21 percent in 2012, according to the most recent Federal Reserve survey.

Depositing a check using a mobile device is as simple as snapping a picture of the front and back of a paper check, then electronically sending it into an account.

“Convenience and saving time are paramount for today’s consumer, so it is no surprise that mobile deposit is gaining traction with banks and their customers,” said Nessa Feddis, the ABA’s senior vice president and deputy chief counsel for consumer protection and payments.

Frank Aloi, president of Ath Power Consulting, a Boston-based financial services industry research firm, said it’s the feature most desired by mobile banking-app customers.

Passing fad?

While big banks rushed to provide the service and smaller banks have scrambled to follow suit, some bankers question whether a mobile check-deposit system will be needed in the future.

Scott Malan, senior vice president and relationship banking manager for Home State Bank in Loveland, said mobile check deposits could well be a passing fad.

With electronic payments, there aren’t as many paper checks being written, he said, and with time, the number of paper checks will continue to decline.

“In the long run, it won’t have a huge impact,” he said.

Nonetheless, Home State Bank offers the service to its 20,000 customers who have checking accounts. The bank skirted capital investments for a system by contracting with a third-party provider. The vendor hooks into the bank’s ATM network, providing the same level of security and charges the bank $1.35 per deposit. The bank charges customers $1 for each check deposited.

The wow feature

“I call it a wow feature,” Malan said. “People see it on big-bank commercials, and it is cool, but I don’t believe it is being adopted as fast as everyone thought. The response we’ve had is underwhelming.”

Not all banks offer the service, introduced by USAA Federal Savings Bank in 2009, but some banks are scrambling to provide it.

High Plains Bank, a small community bank founded in Flagler that also has branches in Longmont, Bennett and Wiggins, is hoping to roll out its mobile deposit service early next year.

“We know our customers want it,” said Chris McVay, vice president and manager of the bank’s branch in Longmont. He said despite the cost, it’s something the bank needs to do.

“The cost is fairly substantial, but we need to make the investment,” he said. “Like many of the larger banks, High Plains doesn’t plan to charge a fee for the service.”

Cost of doing business

Wells Fargo (NYSE: WFC), which is ranked No. 1 in market share in the four-county region that makes up the Boulder Valley and Northern Colorado, launched its mobile check-deposit service in select regions in May 2012 and went nationwide with it in early 2013. It has experienced a steady uptick in users. The bank does not disclose how many of its customers use mobile check-deposit service, but spokesman Bryan Pearce said the number is increasing. The bank has 13.1 million mobile customers nationwide, up 22 percent from a year ago, according to its most recent earnings report.

Pearce, senior vice president and head of retail mobile channel and digital innovations for Wells Fargo, declined to say how much the bank has invested in the mobile check-deposit system, and downplayed the cost of providing the service, chalking it up to a cost of doing business.

Return on investment

But there appears to be a significant return on investment. Many institutions estimate average mobile check-deposit costs are 40 percent less than a branch deposit, according to a white paper written by San Francisco-based Western Payments Alliance, an association of financial institutions, e-commerce companies, payment technology providers, and other organizations supplying payments-related services.

This year, Wells Fargo upgraded its electronic-deposit service to include video capabilities. Pearce said some customers were having trouble taking good photographs of checks.

“We were relying on customers being good photographers. Now with letting them use a video camera, they just hover over the check, send the video, and we can capture a good still off of the video.”

Pearce pointed out that small-business owners who use mobile deposits see an improvement in cash flow and save time. “They are depositing checks from customers immediately and can access the money the next day,” he said. “Plus they don’t have to make a trip to a branch bank.”

Potential pitfalls

Consumer Reports recently published a story about potential pitfalls, especially where personal checks are concerned. It pointed out that federal regulations dictate how long banks can hold checks before making the funds available – and it isn’t very long. In general, the first $200 of a deposit must be available for cash withdrawal or check writing the next business day. The rest should be available on the second day for check-writing purposes and on the third for cash withdrawal, subject to certain exceptions and other details.

Consumer Reports suggests that after making a smartphone deposit, people should hang onto the paper check for two weeks in case a problem arises. Date and mark it as a mobile deposit so that you or your significant other doesn’t mistakenly deposit it again and incur returned-deposit fees. Shred or otherwise completely destroy the paper check (don’t recycle it) so that a crook can’t use it.

While the use of mobile banking continues to increase, the Federal Reserve’s report indicates that consumers who do not use mobile banking are becoming more skeptical of the benefit of mobile banking and the level of security associated with the technology.

Mobile banking by the numbers:

87% of U.S. adult population have a mobile phone

61% of mobile phones are Internet enabled

51% of smartphone owners have used mobile banking in the past 12 months, up from 48 percent a year earlier

31% of all mobile-phone owners have used mobile banking in the past 12 months, up from 28 percent a year earlier

12% of mobile-phone users not using mobile banking think they will use it within the next 12 months

Source: Federal Reserve survey

Doug Storum can be reached at 303-630-1959, 970-416-7369 or dstorum@bizwestmedia.com.