|Remote deposit capture 2012: A replacement market emerges|
With most U.S. financial institutions now equipped with commercial remote deposit capture capability, a replacement market is emerging with up to 1,800 institutions in play, according to a new report, State of Remote Deposit Capture 2012: A Replacement Market Emerges, from Celent.
"There are clear and obvious signs of an emerging replacement market as a result, and it's larger than we expected," says Bob Meara, senior analyst with Celent's Banking Group and author of the report. "Nearly 20% of surveyed institutions have plans or are considering switching RDC vendors, and that number is much higher among larger banks."
· Mobile RDC remains at center stage in the minds of financial institutions and vendors alike and consumed the bulk of industry activity over the past year. The result will be an explosion of product launches in the coming year as carefully controlled pilots give way to general availability. Today, mobile RDC is primarily thought of as a consumer and small-business product, but is destined to move up market. At Chase, this has already begun. Most vendors aren't ready yet.
· Compliance, while still exceedingly important, has been sufficiently mastered by most financial institutions, which are beginning to free up resources for activities like launching products and resuming sales activities. Compliance and risk management, however, sadly remains a higher priority at most banks than RDC revenue or deposit growth.
· Commercial RDC shows every sign of a maturing market. New financial institution adoption has slowed to a crawl. The low-hanging fruit among prospective clients is gone. Solutions are increasingly regarded as commodities, and stand-alone products are giving way to integrations with online banking platforms.
· As RDC becomes a replacement market, financial institutions are revisiting and consolidating vendors. Vendor positioning and pricing are changing to reflect this new climate. Significant market share changes have taken place among the leading vendors, and more are likely on the way.
In the commercial RDC realm (solutions sold to businesses), financial institution solution adoption has plateaued. Most financial institutions with substantial commercial, middle market, and large corporate client bases have already launched commercial RDC solutions. Industry RDC interests over the past year have been decidedly in the consumer and small business realm-primarily via mobile approaches.
Celent estimates that by year-end 2012, nearly 7,100 U.S. financial institutions-75% of all U.S. banks-will have adopted one or more commercial RDC solutions. This is essentially unchanged from a year ago, reflecting a saturated market for new sales and a reduction in the number of U.S. financial institutions over the past year. Meaningful continued financial institution adoption of commercial RDC is unlikely, with community banks and credit unions focusing on mobile RDC instead.
Client adoption grew by 150,000 scanners. Celent estimates an aggregate 946,550 commercial RDC users/scanners by year-end 2012, a 16% year over year growth. Although product pricing is sharply reduced from RDC's early days, client float savings have all but disappeared, making the business case for selling RDC challenging among client holdouts.
As before, the bulk of RDC client growth has been at the hands of financial institutions with average deployments growing from 96 in 2010 to 133 scanners per institution in 2012. Alongside financial institution initiatives, additional bank-neutral solutions launched, and others will appear before year end. These solutions are sold and supported by third parties without direct financial institution involvement. Depositing financial institutions retain deposits, but are not on the hook for product delivery.
Similar approaches are growing among solution providers with vertical market expertise (e.g., property management and healthcare practice management applications). Solution providers are now integrating RDC solutions with broadly deployed existing applications. The approach leverages efficient sales channels and provides enhanced user benefits not easily matched by the generic approach used by most financial institutions. Primarily aimed at small and medium-size businesses, these solutions face the same business case head winds as financial institution-sponsored RDC solutions.
RDC adoption continued its downmarket movement into the small business market over the past year, driven by solutions that use existing scanning equipment as well as those requiring specialized check scanners. Once heresy, the use of TWAIN-compliant scanners for RDC had been planned or considered by roughly half of financial institutions as measured by three annual surveys from 2009 through 2011. In the 2012 survey, interest in this approach has been eclipsed by mobile RDC. Doing so will allow a step change downward in solution cost (and in turn, pricing) that will, finally, make RDC broadly viable for small/microbusiness and consumer segments. Compliance and risk management considerations have slowed financial institution investments in these solutions historically. But, based on a September 2012 financial institution survey and vendor implementation queues, Celent forecasts vigorous activity in the next two years.
· Whether the industry's disproportionate concern over RDC risk evolves to more pragmatic risk management approaches. If this occurs, the resulting broader client eligibility and higher deposit limits will increase the addressable market for commercial RDC solutions. If combined with increased sales and marketing activity, a doubling of aggregate RDC client adoption over the next three years is achievable.
· Whether alternative distribution channels gain momentum. Sales progress has been unimpressive, with nonbank providers accounting for less than 10% of end users.
· Mobile and desktop consumer RDC. Its importance is not so much that consumers are now being invited to use RDC, but that the resulting solutions have created a low-cost deposit-gathering mechanism for the masses. Consumer capture has reinvented solution cost, pricing strategies, support models, and administration in ways that will challenge how financial institutions use RDC. Collectively, surveyed financial institutions expect mobile RDC to account for a third of small business RDC end users in 12 to 18 months. Celent expects its share of microbusinesses to be dramatically higher over the same period.
Celent views RDC as one of several distributed capture applications being widely implemented since the passage of Check 21 legislation in 2004. The term "distributed capture" is used to broadly describe the process of capturing, validating, and managing check and related payment information at various points of physical presentment-both within financial institutions and beyond: among corporate, merchant, and small business locations, as well as anywhere using a suitably equipped mobile device.
In this report, Celent uses the term "remote deposit capture" to describe those applications of distributed capture that occur outside the financial institution, distinguishing it from infrastructure initiatives. However, this report also covers cash vault image capture. Although RDC is an intrabank distributed capture application, it has relevance in the context of treasury management services. Cash vault capture is both a cash management product innovation and an item processing operations improvement.
During its relatively short life, RDC has evolved from a treasury management offering targeted to large depositors to a bevy of product variations. This report, written for the treasury management audience, focuses on commercial RDC, defined as RDC products sold to businesses.
[This article was posted on October 9, 2012, on the website of ABA Banking Journal, www.ababj.com.]
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