PaymentsSource.com ran an article November 3rd, 2010 titled”Remote Deposit Capture ‘Cute,’ But It Is No Revenue-Maker, ExecSays.” Jack Prim, Jack Henry’s chief executive, indicates in thearticle that technology companies won’t see a significant increasein revenue from selling Remote Deposit Capture products. While thisstatement is probably true given that the technology is mostlycommoditized (scanners & mobile apps; the trickybit is managing the risk), the fact remains thatRemote Deposit Capture (RDC) can deliver huge benefits to someaccount holders.
I, for one, find myself much more appreciative of my financialinstitution because they deployed RDC. With the combination of RDCand Cash Over at the POS, I have not set foot in the branch or usedan ATM for more than six months! This is great news for me, but Ileave it to our banking practice here at Mercator Advisory Group todetermine if it is equally good news for the banks that haveinvested heavily in expanding their ATM and branch officefootprints. All I know is that I know longer need to go to the ATMor bank to deposit that $10 rebate check, the $90 expense check, oreven my daughter’s birthday checks. In the past these checks wouldgather dust, waiting for the value of un-cashed checks to exceed mypain threshold associated with going to the ATM or bank. I am luckyenough that given my lot in life, this meant the value had toapproach $100 before I would finally march on down to the ATM orthe bank branch to make the deposit.
So RDC is a convenience for me. The fact that my checks aredeposited sooner and become available for me to spend sooner is oflittle consequence (I hear several of my more organized friendswincing as I write these words). We know that this is not true formany others. For many, that access to $100 can be the differencebetween a good week and a terrible week. Access to liquidity iscritical for individuals that are on the financial edge, which isexactly the consumer most Prepaid Financial Services (PFS) productsare designed to serve. For many PFS products, check cashing issimply not available. For others, it is a key differentiator.Wal-Mart provides Money Card cardholders benefits for depositingchecks onto the Money Card at Wal-Mart stores. One reason forthis: the cardholder that just deposited the check ona Money Card is also very likely to shop at Wal-Mart to spend someof that money. In essence Wal-Mart enjoys greater cardholderloyalty, an increased number of shopping trips from those customersand higher ticket prices, when cardholders cash their checks atWal-Mart. Add to this a reduced cost for accepting the payment(Wal-Mart receives back the interchange when theWal-Mart Money Card is used), and it can be seen that check cashingis a profitable business for Wal-Mart and a benefit to cardholders.With RDC, all PFS products can offer check cashing services andaddress the liquidity problem for its cardholders.
As mentioned earlier the key to RDC is managing risk, and thesteadier the income stream and the higher the paycheck, the easierit is to manage that risk. But the vast majority of PrepaidFinancial Services cardholders have intermittent income, smallpaychecks, and work multiple jobs just to get by. Really, thinkabout that. I can’t for a minute claim to know what that life islike for this customer and if you are anywhere near my incomebracket – neither can you. What I imagine, however, is that thesepeople are far from lazy; dead tired maybe, but rarely lazy. Theywould like to be able to deposit their checks the minute they getthem. They would like to spend those checks the minute they cashthem. In fact, most cash checking agencies collect asignificant fee for delivering exactly these services – andthere lies the opportunity for Prepaid Financial Servicesproviders. Sure bill pay is convenient, but given a choice betweenimmediate check cashing – and access to cashthrough RDC – versus bill payment convenience,I bet they’d vote for RDC. For the supplier, RDC makesit possible to avoid the costs associated with reloadnetworks and check cashing stores. For thecardholder it eliminates the time needed to go to that store,the fee associated with cashing the check, and enables thecheck to be deposited instantly -24 hours a day. Rapid availabilityof funds is the next hurdle for the PFS supplier, but at least thePFS supplier has access to the tools needed to address thisproblem, unlike the credit rating system that is pretty much out ofthe PFS suppliers sphere of influence.
Providing an RDC solution that places a hold on all funds untilthe check clears may be the starting point, however the realbenefits for cardholders kick in when a low fee is charged to coverthe costs associated with a check guarantor (typically 1.5 percentof the check value plus a 15 to 35 cent transaction fee) so thatinstant availability to funds can be offered when thetransaction meets the acceptance criteria of the guarantor.Compared to traditional check cashing agencies, the PFS cardholderwould save a significant amount of money while making theavailability of funds much faster since the check can be depositedanyplace and anytime.
Today, most PFS suppliers are working hard to makereload easier and more convenient. Getting the cardholder to adoptACH Direct Deposit has a huge impact on reducing churn, which inturn increases profitability. It is recognized, however, thatthe majority of low and moderate income households do nothave the option of receiving electronic deposits; they getpaid in cash or checks. While cash will remain the provinceof the reload network, checks can now be made electronic using RDCand while I still can’t claim to know what life is like for aPrepaid Financial Services cardholder, I do trust that RDC willplay a critical role in delivering greater liquidity to cardholderswhich should in turn significantly reduce cardholder churn.