Your Smartphone's Camera Will Revolutionize How You Bank

Phone depositTerreece Clarke used to hate the chore of depositing checks. Every month, the freelance writer in Columbus, Ohio, would get three to five checks, each of which required a trip to the bank with her kids in tow.

"The hassle of finding the time to get to the bank or drive through the ATM and fill out forms, wait, etc., drives me crazy," Clarke said. "And did I mention I have three kids? Bank lines almost guarantee someone will have to pee while we wait, and I cannot count how many times I have gotten to the ATM to discover I don't have a pen or have left the check sitting on my desk at home."

To avoid the headache, she switched to Chase (JPM) to take advantage of its remote deposit capture, which allows her to use her iPhone 4S to deposit checks from the comfort of her living room couch. She simply snaps a picture of the check and sends the image to the bank, where it is swiftly deposited in her account.

"Now, when I get the mail I do the happy dance for payment, whip out my phone, take a pic, file the check and move on," she said. "Anything that allows me to spend less time on the administrative tasks of running a business is worth its weight in gold."

A Banking Game Changer

While the numbers are still small -- only 3% of banking customers use remote deposit, according to one recent survey -- the technology is poised to become a game changer.

Some 63% of Americans still take deposits to a bank branch teller, and just over half deposit two or more checks per month, according to a survey by TNS on behalf of ING Direct (ING). When you throw ATMs into the mix, you cover 85% of banking customers.

But even people who still trek to the bank acknowledge that filling out a deposit slip feels old-school: 35% of them say that depositing checks with a bank teller is outdated, time consuming or replaceable, according to TNS.

ING Direct recently launched its first remote deposit tool, CheckMate, for iPhone and Android devices. "Saving time and money are top priorities for most busy Americans," explained Jim Kelly, the direct bank's chief operating officer.

Today, the service targets "self-selected, self-directed technology savvy consumers," said Todd Sandler, ING's head of product strategy and deposits. But the landscape is changing fast. "Tablets are outpacing personal computers and laptops," Sandler said. "This is the next step in offering a flexible banking option."

Luring Customers With Mobile Services

In fact, banks that don't have a viable remote deposit option may find themselves losing business -- and fast. Customers like Clarke are willing to switch banks for the added convenience.

Savannah Brentnall, a social media consultant in Los Angeles, deposits six to eight checks per month. "I recently switched from Wells Fargo (WFC) to Schwab (SCHW) online banking, and their mobile deposit app was one of the reasons," Brentnall said. "It's a godsend for someone like me, who bills by the hour. Every minute I spend running errands is time I can't bill for."

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Krista Van Veen, an office manager at a CPA firm in Carmel, Calif., ditched Bank of America (BAC) for USAA. "I was totally gung-ho about banking with my smart phone, and USAA has a great app," she said. She gets a confirmation of her deposit within seconds, and her online balance instantly reflects the addition. She can then swiftly tear up the physical check.

Remote deposit technology may be the "killer app" that gets people to go online for all of their banking, said James DeBello, CEO of Mitek, the company that powers Chase's mobile check deposit. "Mobile check deposit is a game-changer because it moves mobile banking functionality from basic features like checking a balance or finding a branch to an advanced feature that allows consumers to complete a transaction."

And mobile deposit is just the beginning. "Mobile image capture will have a lasting impact on retail banking and will drive additional innovations for mobile finance solutions such as mobile image bill pay, mobile check cashing, loading up prepaid cards for those to have had to rely on check cashing facilities, balance transfer and more," he said.

But Is It Secure?

Of course, not everyone is jumping on the mobile banking bandwagon. Lynn Javitz, who runs a wedding and design business in New York City, sat through a demo of the iPhone app at Chase before deciding against it.

"As a prior victim of minor identity compromise, I choose to do no computer banking," Javitz said. "I do not check balances online, and I did not want any type of indication of any account number on my phone should I lose the phone." She also didn't want to hassle with password protecting her device. "I chose to say, 'never mind' and just go to the bank."

Banks are well aware that security concerns are keeping a lot of potential mobile banking users on the sidelines, and they're doing whatever they can to quell the anxiety.

"We've been accepting checks for 12 years for 7.5 million customers and have state of the art security," ING Direct's Sandler said. "The digital imagination of that and the frictionless transaction doesn't mean that there's a compromise in terms of security."

Sandler cited ING's proprietary security technology and the fact that protections are embedded in confirmation emails as an added layer of security.

Banks are also mitigating risk by instituting dollar limits on remote deposits. Susan Robertson is a self-described "early adopter" who was "all-in from the word 'go'" with remote capture technology, but the the Chase iPhone app won't let her deposit checks over $1,000 as a precautionary measure.

"I own a rental property in Florida, and the rent check is more than that, so I still have to physically go to the bank or ATM to deposit that every month," Robertson said. "I really wish they would remove the limit; I don't understand why they would treat $1,001 differently than $999; it doesn't make sense to me as a consumer. Seems like I ought to be able to do the same thing."

ING Direct's CheckMate has a $3,000 limit to protect the bank from possible fraud.

The 5 Bank Stocks Facing the Biggest Legal Risks
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Your Smartphone's Camera Will Revolutionize How You Bank

With 10,000 lawsuits against them, you knew they'd be on the list somewhere. JPMorgan estimates it faces up to $3.315 billion in litigation after taxes, beyond what it has already paid out or reserved against. That adds up to 8.8% of the $37.612 billion JPMorgan is expected to earn in 2012-2013.

In 2011, JPMorgan's noninterest expense included $3.2 billion of litigation expense, mostly for mortgage-related matters, compared with $5.7 billion of litigation expense in 2010, according to Nomura's report

Citigroup estimates it is on the hook for up to $2.6 billion in litigation after taxes, beyond what it has already paid out or reserved against. That adds up to 9.9% of the $26.364 billion Citigroup is expected to earn in 2012-2013.

Citigroup faces a variety of regulatory inquiries and class action lawsuits related to its mortgage origination practices. The private lawsuits will not be included in a National Mortgage Settlement, reached last month with 49 state attorneys general and the federal government. Bank of America (BAC), JPMorgan, Wells Fargo (WFC) and Ally Financial, the former GMAC, were also part of the settlement.

Bank of America estimates it faces up to $2.34 billion in litigation expenses after taxes, beyond what it has already paid out or reserved against. That would equate to 10.9% of the $21.455 billion the bank is expected to earn in 2012-2013. The bank faces lawsuits related to mortgage originations and servicing, as well as for alleged failure to disclose its knowledge of ballooning losses at Merrill Lynch ahead of its eventual acquisition of that company.

The $2.34 billion figure, however applies only to "those matters where an estimate is possible," according to the bank's annual 10-K filing with the Securities and Exchange Commission.

Regions Financial estimates it faces up to $221 million in additional litigation costs after taxes, or 12.9% of estimated $1.707 billion in 2012-2013 earnings.

Regions is also on the hook for any litigation related to its Morgan Keegan brokerage unit, which it agreed to sell to Raymond James Financial (RJF) on Jan. 11.

Synovus faces just $39 million in potential litigation costs after taxes, above what it has written down or reserved against. However, that equates to 14.5% of the bank's estimated $270 million in 2012-2013 earnings.

As is the case with Bank of America, however, Synovus's estimates relate only to "those legal matters where [the company] is able to estimate a range of reasonably possible losses," according to its 10-K.

Gary Brand, director of Source Capture Solutions at Fiserv, which develops remote capture solutions, noted that restrictions tend to loosen up as the technology becomes more widely adopted. And he firmly believes it will be: "It's the first time I've seen a technology that has made people switch financial institutions, made businesses consider how they accept checks," Brand said. "It's a great thing for the financial institutions to bring more services to the client base and reach them in a way they never had before."

But that benefit comes with the need to mitigate the risks, according to Brian Barnier, a risk adviser with the Information Systems Audit and Control Association, a global nonprofit organization that deals with IT governance.

"The risk can pop up in both the electronic transaction and in managing the paper check integrity through fraud, privacy breaches and more," Barnier said. "The practical answer to addressing such risk is to focus on process to understand how an accidental or malicious incident or high transaction volume could break the process, early warning if it's breaking, and then smart steps to prevent and prepare."

Because banks know their customers and have detailed monitoring systems in place, Banier said, they can regulate any behavior of ill-intent.

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