Merchant Remote Deposit Capture (RDC) – Increasing Adoption
Remote Deposit Capture (RDC) is an easy three-step process of scanning, verifying, and depositing a check. It reduces the time required to deposit checks and simultaneously facilitates savings by eliminating the cost of going to the bank, photocopying checks, purchasing deposit slips, dedicating employees for depositing checks, and many other business activities.
Our research reveals that the money lost by having checks sit around outweigh the costs of merchant RDC. The benefits also include improved cash flow, same day ledger transaction, enhanced customer service, and the convenience of depositing checks in-house.
RDC has become a necessity because paper checks still form one of the most popular methods of payment; accounting for around 75% of initial B2B payments. Around 30 billion checks were written in 2006 alone. The conventional process of depositing checks means that a business loses a lot of time and money. As RDC can drastically reduce the time and cost of depositing checks, almost every bank is now offering RDC to cater to new customers as well as to retain existing ones.
RDC has shown an impressive growth rate of 70% from 2004 to 2008. The process was initially adopted by banks and financial institutions as branch deposit capture. This was followed by the adoption of the bank’s commercial base wherein the major targeted segment was big businesses where banks held their core deposit and asset base. As banks turned their focus to merchants, they initially targeted small and medium size businesses with annual revenue of $1 million to $25 million.
While RDC adoption has lagged behind expectations with 2% in 2007, this market segment is now on the upswing with its current adoption rate at around 30%. Micro business segments with annual revenue of $25,000 to $1 million account for 70% of all printed checks, and promise to be an attractive market if banks can learn how to crack it.
Early adoption of large established treasury and cash management customers provided ‘low hanging fruit’ for banks. But these customers represented a small percentage of the bank’s total commercial base. Banks were content with their initial efforts that RDC was available for customers who required the solution. The smaller banks, community banks, and credit unions saw the opportunity missed by the larger FIs and slowly began to enter this market by first becoming a referral bank for their core processor and eventually becoming a processing bank.
With the systems in place, banks began focusing on small businesses. As the technology stabilized, the cost dropped and banks could be innovative with the business model, placing RDC with almost any customer. Realizing that one size does not fit all, large banks also launched solutions for small businesses.
Banks can benefit by viewing RDC as a means to an end. Electronic payments have increased at an annual growth rate of 12.5%, while the use of checks is declining at a rate of 6.5%. The pot of gold at the end of the rainbow is not how many scanners the banks can deploy; rather, RDC is the first step to expand into other merchant payment solutions. This is an area in which banks wish they could do better.
As most banks have realized that one size does not fit all, the development of solution for businesses or merchants with low volume checks or low deposit amounts can create a niche segment for RDC adoption. Thus, innovative product offerings will play a major role in the development of the RDC market. Moreover, the integration of industry participants, i.e., the banks, scanner manufacturers, and application service providers will help them to provide more effective and cost saving solutions.
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Merchant Capture is a product that saves time and cost and simplifies the process of depositing checks. While it has no good reason for failure, its adoption has been slower than the expected rate. Currently, around 3.75 million businesses in the U.S. are using Merchant Capture; and at the current growth rate the number is expected to reach around 7.3 million users by the end of 2014.
The reasons for the failure of RDC are as follows:
- Improper positing in the introductory phase of the product has acted as one of the strongest barriers in the adoption of RDC. While the initial product was designed for large businesses, the adoption came from small businesses where the volume of checks was different. Thus, the existing product failed to fulfill the needs of the small businesses.
- Lack of awareness about the operational risks and the regulatory compliances for the product has also affected the growth of RDC. The unmet need for a multiple account deposit facility is also hampering the adoption of RDC.
- Huge opportunity for players as huge number of merchants yet to adopt RDC
- After its launch in 2004, RDC was expected to reach merchants by the end of 2012, but low adoption rate has led to an ‘opportunity gap’. The opportunity gap has a potential market segment of around 16-17 million businesses in the U.S. who can adopt RDC.
RDC can revolutionize the banking industry if it is marketed well. Banks and ISOs have to come together to meet the varying needs of different business segments. In order to do this banks have to create awareness about the product and train merchants in its usage. They must also design products according to varying needs as one size does not fit all.
Table of contents
With everything in place Merchant Capture yet to take off
Reasons for slow adoption of RDC:
Unmet demand for multiple account deposit facility
1.1 Report purpose
1.1.1 Report Catalyst
1.1.2 Report Structure
1.2 Research objectives
1.3 Study methodology
2 Market Overview
2.1 Market Segmentation
2.2 Defining Merchant Capture
2.3 Operational Process of Merchant RDC
2.4 Factors influencing market growth
2.4.1 Market Drivers
184.108.40.206 Benefits of merchant RDC fuels demand
220.127.116.11 Product innovations and reduced cost of scanners
18.104.22.168 RDC awareness initiatives by banks and ISOs
22.214.171.124 Large volume and value of check transactions
126.96.36.199 Hike in paper check processing fees
2.4.2 Market restraints
188.8.131.52 Decreasing use of checks
184.108.40.206 Lack of optimal solution
220.127.116.11 Lack of awareness and training
3 Strategy Formulation
3.2 Channels of Merchant RDC
3.2.1 Bank Centric Model – The Existing Channel
3.2.2 Bank Agnostic Model – The Upcoming Channel
3.2.3 Hybrid Model - realized but yet to be utilized
3.3 Market Opportunities
3.3.1 opportunity gap
3.3.2 Custom-built solution for discrete demands
3.4 bank/vendor strategies related to vital components of rdc
3.5 Go-to-market strategies
3.5.1 Creating Awareness
3.5.2 Marketing product name instead of brand name
3.5.3 Segmented Approach
3.5.4 Complimentary Services
4 Business Case Studies
4.1 cost-benefit analysis of rdc
4.2 US Bank selects Panini Scanners for its rdc solution
4.3 Bank of Alameda increases geographical presence through rdc
4.3.3 Bank of Alameda collaborates with Fiserv
4.4 Norway Savings Bank partners FIsc for rdc service
4.4.2 Norway Savings Bank selects FISC for its merchant capture service
5 Vendor Analysis
5.1 Vendor Benchmarking
5.1.1 Strategic Benchmarking
5.1.2 Functional Benchmarking
5.1.3 Technological Benchmarking
5.2 Commercial Benchmarking
5.3 Bank Profiles
5.3.1 Bank of New York Mellon
18.104.22.168 Product description
22.214.171.124 Recent developments
5.3.2 Branch Banking and Trust
126.96.36.199 Product description
188.8.131.52 Recent developments
184.108.40.206 Product description
220.127.116.11 Recent developments
5.3.4 Mansfield Bank
5.3.5 Orange County Business Bank
18.104.22.168 Product description
5.3.6 Wells Fargo Company
22.214.171.124 Product description
126.96.36.199 Recent developments
5.4 Profiles of Independent Sales Organizations
188.8.131.52 Product description
184.108.40.206 Recent developments
5.4.2 Metavante Technologies
220.127.116.11 Product description
18.104.22.168 Recent developments
5.4.3 Net Deposit
22.214.171.124 Product description
126.96.36.199 Recent developments
188.8.131.52 Product description
184.108.40.206 Recent developments
220.127.116.11 Product description
18.104.22.168 Recent developments
5.4.6 WAUSAU Financial systems
22.214.171.124 Product description
126.96.36.199 Recent developments
List of TableS
Table 1 U.S. Businesses, By Revenues (2007)
Table 2 Vital Component – Product Enhancements
Table 3 Vital Component – Maximizing Deposits & Adoption Rates
Table 4 Vital Component – Reducing Operational Risk
Table 5 Vital Component – Enhancing Customer Service
Table 6 Vital Component – ensuring Regulatory Compliance
Table 7 Cost Benefit Analysis of RDC for three different businesses
Table 8 Marketing Strategies of Commercial Banks
Table 9 Marketing Strategies of Community Banks
Table 10 functional benchmarking of ISO
Table 11 Technological benchmarking of ISO
Table 12 Technological Benchmarking of Commercial Banks
Table 13 Benchmarking Scanners
List of FIGURES
Figure 1 Market forces model
Figure 2 Pre-RDC & post-rdc Workflows
Figure 3 RDC Market Segmentation
Figure 4 U.S. Businesses, by size (2007)
Figure 5 Merchant Capture Process
Figure 6 Benefits of Merchant Capture
Figure 7 Volume and Amount of Check Transactions in U.S. (2006)
Figure 8 Number of E-Payment Transactions
Figure 9 Merchant Remote Deposit Capture FORECAST (2007-2014)
figure 10 Commercial Banks offering RDC
figure 11 Community Banks offering RDC
Figure 12 Flow of Bank Centric Channel
Figure 13 Flow of Bank Agnostic Channel
Figure 14 Flow of Hybrid Channel
Figure 15 Opportunity Gap for RDC
Figure 16 Product Matrix of Merchant RDC
Growth opportunities and latent adjacency in Merchant Remote Deposit Capture (RDC)