As the light recedes and bankers, merchants, teachers, farmers, mothers and grandfathers shuffle off to bed, the night movers get to work. Their job: sending all the cheques in Canada to clearing agents for sorting, stacking and stuffing into courier sacks.
The system is amazing, not unlike Santa’s. Magically, nearly every one of the 2.4 million promissory notes finds its way to the appropriate financial institution by sun up.
It’s impressive logistically, but surprisingly quaint. In this age of virtual everything, how is it that our financial system still depends on truckloads of paper rumbling over darkened highways?
True, those trucks are lighter because cheque usage has declined since 1990. Still, Canadians sent 881 million cheques through the clearing system in 2011. Certain situations do, however, require cheques: post-dated rent payments, for example, or school fees sent in lunch bags. And while we don’t receive cheques often, we have to make a trip to the branch when we do.
Paper? What paper?
These concerns led to Deposit Anywhere™ — the first of its kind in Canada. This mobile app feature allows members to deposit images of cheques using their smartphone camera. With Central 1 leading the design team, three champion credit unions — Westminster Savings in B.C., Meridian in Ontario and Affinity in Saskatchewan — collaborated to develop the member-friendly service.
Westminster Savings Credit Union ($2.3 billion in assets under administration, 12 branches) launched Deposit Anywhere on April 17. Within five weeks, members had deposited $1 million through the app. the MemberDirect® Mobile App, which allows clients to view account balances, pay bills and do other day-to-day banking, has been available to Westminster members since December 2012.
But the add-on essentially doubled the download total. Meridian ($8.8 billion under management, 61 branches, eight commercial business centres) launched May 6 to personal banking customers and saw 1,200 cheques pass through the app in a month. Another 1,400 of the app add-on were downloaded. Affinity Credit Union ($2.5 billion in managed assets, 76 branches), launched June 11. two weeks later it reported 2,707 upgrades to the app, 401 new downloads and 312 digital deposits. it’s exciting. Once again credit unions have scooped the banks.
There’s another equally important factor too, articulated by all the design participants. “It demonstrated a process to us — how we can work together in delivering something like this in an agile manner and do it in such a way that it’s not just for the big credit unions, but something that just about every credit union could deploy if they want to,” says Atul Varde, CIO at Affinity.
The bigger lesson
Deposit Anywhere will no doubt soon be old news: ING Direct now has a similar app. But the larger question remains: What can be learned about bringing it to market that can strengthen the credit union movement’s position as a solid innovator in the Canadian financial system?
The process began several years ago at a Large Credit Union Conference (LCUC), where CEOs from Canada’s 13 largest credit unions met to discuss common issues. The group formed a spin-off body of chief information officers and, in January 2011, the CEOs endowed it with a $500,000 innovation fund. the purpose? To use technology to provide better service in order to compete with banks through innovation.
“We knew that the Canadian Payments Association (CPA) was going to be changing its rules to allow for the eventual digitization of the clearing system”
—Atul Varde, CIO, Affinity Credit Union
Their first project was prompted by a banal-sounding adjustment to regulations. Varde explains, “We knew that the Canadian Payments Association (CPA) was going to be changing its rules to allow for the eventual digitization of the clearing system.” This modification would happen in four phases, ultimately allowing clearing agents to exchange cheques through electronic images instead of through couriered paper. While this last stage went into effect in August, Phase 3 meant Clearing Replacement Documents (CRDs) could serve as substitute for paper cheques. The CIOs saw a way to exploit this development.
“We said, instead of waiting for this entire process to be digital, what if we made this process easier and digital for the frontend member?” recalls Varde. “They could take an image of the front and back of the cheque and deposit it through a mobile app.”
Although the back-end processes would continue to be paper-dependent for a little longer, packaging this new regulation into a sleek smartphone app generated a lot of press.
“This is my sixth interview,” says Gary Genik, CIO at Meridian, less than two months after launch, noting interest from the Toronto Star, Canadian Press and several Ontario city locals. “People are enchanted by anything mobile. Any time you have an opportunity, especially in the banking world, to provide a feature no one else has, people talk about it. On Twitter, even customers of the large banks are saying, ‘What about us? When are we getting it?’”
The long roll out
The Deposit Anywhere service is a first for Canada, but some form of depositing images of cheques already exists in India, Singapore, Hong Kong, Argentina and other countries. In the U.S., remote deposit capture has been legal since 2004, when congress passed the Check Clearing for the 21st Century Act. One reason it came about was 9/11. “All the planes were grounded at the time and cheques weren’t moving,” explains Doug Pearson, product manager, Cheque Clearing at Central 1. “So banks were paying out a lot of money that they weren’t getting back from other FIs.”
As for Canada, the CPA initiated its four-phase approach in 2010, which allowed for the optional and partial adoption of image replacement. Under the new rules, when a clearing agent such as Central 1 receives a cheque by digital image, it prints out a corresponding sheet of identifying information, including an image of the cheque, the member name, amount, branch number and so on. Since the drawn-on FI would still receive a paper record, it didn’t matter if some opted out because everyone could still communicate.
Phase 3 allowed branches to present electronic images to a clearing agent. Phase 4 established rules for exchanging images between clearers. There’s no need for two sets of procedures or two sets of staff to implement the changes. “Cut-off times, regional exchange deadlines and settlement procedures are consistent with those in place today in the paper environment,” notes the CPA. Nor is risk for Deposit Anywhere greater than with traditional cheques. In fact, in the U.S., the Federal Deposit Insurance Corporation found that the fraud rate for electronic cheque deposits was “lower than the average for general item processing.”
There is an argument that when members conduct transactions by smartphone, it reduces staff opportunities to connect in person. Since offering member-centric service is the credit union’s supposed advantage, is it wise to move away from a face-to-face model?
Gary Genik of Meridian believes that fear of apps is an overreaction. “One of the largest requirements our members have, even ones who are the biggest users of online technology, is proximity to a branch,” he says. “When they do want to have meaningful conversations about wealth management, retirement, or mortgages, they want to see someone face to face. But we’re going to have to live with the fact that people want to do transactional banking on their terms, any time and anywhere.”
“When they do want to have meaningful conversations about wealth management, retirement, or mortgages, they want to see someone face to face”
—Gary Genik, CIO, Meridian Credit Union
Statistics back him up. Today, 47 per cent of Canadians use apps to bank, according to a 2012 Ipsos Reid poll and 56 per cent of that subset rely on apps for everyday online banking. Force people to visit branches and their experiences won’t be positive — particularly if convenient alternatives are available.
“When customers feel that a financial services firm acts in their best interest, they are willing to invest more, borrow more and buy more products from the firm,” reports a 2013 Forrester Research paper. So if a credit union’s prime mandate is to put its members’ needs ahead of the bottom line, delivering service through mobile technology may be an imperative.
Bye-bye desktop banking?
Mobile apps might even enhance credit unions’ personalized service. “The way we prefer to look at this,” says Varde, “is that this electronic channel [Internet and mobile] is yet another branch: our biggest branch. Given that members are in the driver’s seat, we really have to challenge ourselves. How can we design our electronic channels to make them engaging, albeit in a different way, as we’ve done for years with in-person banking?”
The success of Deposit Anywhere might also drive credit unions to rethink how they use those electronic channels. Forrester’s research in the U.S. discovered a strong trend towards the use of mobile apps over online banking channels: “[Apps] let customers perform simple banking tasks more quickly and easily on a mobile or a tablet than on a PC,” it found. “As a result, banking on smartphones and tablets is already displacing banking on PCs for routine interactions.”
It’s not just the Gen Y faction, either. Mobile banking can actually be easier for the tech-averse than online banking. Ed Brett, assistant vice president, product management at Westminster Savings, notes that uptake of the app has been particularly high among seniors. “The app is the easiest way to do banking,” he says. “You just open it up, touch the screen and enter your information. They’re not confused by other information on the screen.”
The app advantage
As well, apps have unique traits that can enhance some of our well-known face-to-face positivity. “Mobile is not just another channel”, writes Forrester researcher Peter Wannemacher. “It offers new opportunities based on context: the sum total of what your customer has told you and is experiencing . . . Digital banking teams will use contextual information about customers such as location, time of day, recent interactions and past behaviour to anticipate what customers want.”
Mobile functions may be limited, but they are ever present. There may be fewer opportunities to personally chat with members about a daughter going off to university or a son’s used car purchase, but our advice may find them in a timelier manner. With a smartphone’s locator functionality, visits to used-car dealerships could trigger communications about insurance, for example. A university’s whereabouts might prompt information about nearby ATMs. So what we’ve lost in direct meetings is regained through frequent, abbreviated check-ins.
Desktop banking may never disappear. Still, treating mobile and online as separate channels provides the space to ask more demanding, more creative questions. Could online offerings make a more personal connection with customers? Could mobile channels be reaching members in a more immediate, location-specific way? What Deposit Anywhere demonstrates is that innovation is an open question and asking it widely of many credit unions will yield unexpectedly profitable answers. ◊