The New Paper Chase

It’s always interesting to examine trends taking shape at the intersection of financial services and technology, as this blog does so often. But there’s one issue that’s frequently gets overlooked and yet is still the giant elephant in the room: paper.

Yes, paper. We’re a couple of decades into the era of e-commerce, and for many of us even bills arriving via snail-mail seem like a rarity. We have a staggering array of online tools that enables us to do virtually everything financial, from anywhere at any time. What’s paper got to do with it?

The short answer is: a lot. This is particularly true of checks, as used by millions of consumers and even small and mid-sized businesses. But in many other areas too, it’s an area in which change has been surprisingly slow. On the flip side, doing away with paper will bring enormous benefits, from speedier transactions and greater savings to environmental preservation.

It’s been almost a decade since the Check 21 Act passed in late 2003, allowing financial institutions to create digital versions of original checks. Today, banks deal with each other almost entirely through electronic transfers—once the actual check has been submitted, it disappears from the process.

But tell that to the entities writing the checks in the first place. To be sure, the numbers are dropping, however slowly—there’s close to 2 billion fewer written each successive year. But at this rate, it will take until 2026 for paper checks to be eliminated altogether.

That’s the conclusion in a study published last year by the Federal Reserve Bank of Philadelphia. According to the same report, the benefits are undeniable: getting rid of paper saves the banking industry $1.2 billion a year, while consumers and businesses keep $2 billion in benefits through faster payment processing.

Of course, few trends in technology stay at the same rate—there are frequent spikes and pullbacks, and unexpected accelerations that blow away all estimates. No one expected tablet adoption to grow at such a staggering pace, but it has. It took almost 10 years for smartphones to reach 40 million users (which admittedly meant replacing older models), while that number was crossed only two years after the emergence of the Apple iPad.

Just this week, Juniper Research estimated that tablet buying will lead to 200 million users of “transactional tablet banking services” by 2017. By that time, one in four tablet users will be paying their bills via those devices. There are other signs too—let’s not forget that Amazon used to accept checks, but discontinued the practice in 2008.

There’s now a broad variety of services designed in part to wean users off the habit of writing checks. For example, most banks now offer the ability to capture a check image via smartphone and make an instant deposit. And any number of other providers, from thriving vendors like Square to newer entrants like Zipmark—which styles itself as the digital checkbook—make it easy to avail of the new capabilities.

The changes will have tremendous ramifications: Intuit, which now has close to 30 million customers for its payments services and processes $38 billion a year in payments, estimates that it could increase its payments business by $4 billion by getting QuickBooks software customers, mostly small businesses, to use the payments service.

At this point, the use of paper seems almost a throwback to an earlier time, but the numbers clearly belie the perception. Getting rid of it from the world of finance would likely do a world of good. And given the justified concerns over rainforests and a rapidly declining ecosystem, it would actually do the world good too.

What We’re Reading: Facebook, Google Glass and iPads

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

 

  • Facebook Design Changes Could Benefit Banks, If They Adapt Quickly

American Banker

Facebook’s latest update to the way it presents shared information to users could help bank marketers. A battery of changes will include larger photos and four new feeds (to keep tabs on all friends, the photos friends are sharing, music the user has indicated he likes, and the latest news from pages and people the user follows). The new feeds could help bank customers keep up with what their financial services companies are sharing, assuming they “friend” their banks.

Read more

  • Google Glass Will Change Your Branches

American Banker

Google has teased us once more with an augmented reality future. The company has released images and video heralding what appears to be the imminent launch of their Glass augmented reality devices. Not surprisingly, commentators are predicting a seismic shift that will match the launch of the iPhone. That has created a wave of excitement, as banks and technology providers speculate how these innovations will turbo-charge mobile banking.

Read more

  • Who is Your Borrower in a Virtual World?

Bank Systems & Technology

The traditional, documentary method of verifying the identity of a customer is for an employee of a financial institution to look at a government-issued photo ID and manually check it against customer-provided information. The non-documentary procedures start with obtaining information from the applicant that can be compared to information in the public record from third party sources. The developing best practice is to cross check nonpublic personally identifiable information that is input by the applicant against the information on credit reports. Through API exchanges with the major credit reporting agencies the personal information input by the applicant can be verified against the information independently provided in the credit report.

Read more

  • iPads, Other Tablets to Drive Mobile Banking

Billing World

One in four tablet PC users will use their devices to pay bills by 2017, says a new report. Juniper Research found that a growing user acceptance of “push” mobile banking and a sharp rise in tablet adoption will drive users of transactional tablet banking services to almost 200 million in 2017. This will represent approximately one-fifth (19 percent) of total mobile banking customers in 2017, compared to just 9 percent this year. The report finds that, adoption of mobile bill presentment and payment (MBPP) transactional banking by tablet users will be higher than mobile handset users, especially in developed areas where there is a higher adoption of tablets. The report says as consumer tablet adoption continues to rise, there will be significant migration of purchasing and transaction activity from laptops and desktops to tablet devices.

Read more

  • Clay Christensen: Jeff Bezos, Scott Cook, and Steve Jobs Got Disruption Right

Business Insider

In an interview appearing at strategy+business, Clay Christensen argues that many executives are pushed to make decisions that are quick and profitable, and they frequently rely heavily on incomplete data. When asked which executives thought about disruption the right way, Christensen cited ex-Intel CEO and co-founder Andy Grove and his response to inexpensive laptops. As for more recent examples, Christensen said: “Of the managers I’ve known, I think Scott Cook, who is the founder of Intuit, is most prone to think this way…”

Read more

  • Going cashless

Celent Banking Blog

The Dutch looking to get rid of cash. They got rid of checks in 2001 as a payments instrument, and now they’re making moves to go that next step. Yes, it was a publicity stunt (there was also a big sell on contactless for example), but equally they were making payments fun, not something that you can often say! Few countries have managed to get cash to a point where it’s less than 50% of all transactions.

Read more

  • US Bank intros BillPay feature for iOS and Android, lets you set up bill payments with a pic 

Engadget

Judging by recently announced projects like Go Mobile, it’s quite clear that US Bank is working hard at keeping up with the mobile banking curve. With today’s introduction of its new Mobile Photo BillPay feature, the company’s giving customers using an iOS or Android device yet another nifty tool to take advantage of while on the go — one that’s set to make it easy to set up bill payments by simply taking a shot of any invoice and uploading it to an account from within the app.

Read more

  • Dear Mobile Industry: Time To Step It Up On Security

Forbes.com

In less than 10 years, smartphones and tablets have taken over. This year, the mobile industry will ship 1 billion smartphones globally, doubling the number of installed smartphones to about 2 billion. While we may agree that the mobile revolution has greatly benefitted all of us, our mobile devices are far from infallible when it comes to fraud and cybercrime. Many security firms predict 2013 will bring a rise in cyber attacks on mobile devices in general, and smartphones in particular.

Read more

  • Area credit unions continue to gain popularity as the economy recovers

Washington Post

Membership, deposits and loan originations at area credit unions — particularly the largest ones — rose last year as the broader economy continued its climb, according to data released last week by the National Credit Union Administration. The figures mirror a national trend in which membership rose 2.2 percent in 2012, as 2 million new members signed up.
Read more

 

Financial Services Companies and iPad Adoption

ZDNet reported financial services companies are adopting Apple’s iPad at a faster rate than the technology and healthcare industries. Good Technology, which analyzed habits of 4,000 enterprise customers, found the following breakdown by sector:

For the full blog post, visit ZDNet’s Between the Lines.

Has your FI adopted iPad technologies? Let us know in the comments section below.