A check arrives in the mail. Your customer, still in his/her pajamas and down with the flu, needs to deposit those funds. Thanks to smartphone technology and Check 21 legislation, the ailing client can get that done with ease and has been legally able to do so for more than a decade.
But this relatively recent technological advance begs a critical question for the future of banking: Will smartphones replace smart bankers?
At first blush, it might seem so, when you toss in the emergence of online banks like Ally and the benefits of smartphone banking. And, in light of the recent FBI/Apple clash over encryption, smartphone security seems to be riding a confident wave. The government wants Apple to create new technology for its phones that would give law enforcement a back door to access information in the phone. Apple argues that if it creates such technology, it would place the security of every smartphone user at risk. The message that this dispute communicates to consumers is that their phones are safe.
First, let’s take a gander at the history of Check 21 legislation. The Check Clearing for the 21st Century Act (known as Check 21) was signed into law on Oct. 28, 2003 by then-President George W. Bush and became effective a year later. According to the Federal Reserve, Check 21 was “designed to foster innovation in the payments system and to enhance its efficiency by reducing some of the legal impediments to check truncation”. In layman’s terms, the law allows for the creation of a negotiable instrument called a substitute check, which allows banks to truncate original checks, to process check information electronically and deliver substitute checks to banks who still want a paper check. Banks are not required to accept these substitute checks under the law, but for the sake of customer convenience, banks have jumped on the Check 21 bandwagon.
And there are advantages.
- Reduced check handling: As you know, when paper checks are presented at a branch they are passed through scanners to create digital images of the original negotiable instruments. However, a document scanned through a smart phone is already in electronic form, which expedites clearing and reduces handling.
- Reduced check destruction: After paper checks are scanned at the branch to create the digital image, the original paper check must be destroyed. Given the reduction in the number of paper checks when instruments are already in digital form, employees can spend more time on other responsibilities. This means more time for better one-on-one customer service and for more profitable endeavors, like loan servicing.
- Faster deposit time: Smartphone scanning for a deposit is quicker than sitting in a long drive-thru line, or ATM machine, or standing in the queue at a teller window. Customers basically enjoy the same benefits of image capture as do their banks, without leaving the comforts of home.
- Reduced possibility of fraud: By reducing the number of people involved in the check transaction, the chance of it being repurposed by a third party during the payment process is eliminated. As long as checkbooks are kept secure and customers send checks using a smart phone, they should never experience check fraud.
- Ease of deposit: This has already been discussed. Call it “The Pajama Advantage.” What’s easier than making a deposit than sitting on the sofa, snapping an image of the check (front and back) and pressing a few buttons? When customers want everything quickly, smartphone apps are a great idea.
- Saves time and money: Expanding on the previous idea, customers don’t have to waste time and fuel traveling to a branch. While gas prices are low now, prices at the pump may not always be that way. And as noted, the reduction in the number of paper checks means greater efficiency for bank personnel.
But all is not sweetness and light in the mobile banking world. Consider:
While there are fewer viruses to attack mobile devices, phones are not immune to attacks. “Smishing” involves a practice of sending fake text messages purporting to be from a bank, in an effort to obtain account information. There are also fewer anti-virus options for mobile phones. Advances in technology, however, make phones more secure. It’s important for customers to update anti-virus software on their phones.
As mentioned earlier, however, smartphone security –at least the Apple brand –got an unexpected boost in the battle between the government and the technology giant over access to the San Bernardino shooter’s phone.
Remember too that customers and their bankers lose out on human interaction. At community banks and credit unions, those interactions are pivotal to building relationships. That’s a win-win for all parties.
And as a friend’s nine-year-old daughter pointed out, no trips through the drive-thru mean no lollipops from the teller.
The bottom line? Bankers must nurture and maintain those human relationships with their customers and make themselves indispensable. It’s that simple.
