Mitek Rolls Out Mobile Photo Account Opening

NEW YORK ( TheStreet) -- Mitek Systems ( MITK) is taking another major step in the development of a fully featured mobile banking platform with the Tuesday rollout of its Mobile Photo Account Opening product.

Mitek is the leading developer of smartphone camera-based mobile banking applications. The company had 1,059 financial institution customers for its Mobile Deposit product as of June 30, increasing a remarkable 19% from 889 the previous quarter. Among signed customers for Mobile Deposit, 559 had deployed the service at the end of the second quarter, include the largest 10 U.S. retail banks.

Mitek CEO Jim DeBello says "We rarely see mobile servicing from a bank being implemented without Mobile Deposit," and that "there are 12 million Americans using Mobile Deposit today."

With roughly 7,000 banks and 6,800 credit unions chartered in the U.S., the market looks wide open for Mitek to maintain a very strong pace for customer growth.

Mobile Deposit uses the camera on an iPhone or Android smartphone to photograph checks a customer wishes to deposit, processing the transaction without any arduous data input.

Mitek rolled out Mobile Photo Bill Pay in March, with U.S. Bancorp ( USB) subsidiary U.S. Bank, NA as its first high-profile customer. Mobile Photo Bill Pay takes the "no data input" design philosophy a step further, allowing a bank customer to use their smartphone camera to pay bills simply by using the camera to photograph the bill. The application does everything else, with no other action required from the customer, although the customer can review the bill data for accuracy before the payment is made. As of June 30, Mitek had 10 Mobile Photo Bill Pay customers, including BBVA Compass Bank, the nation's 31st largest retail bank by assets and a subsidiary of Banco Bilbao Vizcaya Argentaria, S.A. ( BBVA).

With Mobile Account Opening, banks can capture new customers easily, with no need for a new customer to use a computer or visit a branch. The new customer can download the participating bank's app, then use their smartphone camera to capture the data from the front and back of their driver's license.

The new customer will then be asked by the bank to input another piece of key data, probably their social security number, after which the customer will be asked to answer some questions (via a multiple choice format in Mitek's demonstration of the product) for verification.

Mitek Chief Marketing Officer Scott Carter says for the customer verification process, "what we are doing is working with a broad network of companies, including Experian, to plug into their platforms for verification. There are additional capabilities around the integrity of the document. We compare the data in the bar code on the back of the license with the data on the front to help banks meet their security requirements."

The new customer can review their data during the account opening process to correct various items, including their address and the spelling of their name.

To make their initial deposit, the customer can then use Mitek's Mobile Deposit built into the bank's smartphone app to take a photo of a check, and then enter their initial deposit amount.

Finally, the customer will be directed to create a user name and password for their new bank's mobile banking service.

In an effort to make the smartphone camera easier to use, Mitek has developed a technology called MiSnap, which allows the customer to hover the camera over the check, driver's license, bill or other document, to automatically capture the required information. This results in a higher-quality image, while avoiding the possible nuisance of taking multiple photos.

While Mitek doesn't have a high-profile customer signing to announce along with the rollout of Mobile Account Opening, DeBello says "we expect to announce a customer win very shortly."

Mitek's Stock

Shares of Mitek closed at $5.29 Friday, returning 65% this year, following a 56% decline during 2012, as the company faced pressure from continuing operating losses and patent litigation.

United Services Automobile Association (USAA) in March 2012 sued Mitek seeking a judgment that USAA didn't infringe on any of Mitek's patents, and that Mitek misused confidential information from USAA in the development of Mobile Deposit. Mitek in turn sued USAA in April 2012, alleging patent infringement and misuse of confidential information by the insurer.

Mitek said in its most recent 10-Q filing on Aug. 6 that "The Company does not believe that the results of USAA's claims will have a material adverse effect on its financial condition or results of operations."

Mitek reported a net loss of $2.01 million, or eight cents a share for its fiscal third quarter ended June 30, compared to a loss of $2.00, or eight cents a share, a year earlier. Total revenue increased to $3.88 million in the fiscal third quarter, from $3.16 million in the year-earlier period.

The company raised $17 million through a common share offering during the fiscal third quarter.

From its customer growth, Mitek clearly has momentum for its business. DeBello says the company is "well poised financially to take advantage of the market opportunity before us," adding, "we have a strong customer base and we are unique in the offerings we have." The CEO also touts the company's lack of debt. Cash and equivalents totaled $22.9 million as of June 30.

PiperJaffray analyst Michael Grondahl rates Mitek's shares "neutral," with a $5.30 price target. In a note to clients on July 25, Grondahl called the company's third-quarter revenue "solid," but also wrote "We have low confidence in future quarterly revenue but current demand is strong."

Grohndahl estimates Mitek's revenue for fiscal 2013 will total $13.8 million, increasing to $18.4 million in fiscal 2014. He estimates the company will lose 30 cents a share during fiscal 2013, with the losses totaling 32 cents a share in fiscal 2014.

William Blair analyst Bhavan Suri has a more positive outlook for Mitek, with an "outperform" rating. Suri in a note on July 26 wrote that "given the strong mobile banking and mobile check deposit statistics from the largest U.S. retail banks, notably Bank of America ( BAC) , as well as the fact that this was Mitek's second sequential quarter with five reorders, we have increased confidence that revenue volatility is beginning to subside."

"The company now has a maintenance stream of just over $1 million per quarter that should add to this stability," Suri added.

" W e understand investors' reluctance to get involved until the lawsuit has been resolved and there is more predictable revenue growth," Suri wrote. "Still, for those with a 12- to 24-month or longer horizon, the secular trends around smartphone usage and mobile application adoption suggest that the company should be able to deliver material top-line growth and outperform current expectations. We remain buyers of the stock," he wrote.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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