U.S. Bank Makes Mobile Credit Card Play

NEW YORK (TheStreet) -- U.S. Bank -- the main subsidiary of U.S. Bancorp (USB) -- on Monday announced the rollout of another innovative addition to its mobile banking application: Mobile Photo Balance Transfer.

The new service was developed by Mitek (MITK), which is the leading developer of smartphone camera-based mobile banking applications designed to use smartphone cameras to "reduce friction for consumers in the mobile experience," according to the company's head of marketing Scott Carter.

Using the new service, a customer can respond to a balance transfer offer or apply to transfer a credit card balance to U.S. Bank simply by using their smartphone camera to snap a photo of their credit card bill.

The new service will be available to U.S. Bank's customers in November.

"We were one of the first banks in the country to roll out mobile deposit, and it was a great success," says U.S. Bank senior vice president and head of mobile banking Niti Badarinath." The bank rolled out mobile check deposit in 2010, and also rolled out Mitek's Mobile Photo Billpay in March.

All three of these services make use of smartphone cameras to help customers avoid as much data entry as possible. U.S. Bank in January will enhance its mobile platform with the addition of Mitek's MiSnap technology, which simplifies the imaging experience. In order to avoid the possibility of a customer needing to take multiple snapshots of a bill or credit card statement, MiSnap automatically captures a high quality image as the customer hovers the smartphone camera over a document.

Considering the change in consumer behavior, with tablets and smartphones continuing to gain popularity, it behooves any financial services company to offer as many mobile service options as possible. For U.S. Bank, the latest mobile offering could provide a nice boost to the bottom line, if the bank is able to compel significant credit card balance transfer activity.

"We are starting to see 'mobile only' customers, which tend to index to 18 to 34 year olds," says Badarinath. "We are the only bank right now that allows you to completely enroll with a mobile device. Imaging is a very compelling value proposition for us," he says.

But U.S. Bank hasn't yet rolled out Mitek's Mobile Account Opening product. The ability to open a new checking account using only a smartphone, using the camera to take an image of a driver's license, along with a check image for an initial deposit, would obviously appeal to the 18 to 34 year olds coveted by the bank.

Badarinath says the bank will "eventually" explore the possibility of incorporating Mobile Account Opening. "As we start to look at money management and servicing, the next step will be to look at customer acquisition," he says.

Both U.S. Bank and Mitek expect other large banks to adopt Mobile Photo Balance Transfer and Mobile Photo Billpay relatively quickly, although USB may be in the lead position as mobile innovator for a while.

"Clearly, the bigger banks tend to have longer sales cycles. A number of them are dealing with regulatory and compliance issues. It is very impressive how USB has been nimble and has been able to do what it has done, considering their scale and reach," says Carter.

What does this mean for investors?

U.S. Bancorp has for many years been among the strongest performing large banks in the United States. The company's mean return on average tangible common equity for the 10 year period through 2012 was 18.13%, according to Thomson Reuters Bank Insight. Among the top 10 bank holding companies in the nation, none of the others came close to that performance. USB's return on average tangible common equity for the first three quarters of 2013 was a very strong 18.1%, according to Thomson Reuters Bank Insight.

USB is mainly a commercial lender, but credit card loans are a coveted asset class, especially during a period of very low interest rates. The company reported average credit card loan balances of $16.9 billion for the third quarter, increasing 2% from a year earlier.

The mobile balance transfer option will provide the bank with quite a market advantage, at least for a while.

Please see TheStreet's earnings coverage for details on USB's latest financial results.

U.S. Bancorp's stock closed at $37.83 Friday, returning 19% this year. Despite the high double-digit return on average tangible common equity, USB's stock trades for a relatively low 11.8 times the consensus 2014 earnings estimate of $3.20 a share, among analysts polled by Thomson Reuters.

Mitek is purely an emerging revenue growth play, as the company isn't yet showing operating profits. The company's stock closed at $5.55 Friday, returning 73% this year.

Mitek had 1,059 financial institution customers for the Mobile Deposit product as of June 30, increasing very rapidly from 889 the previous quarter. Among signed customers for Mobile Deposit, 559 had deployed the service as part of their mobile banking applications at the end of the second quarter, including the largest 10 U.S. retail banks.

-- 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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