Mitek: The Technology Behind Remote Deposit Capture

Aug.28.12 | About: Mitek Systems (MITK)

First it was JPMorgan Chase (NYSE:JPM) advertising Remote Deposit Capture (RDC), then it was Fidelity investments, next it was Charles Schwab (NYSE:SCHW), and I began to wonder how long it would take Wall Street to figure out RDC is a huge deal. Soon it was Progressive Insurance (NYSE:PGR) advertising a new application, Click and Shoot. It is now possible to receive an insurance quote by simply taking a picture of your driver's license and your car registration. Then came PNC Bank (NYSE:PNC), and soon to follow Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC). Then it hit me, do the shorts have any idea all these companies are signing licensing agreements with Mitek Systems?

The Future Technology

The mobile imaging market is being driven by irreversible trends. Most of the phones being sold today are smartphones that have sophisticated cameras. The pixel clarity improves with each new generation. As the mobile camera improves, the capture rate of data improves. One company stands poised to storm the market and capitalize on this technology.

Mitek Systems (NASDAQ:MITK) Remote Deposit Capture is able to record pictures of checks and accurately deposit them in a bank or brokerage account. MITK has signed up 408 banks including BOA, Chase, Wells Fargo, Schwab, and Fidelity. To date, 137 clients have successfully implemented the technology.

The generational improvement in smartphone cameras is quickly allowing mobile imaging to enter additional markets. The possibilities are unlimited and go so far beyond simply depositing checks. Mitek has already developed an application for paying bills. With this application and one click, you will be able to pay bills from your smartphone.

Applications to Follow

Today it is RDC and Click and Shoot insurance quotes, tomorrow it will be bill pay or any of a whole host of potential transformative applications. The smartphone revolution has arrived and simplifying the way tasks are performed will be what drives tomorrow's technology leaders. Mitek Systems mobile camera capture patents should prove to be invaluable in tomorrow's world.

Residual Paper Worksheet

According to a White Paper by Harvey Spencer Associates, these are some of the residual paper worksheets that will slowly gravitate to camera capture:

  • Home healthcare documenting 3rd party communications from pharmacies, therapists, and patients etc.
  • Onboarding for proof of ID, citizenship, residence, income or training.
  • Transportation for Bills of lading, toll, fuel, operating expense receipts, or delivery receipts.
  • Expense reports categorizing any expenses that need to be itemized.
  • Scan to the cloud for a multitude of correspondence.
  • Assessment for many forms of correspondence.

The Insurance Industry

Mitek has already signed a license with Progressive Insurance for their Mobile Photo Quoting Solution. For insurers, Mitek Systems offers four key solutions:

  • Mobile Photo QuotingTM - automates the insurance shopping and buying process by taking photos of driver's licenses, insurance ID cards, and Vehicle Identification Numbers.
  • Mobile Photo ClaimsTM - streamlines the claims process by enabling customers and agents to simply snap photos of customers' driver's licenses, insurance cards, and license plates.

  • Mobile Photo PaymentTM - simplifies enrollment in electronic payment through checking accounts or direct deposit for a claim reimbursement transfer by taking photo of a blank check.

  • Mobile Photo Document Capture and SendTM - enables policyholders and agents to take a photo of any document and send it as a high quality PDF to any email address or fax number.

Mobile Photo Bill Pay

According to a Consumer Market Outlook for Mobile Photo Bill Pay prepared by AlixPartners LLC, published January 2012, image capture technology offers several specific benefits to the consumer:

  • Eliminates the need to enter multiple elements of information for a new biller in an online application
  • Overcomes the inconvenience of not being able to add a new biller that is a common issue with current forms of mobile bill pay

  • Offers the ability to pay non-recurring bills in a simple and convenient way

  • Helps reduce the barriers to switching by enabling consumers to easily add new payers with their new bank by using their camera-equipped mobile device, rather than migrating payers from their online banking application.

Past Game Changing Technologies and Transformative Companies

Leading edge technology offers an amazing investing opportunity to those with the foresight to catch the trend and ride the wave to triple, and sometimes even quadruple, digit gains. I have listed some transformative companies to give you an idea of the returns that are possible.

Google (NASDAQ:GOOG), the predominant search engine of our time. Google has now developed the Android operating system as well. Early Investors in Google have seen the stock appreciate from $85 in 2004 to the over $600 it is today.

Priceline (NASDAQ:PCLN), the ultimate travel portal on the Internet today. Who would have thought a reverse auction site would transform the way many people book their travel. PCLN has gone from $7 in 2002 to a high of $760.

eBay (NASDAQ:EBAY), the premier auction site on the internet. EBAY purchased PayPal and has become a multibillion-dollar company. You could have purchased EBAY split adjusted for $1.87 in 1998 and sold it for $59 in 2004.

Amazon (NASDAQ:AMZN), the ultimate store on the internet. Amazon has expanded from books to anything. AMZN could have been purchased split-adjusted at $1.50 in 1997 and currently trades at $236.

Cisco Systems (NASDAQ:CSCO), the company was instrumental in the internet revolution. It would be impossible to get information from the internet without the proper routing system, and Cisco System was the clear leader for routing systems. CSCO could have been purchased (split adjusted) at $.06 in 1993 and sold for $77 in 2000.

About Mitek

Mitek has signed licenses with 408 banks, including 25 of the 40 largest banks. Bank of America just launched RDC, licensed with Mitek's technology. According to a recent study by Javelin, 58 percent of financial institutions plan to deploy mobile RDC over the next year. The research report published by AlixPartners calls for 1.5 billion mobile deposits by 2014.

  • Mitek Systems has an application to take a picture of your driver's license and insurance card and get an insurance quote.
  • Mitek Systems has $15 million in the bank, alleviating the need for additional financing.
  • Mitek Systems' Bill Pay (pdf) was named best of show at Finovat Spring 2011.
  • Mitek Systems has developed a point-and-shoot application to transfer credit card balances to springboard into new markets.
  • Mitek Systems has a proven and experienced management team.
  • The current short position in MITK is 6.98 million shares and growing; large short positions can be quite difficult to cover, often resulting in a short squeeze when market conditions turn.
  • Art Samberg just filed a 13g and now owns over 5% of Mitek.
  • Please go to the Mitek Systems website for additional information

The USAA Lawsuit

The shorts began getting into the stock when it was around $11, and the lawsuit with USAA collapsed the stock. The lawsuit shaved $200 million off the valuation of Mitek Systems. The suit stems from USAA questioning Mitek Systems' development of the patents. USAA has questioned the patents and the payment they owe Mitek Systems and Mitek has countersued for damages. This lawsuit has not deterred other banks from licensing RDC from Mitek but should be considered when investing in the stock. The fact the company has been issued 13 patents and licensed an additional 93 banks for RDC this quarter satisfied my due diligence.

How Many Banks Will It Take

In the last week alone 6 smaller credit unions have deployed RDC. The Javelin research calls for 58% of all banks to be licensing RDC within 1 year. That equates to thousands of banks. Once a significant portion of the population is comfortable using their phone to deposit their checks it doesn't take much imagination to figure out they will use it to pay bills, fill out forms, and a whole host of ways currently being developed. I anticipate the sales for MITK could be inconsistent for the next two quarters, and there can be complications from the lawsuit, but with thousands of banks signing licensing agreements it will soon be obvious how valuable these patents are. While there should be competition in many of the future markets that Mitek is developing applications for, this is not exactly the type of company I would be shorting!

Disclosure: I am long MITK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.