May 26, 2017

(Potentially) big news broke this week, as USAA announced they are pursuing royalties for the remote deposit capture technology used by 5,000+ institutions. This may come as a surprise to many, since remote and mobile deposit capture has become so ubiquitous so quickly, with banking software providers offering the same functionality to thousands of financial institutions without batting an eye.

Here is the letter they are sending to banks

I mentioned USAA in last week’s newsletter to illustrate a point around staying customer-centric and connecting technology to your target customer and value proposition. In describing the customer needs that drive USAA, I said:

”USAA is widely recognized as a leader in banking and mobile technology, but it doesn’t lead with that fact. Their core member base is active, deployed military members who don’t have access to a branch, are away from home, and often move every few years.”

This is the line of reasoning that they use in the letter as well – USAA started building the technology in-house in 2005 to support their overseas military members who needed to deposit checks. At least one patent on the process was filed as early as 2008, and was granted in 2011. Since then, USAA has accumulated roughly 50 patents on the remote and mobile deposit capture technology, out of a portfolio of around 700 total patents.

A story in the New York Times from 2009 introduced USAA’s ability to deposit a check by iPhone, which was so new at the time that they had to explain how it works. This aligns with the claim in the letter that USAA launched “the first mobile check deposit application” in 2009.

However, the road ahead could be very difficult. USAA is sending the letters to hundreds of banks asking them to voluntarily pay a licensing fee. If the claim is deemed strong enough, it could be a minor annoyance to most banks, since USAA is likely to set the per-bank fee low enough to avoid a lawsuit or banks putting up too much of a fight.

The problem with that strategy is that most banks just contract that service out from their core banking provider or other mobile banking solution. Given a potential prevalence for “not my problem” at the bank level, USAA may see the core banking platforms or other mobile/digital banking platforms as bigger targets. So why go through the hassle of reaching out to hundreds of smaller banks?

There is some history here – back in 2012, USAA sued software provider Mitek over the use of some remote deposit capture technology, alleging theft of IP. Mitek countersued, claiming that USAA infringed upon some Mitek patents. After two years, the companies finally settled out of court in 2014.

It seems like after a failed attempt in court, and some time for reflection, USAA hopes that negotiating with its peers (who mostly hold no competitive patents, thus providing USAA greater leverage) will allow it to control the process and ultimately earn some revenue on friendlier terms.