Remember the days when paying a utility bill meant heading out to the nearest bill payment center or mailing checks via return envelopes? Technology has brought us a long way since then with online and mobile payment systems making such tasks unnecessary. And if you think technology has already optimized the bill payment process, then think again. U.S. Bank (NYSE:USB) intends to make bill payments as easy as clicking a picture for its customers by partnering with Mitek Systems (NASDAQ:MITK).  The fifth largest U.S. bank in terms of asset will be the first financial institution to offer Mitek’s Mobile Photo Bill Pay service to its customers early next year.
We maintain a $34 price estimate for U.S. Bancorp’s stock, about 10% higher than its current market price.
U.S. Bancorp, like its competitors Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC), has been focusing considerably on innovations in mobile banking technology in the recent past. The banking group was one of the first in the country to experiment with contactless payment solutions and also came up with mobile check deposits before any of its peers. This year, U.S. Bank introduced the Ace Rewards Visa Application for the iPhone and iPad, followed by the launch of its Augmented Reality application which allows users to find branches and ATMs on their iPhones.  
The bank’s decision to enter into a strategic mobile technology partnership with Mitek Systems extends its free mobile banking offerings to customers. Using Mitek’s Mobile Photo Bill Pay product, U.S. Bancorp customers will be able to make bill payments by simply taking a picture of their bill using the camera on their smartphone or tablet.
One might ask what’s in it for U.S. Bank when it offers its customers free technology-driven banking solution? After all, most of the mobile payments options do not bring in any revenues to the bank itself. So why invest in the technology or the partnerships in the first place?
The answer is simple. The major banks don’t really have many ways of differentiating their core service offerings from each other as they have a comparable branch presence, choice of products and related fee charges. Hence, they have to rely largely on technology to stand out in the crowd. Moreover, these services help the bank aim at the current, tech-savvy generation who are quick to adopt new technology. This directly results in an increase in U.S. Bank’s customer base, allowing it to make money through the various other banking services and products it offers. The most notable impact, we believe, should be on the bank’s deposit base as more customers will opt for accounts in the bank to gain access to the services it offers.
We capture the size of U.S. Bancorp’s deposits and its impact on the bank’s total value in the chart below. You can see how an increase in the rate of deposit growth will help its estimated share price by making changes to this chart.Notes:
- U.S. Bank Partners with Mitek for Mobile Photo Bill Pay; Will Launch to Consumers in Early 2013, U.S. Bancorp Press Releases, Dec 5 2012 [↩]
- U.S. Bank Introduces Ace Rewards® Visa® Application for iPhone®, U.S. Bancorp Press Releases, Apr 10 2012 [↩]
- U.S. Bank Introduces Augmented Reality iPhone® Application to Find Branches and ATMs, U.S. Bancorp Press Releases, Apr 11 2012 [↩]