Bank of the West has joined the early adopters of technology that lets customers pay bills by photographing them with their smartphones, making mobile bill payment easier and potentially reinforcing the customer-retention benefits of online bill pay.

Very few banks offer such a feature in their mobile banking apps. (U.S. Bank is one; BBVA Compass also offers the service, as do several community banks.) But more are expected to follow, since consumers increasingly expect to be able to do most banking tasks from their smartphones, and using the phone camera solves a problem that has hampered mobile bill payment until now.

"Paying a bill on a mobile phone is almost impossible because it requires the manual dexterity of a surgeon to type in the biller's name, address and all the other information required," said Mary Monahan, executive vice president and director of research at Javelin Strategy & Research. "Now that consumers have learned to use their cameras for scanning information, paying a bill is a logical extension."

Online bill pay is known to make customers less likely to switch banks, not least of all because unwinding a set of bill-paying relationships is a huge hassle. "Nobody wants to do that," said Jamie Armistead, executive vice president of digital channels at $71.7 billion-asset Bank of the West.

But there are benefits beyond inertia. "People who adopt bill pay have a higher rate of satisfaction with the bank and more relationships with us, they have higher balances with us, and they attrite less often," Armistead said.

Likewise, customers who tested the mobile photo bill pay service, which Bank of the West rolled out this week, told the bank it helped them change their habits. Some who normally let their bills pile up for a bill-paying marathon at their PC say they might now pay while they're flipping through the mail or making dinner, Armistead said. "It's kind of fun to see people have that 'wow' moment with a piece of technology," he said.

The customer segments most interested in this feature are not who you'd think, according to Javelin's research. They're 18- to 44-year-olds, Hispanics and higher-income consumers (with incomes above $100,000).

Other early adopters of mobile photo bill pay (also referred to as scan to pay, snap to pay or picture pay) have reported good results (with some technical glitches). Bank of the West's experience in co-developing the technology with Top Image Systems and Fiserv illustrates some of the decisions banks will need to make as they deploy the technology.

Innovating to Keep Customers Happy

Bank of the West was the first U.S. bank to offer customers the ability to swipe to see their primary account balance, before logging in. Its customers use this feature an average of 21 times a month. Many other banks now offer it.

"We definitely see ourselves as one of the more innovative banks," he said. "We can't invest at the same level as the biggest banks in the country, but we look at the trends and look at mobile adoption and where technology is." Optical character recognition, which turns images of words and numbers into machine-readable text, has reached the point where one can be confident "this is working, there's something to this."

The end goal for mobile banking innovation is customer convenience, he said.

"As you shift from the branch-centric to the digitally centric banking customer, how do you preserve customer service?" Armistead said. "Ensuring that you have the capabilities customers are coming to expect as well as delighting and surprising them with some new innovations is a great way to carry that forward into digital."

And when customers come into a branch, they ask about mobile banking. "It's not an afterthought. It's top of mind," he said. "To be able to talk about having a robust set of capabilities is important" to stay competitive, even if this alone may not compel people to switch banks.

"It doesn't seem like there's any more competitive banking market than California," he said (the bank is based in San Francisco). "We have to go toe to toe with the big guys in digital. We don't get a hall pass because we're a regional bank."

He also pays attention to tech disruptors like the wildly popular Venmo, whose social-media-linked person-to-person mobile payment app processed $700 million in payments last quarter.

"There's not one tech disruptor out there we see as about to overtake the banks," he said. "But when you look at them in aggregate, we absolutely have to pay attention to all of them. They're all chipping away at the customer relationship, the payment relationship."

Tech Decision: On-Device or Client-Server?

The bank tested several mobile bill pay offerings and found one offered by Top Image Systems to have the best image quality and most accurate optical character recognition. It also, unlike other options, analyzes the image in software on the device, rather than zapping the data to a server.

"On-device image analysis is better because you're not sending the image to a server and getting a response saying 'no, this didn't work' and having to capture it again," said Armistead. "It all happens in real time for the customer. Even if you hold the camera at a poor angle, it will retake the image immediately, so you don't have to wait and there's no latency."

Jim DeBello, president and CEO of Mitek, which makes competing mobile photo bill pay software, said there are advantages to processing images on a server with which the mobile device communicates.

"We've been at this the longest and know the pitfalls of a 'device only' approach," he said. "For example, the biller landscape changes frequently. Billers often change or add zip codes and remittance addresses. Mitek cross-checks the data we read from the bill with postal and biller databases on the server. Our architecture integrates these address changes into the results without requiring any mobile app updates, saving bank resources and consumer headaches."

The TiS software's rate of success at accurately interpreting the contents of a paper bill is high, according to Ginger Schmeltzer, senior vice president of emerging payments at Fiserv, which provides the mobile banking software Bank of the West already used and integrated the TiS software into its app.

"It's comparable to check deposit, which is saying a lot because checks are a standard template, whereas bills are nonstandard in format and fields," she said. "It's a very complex algorithm to work through."

The bank made a few modifications to the Fiserv/TiS app.

"We spent time honing and refining the customer experience to make it as easy as possible," Armistead said. For instance, it created a short how-to video and inserted it in the the app. It added a step to let the customer confirm the account number captured by the software.

It also played with the terminology used in the app. "We started with 'snap to pay,' and people had no idea what that meant," Armistead said. "Then we tried 'scan to pay' as a working name because of the way it automatically takes the picture, then people were like, 'is it like a scanner?' That's when we made it, 'take a photo of a bill stub.' People said, 'I think I know what that means.' Little things like that you learn when you prototype things in a lab.'"

Fiserv can incorporate these tweaks into the version it offers other banks; Bank of the West hopes it will, as standardizing the features would lower the long-term cost to the bank.