Fueled by Mobile Transaction Technology, Mitek Systems Raises $15M for Nasdaq Move
In the years after the Berlin Wall crumbled, San Diego’s Mitek Systems was one of many local defense contractors left high and dry by a receding tide of Pentagon spending. These days, however, the company is riding a wave of success with new technology that enables a person to use a smartphone camera to deposit checks and conduct other mobile transactions.
“We have created awareness in the payment industry as an innovator,” says Jim DeBello, a one-time Qualcomm executive who stepped in as Mitek’s CEO in 2003, and has served on the company’s board since 1994. “We really look at the online camera as a device bridging the physical world with the digital world.”
As I reported last year, Mitek says its technology saves consumers from a trip to the bank or automated teller machine by enabling them to use their smartphones as scanning devices. After initiating a mobile-banking session, a user snaps photos of the fronts and backs of the checks they want to deposit. Mitek’s cloud-based software then delivers enhanced images of the deposit in the format required for specific banks and financial institutions.
Today the company’s financial results remain small—Mitek posted sales of nearly $2.9 million for the fiscal second quarter that ended March 31—yet that represented an 89 percent gain over sales of $1.35 million in the same quarter last year. As the company announced new customers, which now includes PayPal, Chase, Bank of America, and Capital One, Mitek’s stock has soared by 1,150 percent—-from 56 cents a share on April 6, 2010, to $7 a share yesterday.
“Five out of the top 10 banks have signed agreements to use our flagship technology for mobile deposits,” says DeBello. The Mitek CEO says the company also has agreements with nearly all of the channel partners that serve banks and financial institutions in North America, including Fiserv, NCR, Diebold, and FIS.
More recently, a regulatory filing shows Mitek closed a $15 million private placement to boost its working capital as part of its plan to move its listing from the over-the-counter bulletin board to the Nasdaq Capital Market. The company had almost $3 million in available cash at the end of March, and the Nasdaq listing is expected to heighten Mitek’s visibility with investors. Mitek submitted its application to Nasdaq several weeks ago, and already meets the exchange’s financial and reporting requirements, DeBello says.
The company’s increasing momentum has been vindicating for John Thornton, who became Mitek’s board chairman in 1987 and has served as president or CEO three times for a total of seven years between 1991 and 2003. Nowadays, he says the outlook for the company is “vastly improved.”
As a defense contractor, Mitek provided hardware security and copper shielding that prevented Soviet-bloc eavesdroppers from using directional radios to monitor electronic data transmission across U.S. military computers, scanners, faxes, and printers. Demand for the company’s security products plunged sharply with the end of the Cold War, and Mitek struggled for years to rebuild its business.
In late 1992, Mitek purchased handwriting-recognition technology from San Diego data analytics pioneer HNC Software, eventually developing check fraud technology that banks could use to scan and convert printed documents into digital data. By 2009, Mitek’s “intelligent character recognition” technology was being used to process more than 10 billion checks a year. But revenue amounted to only $6.6 million in fiscal 2005, and came under increasing pressure in subsequent years amid a general decline in back-office check processing, and as consolidations remade the financial services industry.
Regulatory changes that authorized the processing of imaged checks and the emergence of the iPhone and other smartphones led Mitek to apply its expertise in character recognition software to develop a mobile deposit application in 2008. The company has developed a variety of mobile applications since then, including what Mitek calls Mobile Receipt, Mobile Phax, Mobile ACH (Automated Clearing House) Enrollment, and Mobile Photo Bill Pay.
“The company has gone through about four different lives, and this is undoubtedly the hottest and most important,” said Thornton.
“If you think about this, ultimately your camera is connected and it can be ‘context aware,'” says DeBello, explaining that software analytics can be used to “understand” the meaning of scanned documents. Besides, people no longer want to type in their personal data. He sees a host of potential applications for users who currently fill out forms when they submit online applications for loans, insurance, health care, and other services. “That’s the future. We’re currently looking for other applications that are what I call pain killers.”
Even with the surge in its sales, Mitek has only about 30 employees today. DeBello explains, “The reason we’re so efficient and low-cost is because we’re leveraging 15 years of R&D.”
DeBello has no shortage of optimism about where the company might go from here. Like Google and Skype, he says, “We’re hoping to make Mitek a verb.”