Concern About Duplicate Checks Rises with Soaring Popularity of Mobile Deposits

As the popularity of mobile remote deposit capture grows, some payments observers say the risk that checks might be deposited more than once may increase, as well.

To be sure, there’s nothing new about the risk of duplicate checks. The problem has existed at least since the 2004 introduction of Check 21, a law that led banks over a period of years to trade images of checks rather than the paper originals. Still, the issue has been well-contained, with loss levels quite low.

Some 62% of financial institutions with more than $50 billion in assets told researcher Celent LLC last September that they had not sustained a loss from any cause that they could attribute to remote capture of any kind; among institutions with less than $1 billion in assets, the rate was 96%. Only 8% of the big banks said they have had recurring loss incidents owing to remote capture, while the rate among banks smaller than $50 billion was zero percent.

But now some observers are concerned that mobile remote capture, which allows consumers to deposit checks by snapping images of them with their handsets, may raise the risk of duplicate items. As with other forms of remote capture, the person making the deposit retains the original check and could later try to deposit or cash that original at the same bank, a different bank, or at a check-cashing store. Duplicate deposits also happen when another member of the household, not realizing a check has already been deposited remotely, takes it to the bank for deposit.

Some 10.9 million users were registered at financial institutions for mobile remote capture in 2012, according to Celent, a number the researcher expects to rise nearly four-fold to 40 million by 2015.

Some see mobile deposit hiking the risk of duplicates because it takes deposit processing out of banks and commercial enterprises and puts it in the hands of consumers, who could be anywhere. “When you get to mobile [remote capture], the checks and balances aren’t that good,” says John Leekley, founder and chief executive of RemoteDepositCapture.com, which is conducting a series of Webinars on remote capture and duplicate checks. “It’s so easy to make a deposit, that’s the whole point of the service.”

Adds Bob Meara, a senior analyst at Celent: “There’s nothing auditable about how consumers handle original items.”

And, while financial institutions and software vendors have become better at detecting duplicate checks, finding such duplicates when items are deposited at unrelated banks remains a challenge. Vendors are only now starting to introduce systems to address this issue, says Meara. “That’s much harder to detect,” he says.

Figures for actual dollar losses owing to duplicate-check fraud that starts with remote capture of any kind are hard to come by, but Leekley estimates items returned because they are duplicates account for about 0.1% of all deposited checks. By comparison, total returns of all kinds account for five times that number, he says. And while actual incidents of duplicate items may be rising, that doesn’t mean dollar losses are increasing just as fast, since most duplicates are caught before they’re paid, Meara says.

Indeed, far more duplicates from mobile capture occur by accident, Leekley notes, than because of fraudulent intent. But, he adds, “as mobile [remote capture] grows, bad guys are figuring this out.”

The rising risk from mobile deposits may be mitigated, however, by the fact that the average value of these checks is typically lower than the average check value overall, according to Leekley. “What you see mobile deposit used for is birthday checks, bar mitzvah checks, and holiday checks from grandma and grandpa,” he says.

Financial institutions can also take a number of steps to control the risk. Leekley advises banks to impose limits on both the number of deposits and the value of checks until the customer is better known; to delay funds availability; and to engage in interbank notification of paid items to help detect cases where duplicate deposits are made at an institution unrelated to the one that took the mobile deposit. “These types of systems are in beta today and will roll out in 2014,” he says.