Mobile-Capture Fraud Is Under Control, But Many Banks’ Risk Policies Are Primitive

As mobile remote deposit capture continues its transition from niche to mainstream financial service, a new study affirms earlier research that bankers’ fears about losses were largely overblown. At the same time, mobile remote-capture newbies do a less sophisticated job of risk management than their more experienced colleagues.

The findings come from 246 completed responses—mostly from banks but also from more than 40 credit unions and a handful of brokerages—to a survey by Alpharetta, Ga.-based research and consulting firm RemoteDepositCapture.com. To gather its data, the company from mid-February to mid-April approached known mobile-capture providers, attendees at its conferences and some financial institutions that came to it via its Web site, says founder and chief executive John Leekley.

Some 63% of the survey respondents already offer some form of RDC, and another 33% plan to offer the service within a year. Leekley predicts the majority of all U.S. and Canadian financial institutions will be offering mobile capture by 2016.

The main theme of the survey was risk. In mobile capture, a consumer or business user snaps pictures of the front and back of a check with a smart phone and uploads the images through a mobile-banking application for deposit. Since the paper check remains in the hands of the depositor, mobile capture presents a unique risk of duplicate deposits.

So far, however, fears about so-called dupes aren’t being realized. Only 20% of respondents already offering mobile capture reported losses of any kind from the service. The vast majority of losses came from consumers versus small businesses or corporate accounts.

RemoteDepositCapture.com’s findings on losses echo those found earlier by research firm Celent, a unit of Oliver Wyman. In a study of 266 financial institutions in October 2013, Celent said some 77% of respondents reported no remote deposit capture losses in the current year while 9% had only one loss incident.

What did the providers who told RemoteDepositCapture.com that they sustained a loss do? Some 62% reported adjusting their risk-management policies and capabilities. But 39% (the total exceeds 100% because of rounding) felt comfortable enough with the controls they had in place that they made no adjustments, according to Leekley.

“I thought what was most telling was the respondents who answered no, they didn’t change anything,” he says. “The vast majority of the time it was because a.) the losses were minimal and b.) the losses fell well within their parameters.”

Financial institutions have a host of weapons to fight off fraud and losses. They include various controls on deposits, imaging software to detect duplicate and fraudulent checks, device-identification technology, minimum-balance requirements, and other tools. The top six risk-management tools are deposit value limits, used by 84% of respondents, followed by image quality analysis, 71%; monitoring for mismatches between the check’s legal amount and courtesy amount lines, 59%; deposit volume limits, 54%; cross-channel duplicate detection, 49%, and in-channel duplicate detection, 47%.

Policies governing mobile deposits cover the gamut, although some 39% of providers reported having the same deposit limits for all customers. Other policy options include limits set through rules addressing type of account, deposit size, etc., used by 33% of respondents; policies based on file segmentation, 22%; polices based on risk scores, 20%, or other factors, 19%.

Only 30% of RemoteDepositCapture.com’s respondents had more than a year of mobile-capture experience under their belts. These newcomers tended to use one-size-fits-all deposit limits much more than the veterans, according to Leekley. “You’ve got two-thirds of respondents still coming up that learning curve,” he says. “The FIs that are well-versed in mobile RDC have a plurality of procedures and policies and limits in place.”

RemoteDepositCapture.com reviewed the survey in a Thursday webinar sponsored by mobile-imaging software provider Mitek Systems Inc. with participation by risk-management firm Early Warning Services LLC.