Combating Remote Check Deposit Fraud with Technology
One of the most frequently used features of any mobile banking app is Remote Deposit Capture. Mobile deposits are quick and convenient, and they encourage adoption of digital banking by increasing the member’s flexibility in conducting their financial transactions when they want, where they want. The increased adoption of mobile banking as a result of COVID and the corresponding increase in the usage of Remote Deposit Capture have led to a rise in the potential for fraud. While smartphones have made it easier for members to deposit their checks, check fraud is pervasive in the digital channel. Technology can increase the consumer convenience to conduct a transaction and potentially reduce expenses for the institution, but it can also lead to additional fraud losses from charge offs and delinquencies.
Multiple rounds of stimulus payments dramatically increased mobile remote check deposit usage during the pandemic. The FTC has reported a steady increase in the number of check fraud complaints resulting in a record $304 million in losses. With yet another round of stimulus payments in progress, coupled with annual IRS tax refunds, there is a significant potential increase in check fraud on the horizon.
Mobile deposit check fraud is the latest iteration of the age-old check fraud scam. Social media platforms have created social engineering schemes to get consumers to let down their guard, increasing potential fraud. For example, dating apps saw an overall 18.4% increase in usage in 2020 compared to 2019, with OK Cupid recording a 700% increase in dates and Bumble reporting a 70% increase in video calls. COVID’s stay at home restrictions created the perfect scenario for an increase in romance scams in 2020. In this type of scam, fraudsters use the online dating app to create fake profiles and gain the trust of their online matches. To reinforce their commitment to the new “relationship”, their new love interest often asks them to deposit a check into their bank account. As with any traditional check fraud, the deposited check is returned, leaving the victim responsible for the full amount of the check and often a fee from their financial institution.
An inherent challenge with any real time deposit is that often the depositor is given full or partial access to the funds. The collection of the funds by the financial institution often happens after the deposit, which is when the ramifications of the fraud appear. This is where technology can mitigate losses. The use of new fraud tools can take advantage of machine learning and consumer insights to examine data points about every single depositor. A series of data points such as the member’s mobile phone number or mobile device identifier can be collected to ensure the device is legitimately registered to the account holder who is attempting the mobile deposit. That data is then associated with the member’s account history to determine any negative check deposit behavior, such as kiting. Based on that data, the financial institution may decide to restrict access to the remote deposit function or limit the aggregate dollar amount threshold that can be deposited, and the amount of the deposited funds that will be immediately available.
An additional tool to help mitigate mobile deposit check fraud is software that captures the account number and routing and transit number of the check(s) at the time of the deposit. That information is then sent to a fraud database, with an instantaneous alert back to the financial institution if the account associated with the deposited item(s) has been involved with fraud.
The rapid movement of consumers to the digital channel creates new opportunities for financial institutions to retain and acquire account holders. Those acquisition and retention strategies should be coupled with fraud mitigation technology to ensure that the credit union is instituting adequate layers of protection to reduce the risk of fraud losses.