With more banks offering remote deposit capture to business customers, regulators are taking a closer look at the technology to ensure it is safe for merchants, consumers, and banks themselves.
Within the next few months federal regulators are expected to issue the first interagency guidelines to ensure bankers are screening merchants that sign up for the service, that merchants are transmitting customers' information safely, and that banks protect themselves from potential fraud.
Some bankers expressed concern that any new oversight could slow the growth of the popular technology, which has allowed many community banks to attract commercial customers beyond their local markets. At the very least, the bankers say, it would cost them money to monitor businesses that deposit checks remotely using bank-issued scanners.
Dean DeBuck, a spokesman for the Office of the Comptroller of the Currency, said that the Federal Financial Institutions Examination Council is expected to publish interagency guidance around midyear. Officials at other agencies would not comment.
Remote deposit lets merchants scan checks at their offices to convert them into electronic images, eliminating the need to visit a branch. According to an ABA Banking Journal survey published last month, 37.5% of community banks now offer remote deposit to their business customers, versus 16.3% a year earlier. Another 24.5% of banks that do not offer the service plan to do so at some point this year.
More than half the community banks currently offering the service said it has helped them win customers from outside their traditional markets.
Leton L. Harding, the executive vice president at the $937 million-asset First Bancorp Inc. in Lebanon, Va., said in an interview Monday that merchants might be less inclined to sign up for remote deposit if regulators require banks to keep closer tabs on them. He also said bankers are concerned about added costs, since they likely would have to hire third-party vendors to monitor customers.
"We understand that the more clients we sign up for remote deposit, the more we will have to commit resources to monitor, educate, and train the customer base that uses this service," Mr. Harding said.
But Douglas Johnson, the American Bankers Association's vice president of risk management policy, said it is "premature" to conclude the guidance would slow the growth of remote deposit.
Regulators' chief concern is that banks "have carefully thought through what their customer acquisition strategy is," Mr. Johnson said. "Once you get past the low-hanging fruit, what is your vetting process? How do you evaluate whether those customers are maintaining and safeguarding customer information in the manner that they should be? And that's particularly true if bankers are using remote deposit capture as an acquisition strategy out of their normal marketplaces."
While the guidelines are still being written, Mr. Johnson said he doubts they would be "something that our financial institutions cannot live with."
Mr. Harding said he heard about a Feb. 27 conference call hosted by the Federal Reserve Bank of San Francisco on which its senior manager and operational risk coordinator, George Mori, said regulators want to ensure a check's data is secure from the moment it is scanned until it is destroyed.
"There are potential benefits" to implementing remote deposit capture, "providing it is the right fit for the bank's customer base and the risk and control requirements are properly identified and addressed ahead of time," Mr. Mori wrote in a Feb. 7 e-mail to Mr. Harding. Mr. Mori declined an interview request to discuss the coming guidelines.
Mr. Harding said high on Mr. Mori's list of concerns is making sure banks conduct proper due diligence on businesses that are candidates for remote deposit.
Mr. Harding said First Bancorp found that the Visa card merchant processing standards worked well in vetting businesses. "These are very good, sound business underwriting standards. It made our life a lot easier."
The standards rank merchant by risk — high-risk merchants include gambling and pornographic businesses, which would not qualify for remote scanners.
Mr. Mori also wrote that there would need to be a specified period of time for businesses to hold on to original checks in case of a dispute.
According to Mr. Harding, his company requires remote deposit customers to store the checks in a safe for "a commercially reasonable time" before destroying them. That time is generally a month.
Mr. Mori also wrote that bankers would need to have a system to prevent a check from being duplicated or submitted more than once, thus reducing exposure to fraud.
Mr. Harding said that First Bancorp's scanners make an imprint on the check to show it was submitted electronically. If the check is not deposited properly, the customer must deposit it at the bank in person, he said.
First Bancorp has been offering remote deposit to business customers for over two years and now has nearly 450 customers using it. In any given month, the company settles 50,000 to 65,000 checks through remote deposit, Mr. Harding said.
He did not say how many of the customers were outside his company's traditional market area — the Shenandoah corridor along Interstate 81 — but he did say it now has customers as far away as Kentucky.
Remote deposit has helped First Bancorp sign up "customers that we've wanted to go after for a long time" but did not have the product or service that would entice them, Mr. Harding said. "We're now able to follow our customers. If they have a statewide or regional presence, we'll follow them with the deposit product."
