Remote deposit systems for mobile phones could open the door to new types of fraud, and that possibility is prompting financial companies to tighten security.
Banks that are developing or offering this emerging service say consumers like the idea of being able to deposit checks from almost anywhere, but also acknowledge that they are restricting its use to head off fraud losses and are not offering it to everyone.
Randolph-Brooks Federal Credit Union in Live Oak, Texas, is planning to introduce a mobile deposit service early next year, but Mary O'Rourke, its assistant vice president of netbranch services, said only certain members will be permitted to enroll in its upcoming "mBranch" deposit service, and they will likely be able to deposit only up to $5,000 a day through it.
Though the $3.3 billion-asset credit union has not yet determined what criteria will be used to determine who can use the service, O'Rourke said the goal is to offer it only to people who present a low risk for fraud.
"It's all about knowing who your member is, and we feel we have the controls in place to limit our exposure," she said.
Remote deposit was originally developed as a business service for corporate customers who had strong ties to their banks and an established office or store, both factors that made it less likely that they would commit fraud and more likely that they could be tracked down if they did.
But offering similar services to consumers means that financial companies will have weaker ties to users, and permitting them to make deposits with mobile phones makes it much harder to find fraud artists after they have pulled off a scam.
"Check fraud is still a very significant part of fraud, and this is now another channel," said Nick Holland, a senior analyst at the Boston consulting firm Aite Group.
"There are types of fraud that we probably haven't seen yet. Criminals are extremely well funded, and they will push loopholes to find out where the cracks are," he said.
Those cracks, according to experts, could include schemes ranging from consumers using a mobile deposit service and then attempting to cash the same check again at another bank's branch, to organized white-collar criminal enterprises printing large numbers of fraudulent checks to deposit through consumer mobile banking services.
Opening up remote deposit to mobile phones vastly increases the likelihood of organized, criminal check-printing rings, Holland said, because some of the most common security measures, such as security inks and watermarks, might not be effective when a check is presented for deposit as an image created by a phone-camera.
"As mobile [deposit] proliferates, the incidence of fraud will increase," he said.
USAA Federal Savings Bank introduced in August the first consumer remote deposit service, for use with Apple Inc.'s iPhone. USAA spokesman Paul Berry said the company has processed more than $100 million in mobile deposits to date.
The check acceptance rate for the mobile service is "fairly high," he said, though some would-be users are being "turned away because there were some concerns about them."
Berry said that the amount of mobile check fraud has been lower than with standard check deposits, though he would not provide specific figures.
The $35.4 billion-asset San Antonio company provides financial services to 7.2 million active and retired members of the U.S. military and their families, and though it offers banking services to other people as well, most of its financial products, such as insurance, are available only to its members.
Berry said USAA's mobile deposit service is available only to banking customers who are also members or eligible for membership. "We have to know a little more about you than just that you want to open a checking account," he said.
USAA also caps its customers' mobile deposits at $5,000 a day, and it might put a three-day hold on certain checks, especially those deposited by new members, to reduce the possibility of fraud.
With mobile deposit services, consumers use phones' built-in cameras to photograph the front and back of their checks, and transmit the images to the bank for deposit.
Randolph-Brooks plans to offer members the ability to deposit checks from any mobile phone with a 2.0-megapixel camera and Internet access, including the iPhone, most of Research in Motion Ltd.'s Blackberry devices and phones that use Google Inc.'s Android operating system. USAA plans to expand its service to these devices as well sometime in the first quarter of 2010.
Bank of America Corp. is expected to soon test a service that would allow some customers to upgrade their existing iPhone mobile banking application to deposit checks remotely. B of A is also expected to expand the pilot program to Blackberry and Android users early next year.
Tara Burke, a B of A spokeswoman, would not discuss the company's mobile antifraud strategy but said, "Security is a key factor when we develop our products."
Another factor banks must consider is regulatory compliance, and when it comes to consumer mobile deposit financial companies are essentially operating in a regulatory vacuum now.
Though the Federal Financial Institutions Examination Council issued guidance earlier this year to help examiners, financial institutions and technology-service providers identify potential risks related to remote deposit capture systems, mobile deposit was not addressed in its "Risk Management of Remote Deposit Capture" report.
Nor has the FFIEC determined when it might take a look at mobile deposit services, or whether it will do so at all, according to Mary Beth Quist, a senior vice president with the Conference of State Bank Supervisors. "There has not been any discussion of guidance in this area to date," she said.
And that could make some banks skittish about offering mobile deposit, especially if they have not yet passed their commercial remote deposit audits.
"Anything having to do with compliance is a touchy subject with banks right now," said Bob Meara, a senior analyst at the Boston market research firm Celent. "There's a lot of fear that the regulators may come down hard on a consumer initiative."