Bank technology vendors are coming up with new ways to fight a type of fraud that was itself spawned by tech innovations: double dipping of deposits.
Allowing customers to deposit checks by taking a photo with a smartphone or tablet has opened this new avenue for crime. Unlike depositing a check at the ATM or at the teller line, the consumer keeps the physical check after depositing it via a mobile device. So the customer could try to "serial deposit" or cash the check at, say, a check cashing center or another bank, on purpose or by accident.
So far, financial institutions have put holds on checks and set limits on mobile deposit capture usage to mitigate fraud. Some evaluate the length of the relationship with the customer and the type of account she has, among other risk clues. And the vendors selling the imaging technology report low fraud rates with their bank customers.
But tech companies want to stay ahead of a problem, and in turn, help bankers feel more comfortable raising the deposit limits and expanding the user base for mobile deposit. The vendors are working to catch mobile deposit capture fraud at a time when more banks are expected to invest in the feature.
"Traditionally, banks have controlled risk with limits," said Sarah Clark, vice president of product at Mitek Systems. "We are really seeing banks want to be more progressive to provide more access, more often. To do so, they want to get away from static limits across the board."
One tool to help banks catch serial depositors is technology that scans the check images, looking for a restrictive endorsement on the back of the check, such as "For deposit only at XYZ bank."
Mitek, which makes check imaging software for mobile, launched such a feature in November. The software searches for the handwritten words and sends a confidence score to the bank. Top Image Systems and Kofax offer similar technology.
Doug Johnson, senior vice president of payments and cyber security policy at the American Bankers Association, said using handwriting recognition to discover whether or not there is a restrictive endorsement in place could help get ahead of the problem of intentional or unintentional duplicate deposits.
And the technology could help make mobile deposit available to a wider pool of applicants.
Top Image Systems, which sells mobile check deposit technology, said it has a couple of clients evaluating whether to activate the restrictive endorsement into their mobile deposit processes. Like Mitek, the restrictive endorsement processes offered by TIS would let a bank input a phrase that must be written on the back of the check in order for it to be accepted for mobile deposit.
Kofax, which sells similar technology, also said banks can customize its system's workflow so that it would scout out for the likelihood that a restrictive endorsement phrase exists.
"Restrictive endorsements are another layer of protection," said Drew Hyatt, senior vice president of mobile applications at Kofax.
To be sure, restrictive endorsements are not fraud-proof.
Bob Meara, senior analyst in Celent's banking group, points out that image analytics systems can't yet determine whether the back of the check is attached to the front. That hole opens the doors for a fraudster to reuse the back of a check without a restrictive endorsement, for example.
Mitek said solving that problem, which is caused by the lack of common element printed on the front and back of a check, is a high priority.
And restrictive endorsement checking software could lead to added back office work for banks. For instance, they may have to manually review red-flagged check images, such as those with terrible handwriting.
In addition to the newer imaging features, there are other tech answers to double dipping.
Early Warning Services, a bank-owned organization that shares deposit data in a bid to fight fraud, announced in February a tech enhancement designed to mitigate duplicate deposit scenarios. Its updated Deposit Chek Service screens for checks cross-channel and cross-bank to spot when the funds have already been deposited elsewhere. Early Warning said matching is based on a four-field match that includes routing transit number, account number, dollar amount and check serial number. If it spots a duplicate, it will alert the bank, which could then, say, put a longer hold on the check.
Laura Weinflash, Early Warning's vice president of payment solutions, said the service is meant to help prevent customers from remotely depositing a check at ABC Bank and then going to another bank to do the same thing regardless of the channel through which the funds are deposited.
Weinflash said fraud in mobile deposit is minimal right now but it is expected to grow when deposit limits are raised. And better security could help banks feel comfortable taking off the feature's training wheels like blanket deposit limits. "There is a significant drive to push for mobile deposit," said Weinflash. "It's much more convenient than going to the branch."