Concern over the risks inherent in remote deposit capture has simmered since early 2009, when the Federal Financial Institutions Examination Council published guidance on RDC risk management. The guidance was promulgated by regulators who had no operational experience with the technology. Banks did what they had to do — devote extraordinary effort to ensure regulatory compliance. In 2010, Celent surveys suggest, compliance became banks' No. 1 RDC priority, ahead of anything resembling serving customers. Vendors too were busy enhancing the risk management capabilities of their solutions. On average, these capabilities now give banks extraordinary abilities to manage check deposit risk.
Over the same period, RDC evolved from the business-only product of its genesis to what it is likely to become: a mainstream consumer self-service deposit mechanism. To the delight of their customers, Capital One, Chase, Charles Schwab, Fidelity, PNC, U.S. Bank, USAA and many others have made RDC available via mobile banking applications. Some of these banks are migrating high-cost, largely manual branch transactions to low-cost self-service channels — a classic win-win. Others are gaining new customers without the cost of traditional branches.
It's important to realize that the 2009 FFIEC guidance did not result from egregious losses stemming from RDC abuse over the previous four years. Instead, the guidance was meant, at least ostensibly, to be preventative. Indeed, there is little evidence of ongoing operational losses from RDC. In a fall 2010 survey of 194 RDC-deploying financial institutions, nearly 90% reported having suffered no RDC losses. And, losses among the other 12% were not recurring events. So, are we sure we have a problem here? Let's consider the primary loss mechanism through consumer RDC, what's available to mitigate those risks and the alternative for banks that remain on the sidelines: branch deposit taking.
Those who insist that RDC-gathered deposits are inherently risky have Check 21 to blame. After all, it was Check 21 that created the legal footing such that original items wouldn't be needed for clearing and settlement. Since Check 21 didn't require banks of first deposit to have original items either, RDC was born. What's the inherent risk? Arguably, the only mechanism unique to RDC is loss resulting from duplicate presentment. All other loss scenarios can occur with or without RDC. A fraudulently altered item or an item written on a closed account, for example, could result in loss regardless of the depositing channel. And duplicate presentments predated RDC. Inadvertent duplicate presentment of image cash letters were common in the early days of image exchange. In response, many large banks invested in duplicate presentment detection capability to mitigate the problems associated with those errors. Fed and ECCHO rules have duplicate warranties so that paying banks can be made whole. What RDC does invite is a scenario where an item could be presented multiple times, through multiple channels and even multiple banks of first deposit. Let's assume such things will begin to happen with some regularity. Then what?
Beyond defensible know-your-customer procedures, what is available to help banks mitigate the situation described above? Plenty. Most banks (or their item processing outsourcers) already have enterprise duplicate item detection capability. Those that don't have this capability need to make an investment. A sophisticated deposit review mechanism should also be in every bank's toolbox. Modern systems are able to provide near-real-time views of deposit activity across channels, place limits and flag unusual activity.
Invariably, banks reluctant to offer mobile RDC assert that deposits made at bank branches are wholly preferable. How so? Consider two scenarios: the typical, nonteller capture branch deposit compared to mobile RDC using a modern deposit review system. You decide.
• In a branch, deposit review is conducted manually (if at all) by tellers in a distracted and hurried environment. Mobile RDC invites deposit review conducted by trained, back-office specialists.
• If item detail is captured at all at the branch, most include check amounts only. Tellers are focused on completing the transaction. With mobile RDC, codelines are captured and verified in real time. Suspects are flagged immediately for review and possible hold.
• In the branch, teller visibility is limited to a single deposit. With mobile RDC, back-office personnel often have an enterprisewide view of account trends and activity.
• For most branch deposits, fraud systems don't see the item until hours later, often not until day two, depending on when image capture occurs. A mobile RDC deposit could have a real-time interface to fraud and positive pay systems. Multiple risk filters examine all items in real time, flagging unusual activity or suspect items for operator review.
• With typical branch deposits, transit items aren't presented until late in the day. With mobile RDC, transit items are presented for clearing and settlement throughout the day.
• In the branch, funds availability is a function of policy and Reg CC — without regard to characteristics of individual depositors. With mobile RDC, funds availability may be negotiated based on customer risk ratings as part of a unique deposit services agreement.
And, I didn't mention that most branch deposits cost banks over $1 per deposit in staffing costs alone. So, why the concern with mobile RDC?
