According to Bob Meara in a 2008 interview with Tech-Target, “In the history of U.S. financial services, there's never been a technology adopted faster than RDC.” This has continued to hold true today. Initially created for large business customers, RDC – or remote deposit capture – has become a popular feature used by consumers because it offers many conveniences and immediate funds availability. For credit unions, it's a quicker way to grow core deposits while also meeting members' expectations for self-service banking. In fact, the use of remote deposit capture has increased by 98% from 2015 to 2016, according to a Guardian Analytics report.

However, with the growing use of remote deposit capture also comes the increased risk of duplicate check presentment – checks being deposited more than once, either accidentally through human error or intentionally by fraudsters. One recent example of fraud occurred in Florida, where a man deposited three separate paychecks digitally, then cashed them in person, essentially double-dipping. What is alarming about this story is that the employer was the first to notice; not the financial institution.

Because of cases like this or simple human error, some financial institutions remain hesitant to integrate an RDC solution because they lack the technology needed to prevent duplicate checks and the costly resolution when duplicate presentments occur. But if credit unions fail to embrace distributed capture options – ones that members have come to expect – they become less competitive. Consumers and businesses will likely seek out other institutions that offer RDC capabilities, which means a huge loss for credit unions as all financial institutions fight for market share.

How Risky is RDC?

An analysis conducted by Guardian Analytics found that of all fraud cases involving mobile banking apps, 72% included RDC and the use of fraudulent checks. Additionally, the American Bankers Association found the impact of banking fraud is having an effect on institutions of all sizes, with 100% of the largest financial institutions reporting instances of RDC fraud and a 400% growth in losses reported over two years across financial institutions of all sizes. But it's not all fraud. Human error is another risk when the customer can't remember if he or she already deposited the check; another is processing errors resulting in multiple presentments of checks or check files.

Compounding these challenges is the fact that detecting duplication checks is not easy. Historically, financial institutions could quickly catch a duplicate as long as the check deposited twice was at the same institution and through the same channel (i.e., teller). But fraudsters are much savvier today. Now, credit unions must monitor all channels in case a check is first deposited via a smartphone, then at a teller or ATM – two different channels. Taking it a step further, it becomes even more challenging when the same check is deposited into accounts at different institutions.

Detecting Duplicates

Consumers and businesses expect risk mitigation; therefore, credit unions must implement a solid strategy to detect duplicates despite the costs.

Prevention

First, credit unions must enact preventative measures. From an operations standpoint, employee training and written procedures with manuals and user aids are necessary. It's also critical that members understand the responsibilities and risks of RDC, especially regarding the safe retention of deposited items. Legally, financial institutions must write and distribute consumer disclosures that define the RDC policies of the financial institution. Finally, credit unions must provide detailed training to the back-office staff to best handle duplicates when each occur to assure expeditious resolution.

Detection

Beyond preventative measures, credit unions must have proven detection technology and processes in place to identify duplicates as early in the payment process as possible. When it comes to detecting duplicates, there are three main methods.

The first method is monitoring within capture silos, which helps stop duplicates at the earliest point. Being able to refuse a deposit immediately or hold funds and then quickly notify the depositor of the problem is beneficial to both the depositor and the financial institution. The limitation of only reviewing one channel is that it does not prevent duplicates that may be deposited first remotely and then at another source of capture.

The second method is Day One detection across all silos, where the duplicate is identified and removed prior to posting. The advantage is that all channels are monitored facilitating the problem and it is fixed before posting to the maker's statement. The challenge, however, is that it's often done too late to start the collection process and the member notification to the depositor is too late to retrieve funds.

The third type is Day Two detection. This examination of items crosses capture silos, but the duplicate is not detected until after it's posted. Resolution for the financial institution is more expensive and recovery of funds for the depositor is less likely.

The best method is a hybrid approach of the first two detection types. Each channel must be closely monitored to immediately flag suspected duplicates for further investigation. The benefit is enhanced security as well as an improved member experience. Also, credit unions should monitor items across channels on Day One to stop items captured at different sources. Not only are the items never posted to the member's account or statement, the account holder is notified more quickly that a check given to them may have been fraudulent.

As the industry sees no slow-down of RDC, the risk of duplicate check presentment has taken center stage. Consumers and businesses expect distributed capture because of the convenience it offers, but this also means greater risk of fraud and human error. RDC provides substantial benefits to financial institutions as well, such as a means to quickly grow core deposits, but some are still apprehensive because they lack the technology and resources to monitor for duplicates, leaving credit unions to face a conundrum – fail to offer RDC at the risk of losing members or offer it and expose themselves to greater risk.

But there is a solution. By investing in the right enterprise-wide detection technology and integrating methods that investigate all channels prior to posting, credit unions can continue to offer RDC while also limiting risks. Members remain happy and the credit union remains competitive – it's a win-win.

Charlie Brinza, NCP is Senior Solutions Engineer for VSoft Corporation. He can be reached at 770-840-007 Ext. 730 or charlie.brinza@vsoftcorp.com.

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As Remote Deposit Capture Soars, So Do Risks

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