November 22, 2011 - US financial institutions have been warned of the potential for rising fraud rates from the expansion of remote deposit capture technology to the retail and unbanked sector. In a post on the Federal Reserve Bank of Atlanta's Portals and Rails blog, Douglas King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed asks whether the expansion of remote deposit capture into new customer and payment markets and new hardware devices such as mobile phones raises the risk of rising fraud rates.

To date, banks and other financial institutions have successfully managed risks for commercial RDC services, whether by restricting the use of the service to only highly-vetted commercial clients or limiting the value of allowable remote deposits.

According to the 2011 Payments Fraud and Control Survey from the Association of Financial Professionals, only one percent of surveyed organisations responded that someone had used their electronic cheque conversion service to commit fraud. This figure is unchanged from the 2009 survey.

A new report by Celent notes that the commercial RDC market is now nearing maturity, with an estimated 75% of US banks and 50% of US financial institutions offering at least one RDC service.

The analyst group says growth in self-service channel preferences, competitive pressures, and relentless cost reduction demands are vaulting RDC into the consumer mainstream, with 80% of surveyed financial institutions planning or considering the introduction of smartphone-enabled services.

USAA, JPMorgan Chase, PNC Bank, and US Bank all now offer mobile RDC for retail consumers, while Bank of America is targeting a second-quarter 2012 launch for its retail mobile RDC service.

"With banks and financial institutions expanding this service to a retail customer base that often undergoes less stringent due diligence than do their commercial customers, is the potential for fraud increasing?" asks the Atlanta Fed's King.

He looks in particular at the expansion of the service into the unbanked consumer market, which would enable pre-paid cardholders to load funds directly to the card.

King observes that several third-party service providers have the risk-management software to enable mobile RDC for the prepaid industry, and that a number of these companies are prepared to accept the risk for fraudulent transactions as part of their programme package.

"However, the inherent dearth of information about GPR (general-purpose reloadable) prepaid users compared to retail and, especially, commercial banking customers makes RDC services more vulnerable to fraud with this group," he notes. "In fact, prepaid card users may be unbanked because they have a poor, or no, credit history or they lack appropriate identification and credentials to open a banking account."

For Celent, however, the real challenge with self-service deposits may be the transformation required as transactions move out of the branch.

Bob Meara, senior analyst with Celent's banking group says: "Self-service deposits are at odds with the pervasive cross-selling culture at most banks. Reduced branch traffic presents a sales challenge, but deposit-related foot traffic comes at a significant cost - one that US banks may no longer be able to afford. Mobile RDC may be the best idea yet to hasten the branch transformation we all know to be inevitable."