Mobile RDC vs. Branch Deposits: Which is More Risky?
The FFIEC Guidance on RDC Risk Management published in early 2009 was a watershed event that ushered in widespread concern over the risks inherent in remote deposit capture. The guidance was promulgated by regulators that had no operational experience with the technology. Banks did what they had to do – devote extraordinary effort to ensure regulatory compliance. Vendors too were busy enhancing the risk management capabilities of their solutions. Now, these capabilities give banks extraordinary abilities to manage check deposit risk.
Over the same period, RDC evoved from the business-only product of its genesis to what is quickly becoming a mainstream consumer self-service deposit mechanism. Yet, the majority of U.S. Banks restrict usage because of risk concerns. In all of this, it’s important to realize that the belated FFIEC guidance did not result from egregious losses resulting from RDC abuse over the previous four years. Instead, the guidance was meant to be preventative. There remails little evidence of ongoing operational losses from RDC. In three consecutive annual surveys of RDC deploying financial institutions, nearly 90% reported having suffered no RDC losses. And, losses among the other 12% were not recurring events. Are the widespread risk concerns warranted?
Those Darn Duplicates!
For 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 BOFD’s to have original items either, RDC was born. And, 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. Let’s assume such things will begin to happen with some regularity. Then what?
Beyond defensible KYC procedures, what is available to help banks mitigate check deposit risk? Plenty! Most banks (or their item processing service providers) already have enterprise duplicate item detection capability. Those relatively few that don’t need to make an investment. COCC, a Connecticut outsourced processor, announced in June 2011 that it would provide duplicate presentment detection for all its item processing clients at no charge. More third party processors will likely follow. In March 2013, Early Warning Services announced a pilot of an enhanced version of its Deposit Chek Service that includes duplicate item detection among participating financial institutions.
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 on deposits and flag unusual activity for speedy review by trained personnel. Many systems also can be set to flag items that have a mismatch between the item’s dollar amount and the depositors stated deposit amount along with routing and transit number validation and optional image based check fraud detection – all prior to posting. Contact your vendor if you need more information.
RDC vs. Branch Deposits
Invariably, banks reluctant to offer mobile RDC assert that deposits made at bank branches are less risky. Really? Only a small minority of FIs have teller image capture systems, so consider two scenarios: a non teller capture branch deposit compared to RDC using a modern deposit review system. You decide.
|Branch Deposit||Remote Deposit|
|Deposit review is conducted manually (if at all) by tellers in a distracted and hurried environment.||Deposit review conducted by trained specialists in the back-office.|
|If item detail is captured at all at the branch, most include check amounts only. Tellers are focused on completing the transaction.||Check codelines are captured and verified in real-time. Suspects are flagged immediately for review and possible hold.|
|Teller visibility is limited to a single deposit.||Back-office personnel often have an enterprise wide view of account trends and activity.|
|Fraud systems don’t see the item until hours later, often not until day-2, depending on when image capture occurs.||Optional 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.||Transit items are presented for clearing and settlement throughout the day, accelerating payment and returns.|
|Funds availability is a function of policy and Reg CC – without regard to characteristics of individual depositors.||Funds availability may be negotiated based on customer risk ratings as part of a unique deposit services agreement.|
In Celent’s view, banks still on the mobile RDC sidelines fearing RDC risk are more susceptible to returned item loss through obsolete branch deposit taking workflow. A less risky, lower-cost approach invites image capture at each point of presentment alongside modern, image-based risk management approaches.