Mobile Remote Capture Deposit Best Practices

Mobile technology is changing the world—changing the way consumers communicate, do business and access information—and the financial services industry is no exception.

Just a handful of years ago, cell phones were still considered a luxury item—and one with limited capabilities. Now it’s almost impossible to avoid them. And as quickly as they have grown in popularity, they have grown even more quickly in terms of capability, with short-lived “traditional” cell phones giving way en masse to smartphones, putting virtually limitless possibilities—and expectations—in an ever-growing number of consumers’ pockets.

Mobile remote deposit capture (RDC) is the latest must-have offering for financial institutions, enabling consumers to deposit physical checks using the built-in camera on their smartphone to submit a picture of the front and back of the check. Even many nonbank entities are looking to take advantage of the new trend. The Wal-Mart/American Express BlueBird Prepaid Card, for example, comes with a smartphone app that allows consumers to deposit checks using RDC technology.

RDC is unlikely to be a revenue generator for any financial institution, but like online banking, it can improve a customer’s stickiness. In fact, financial institutions that do not offer the service may run the risk of losing a portion of their customers to those competitors that do.

As with any new offering, credit unions considering adopting RDC technology need to understand the risks behind the product and develop strategies to mitigate the indentified risks.

According to a November 2013 Portals and Rails article written by Douglas King and published by the Federal Reserve Bank of Atlanta, the first component of RDC risk management is really member management.

King said that credit unions should prioritize the members to whom they offer mobile RDC capability, ensuring only your best members will have access to RDC, and offered the following considerations when deciding which members will be offered RDC:

  • Length of the member’s relationship with the credit union – The best practice typically requires a person to be a member for at least 90 to 180 days before gaining access to RDC.
  • The depth or scope of the member’s relationship with the credit union – Using more products means the credit union has more information about that particular member and his or her financial habits.
  • The member’s deposit history – Has the member made a deposit at the ATM before? Has he or she ever tried to deposit a bad check?
  • Credit Score and Average Balances – Used as measures of potential risk, these can be another factor to determine which members have access to RDC.

The second component of RDC risk management involves setting deposit and velocity limits. For example:

  • Set realistic deposit limits for RDC captured items (daily, weekly and monthly) and availability rules based on the member’s profile;
  • Have systems in place to establish member trends and to flag certain deposits that are outside the member’s normal routine.

The third piece is having a well-written RDC user’s agreement. Checks deposited via RDC are not considered to have been made in person with an employee of the depositary bank, nor deposited at an ATM. This means Reg CC funds availability does not apply to these deposits. The RDC user agreement will establish the terms of funds availability.

Finally, credit unions should establish front- and back-end processes to help mitigate potential risks, such as:

  • Procedures for dealing with RDC items post-deposit, including destruction, restrictive endorsements and franking, all of which protect against double presentment;
  • Member education to ensure members are following through with necessary steps to deposit and dispose of checks and to ensure images are not being stored on the smartphone;
  • Strong user and hardware authentication routines; and
  • Strong image validation and quality guidelines.

While mobile RDC creates new risk considerations, proper risk management will ensure a successful product launch. Credit unions can find additional information on Risk Management of Remote Deposit Capture from the Federal Financial Institutions Examination Council (FFIEC).

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

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