Credit Union Journal: Fraud Puts Dent In Savings Gleaned From Mobile App

by W.B. King, September 23, 2013

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FAIRFAX, Va.- Only two months after offering mobile check deposit as convenient service app to its 170,000 members, Apple Federal Credit Union has experienced fraudulent transactions.

“These two gentlemen convinced one of our members, a single mother, that they were FBI agents and needed checks deposited to an account in Nigeria,” said John Harwell, VP of risk management at $1.8 billion CU. “She never met these gentlemen-it was all done virtually-and ultimately she gave them $4,475, which she thought was going to aid an investigation. For her troubles, she was promised $275 that she of course never received.”

The victim, who never recovered her transferred funds, is one of roughly 6,000 members using the mobile check deposit app. “We are only formally announcing it this month, so all these members discovered it because it was posted on our website. We didn’t want to advertise it until we had a good handle on it,” said Harwell.

On average, financial institutions save roughly $4 per transaction when using remote deposit. According to a recent Celent report, four years ago 72% of financial institutions were not planning to offer mobile remote deposit as a service. Last year, that number dropped to 18%. But as the popularity of mobile banking apps grow exponentially each month-just click a picture of the check, sign and send-concerns are being raised as to best practice security measures.

“Overall, there will be a decline in fraud because checks do not have to be physically moved from point A to B to C, said John Leekley, founder and CEO of “Remote deposit capture is probably a safer platform than traditional banking. However, with mobile deposit there is the unique risk as now the item remains in the depositor’s hand after the deposit is made.”

Red Flags

There are red flags credit unions executives should look for, according to Leekley.

“Beware of members who don’t keep balances,” he said. “Place holds on new member accounts, have a denomination threshold and set availability schedules.”

For Harwell and Apple FCU, there is a learning curve. “We made some internal changes recently including that all checks have to be endorsed with mobile deposit written along with the signature. This way if a teller comes across the check at the branch or through an ATM, they can back the check out immediately.”

To ensure security compliance, Harwell said the credit union just signed a 24-month contract with Advanced Fraud Solutions, a CUSO serving roughly 400 credit unions.

“We have both small and large credit unions using the strategy to prevent mobile deposit fraud,” said Lawrence Reaves, the company’s president and CEO. “We recommend a strategy that includes reviewing the checks through the mobile deposit channel as well as all other channels that accept checks. With a holistic view of the whole organization, our batch reviews looks for duplicates and counterfeits and high-risk items.”

Not Always Fraud

While there are criminals looking to capitalize on the mobile check deposit phenomenon, innocent mistakes are also being made by unassuming members who lack understanding of the process, say industry insiders.

“There is an uptick in mobile check fraud, both accidental and intentional,” said Reaves. Leekley added, “The vast majority of duplicated deposits are not fraudulent.”

Harwell noted that there have been cases where a spouse deposited a check and left it on the kitchen table. When the other spouse returned home, the same check was deposited at a branch. “Other times members don’t realize that we have a 3 p.m. cut off. A check deposited on the mobile app before that time will be reflected that day, if deposited later it appears the next day. Since they don’t see the check deposited, they take it to the branch or ATM and deposit it twice.”

With Advanced Fraud Solutions, Harwell said there is a better system of checks and balances in place. “Our batches are checked four times a day,” he said. From a technology perspective, the process is seamless. “There is no in-house server. We place all our check deposits in one folder and move it to their system (via the cloud).”

Moving forward, Harwell believes the number of members using the mobile banking app will increase by significant numbers. “We have about 75,000 active online banking customers. I think a good number of those will start using the mobile deposit feature,” said Harwell. “We have to stay one step ahead of the risk, and that keeps me in a job, but in order to meet the needs of the younger generation, we need to offer this service.”