02:17 PM

Are 10% of Mobile Depositors Fraudsters? No.

Without context, numbers on mobile fraud can be misleading.

I work in the fastest shrinking city in the United States. According to Bloomberg, the population of Valdosta, Georgia, declined 2% last year.

What does this mean? I have no idea.

Did the numbers adjust for yearly attrition of graduating classes at our local university or migrating command wings at our local air force base? Has my hometown lost its libido and ability to sustain birth rates? Or are we just dying faster?

No clue.

Without context, headlines don’t mean much. Without context, headlines can lead to other headlines about which other headlines are written. Within a single self-feeding news cycle, conventional wisdom can change -- often without any evidence to support that change.

We’ve recently seen a rash of articles about growing fraud rates among mobile deposits. Specifically, many of the articles cite a CFSI study and claim that “fully 10% of people who used their cell phone to deposit a check had it returned to the originating institution due to fraud.”

Did you get that? Some 10% of people who have deposited checks with their smartphones are criminals. This is especially surprising given other recent studies reporting that 80% to 90% of financial institutions offering mobile remote deposit have experienced no fraud at all.

So I did a little digging to get more context on the “10%” number. What I found dramatically qualifies what was otherwise presented as a sudden gross spike in mobile deposit fraud.

First, here’s the 10% number in its original context: “According to FIS, 10% of prepaid mRDC [mobile remote deposit capture] consumers have fraudulent mRDC returns.” The study defines “prepaid mRDC” as “checks converted by prepaid or mobile wallet providers via mobile remote deposit capture.”

Second, “Prepaid mRDC” providers are NOT financial institutions, according to the study’s method of defining and categorizing “providers of check cashing services,” the channel subjects of the study.

In other words, the 10% of prepaid mRDC consumers triggering fraudulent returns were (1) not using a financial institution’s mobile deposit service and (2) not depositing into a demand-deposit account (DDA) at a financial institution.

Rather, the offending parties were depositing checks into a non-financial institution’s prepaid service for the end-purpose of cashing a check. There’s a big difference between check cashing services at third parties and routine check deposits made at financial institutions by their customers.

Will mobile deposit fraud rates rise as the service becomes mainstream? Perhaps, especially if financial institutions and vendors don’t come together to identify and preemptively block duplicate check presentments across multiple institutions. But cross-institution duplicate detection and prevention solutions are already available and steadily growing in deployment.

Meanwhile, if third-party prepaid check cashers continue to suffer predictably higher rates of mRDC fraud, perhaps more will follow PayPal’s decision last month to abandon mobile deposit capture altogether -- providing competitive differentiation for financial institutions who enjoy an mRDC fraud rate of only 0.3%, according to the author of the CFSI study.

So, are 10% of mobile check depositors committing fraud? No, and Valdosta’s libido is just fine, thank you very much.


Lee Wetherington, AAP, is Director of Strategic Insight for ProfitStars, a division of Jack Henry & Associates. He directs the development of insight and strategy for the financial services industry at large. To this end, he creates programs, presentations, and articles ... View Full Bio

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