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Mobile Deposits Into Prepaid Cards And Mobile Wallets Carry Higher Fraud Risk

With every passing year, depositing checks becomes easier. Self-service ATMs removed the need to visit banks during normal business hours. And with the rise of mobile deposits, customers don't have to leave their homes at all. They simply scan checks with their smartphones or tablets and deposit the money directly into bank accounts, prepaid cards, mobile wallets, or any other accounts of their choosing.

According to a recent survey by ath Power Consulting, this remote scanning and deposit is the "most sought-after mobile banking feature" among American consumers.

So it's little surprise that 66 percent of banking institutions offer some version of mobile deposit functionality, with an additional 33 percent planning to unveil similar features within the year.

The Dark Side of Mobile Deposits

Despite the growing popularity of mobile deposits into virtual wallets and prepaid cards, the technology is not without certain risks. Fraud remains a major concern as deliberate "double-depositing" becomes more common. It's possible to scan and deposit a check using a smartphone before physically depositing that same check at a local banking branch.

Time lags and other loopholes are relatively easy to exploit — especially when making deposits into secondary accounts (e.g. prepaid cards and mobile wallets) that don't typically face high levels of scrutiny.

How bad is this fraud?

Estimates vary. Some experts put the number at nearly $900 million annually. Other surveys reveal that the problem only affects fewer than 20 percent of financial institutions.

Regardless of the numbers, anything over 0 percent fraud is unacceptable. Thus, banks continue taking steps to help reduce fraudulent mobile deposits, including:

  • Limiting the number of mobile deposits customers can make per month (54 percent of banks have implemented this safety feature)
  • Limiting the dollar amount of mobile deposits per month (80 percent of banks already do this)
  • Using imaging technology to prevent double-depositing (75 percent of banks)
  • Holding recently deposited amounts in escrow (43 percent of banks)

Making Mobile Deposits into Prepaid Cards and Virtual Wallets Safer?

Whether or not these solutions work remains to be seen. But even with these measures, mobile deposit fraud carries other risks — namely rising costs.

When caught early on, fraudulent deposits are relatively easy to stop. The financial impact is minimal. But when detected on Day 2, banks must invest additional time and resources to reverse fraudulent charges. These costs rise exponentially with each passing day. So even when financial institutions can successfully detect and even counteract fraud after the fact, they can't avoid accumulating additional expenses along the way.

According to some estimates, processing traditional paper checks can cost anywhere from $4 to $20 per transaction (in hidden fees). By digitizing the process, mobile deposits are supposed to help reduce these fees — not increase them.

Diminished consumer confidence is also a major obstacle as well. Although banking customers overwhelmingly want mobile deposit access, this enthusiasm could quickly disappear if banks begin passing on their own internal costs down the line.

For more information about making your own mobile payment network more secure, use the free links below:

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Topics: Mobile Payments, PCI Compliance and Fraud Prevention

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