Seth Hanford Sep 1, 2009

I see a number of risks from portability:

One of the great check fraud scams is to steal a ream of actual paper checks from the supply closet at a company.  Now, the thief doesn’t even have to make off with the check inventory, simply take a photo with your phone and then put the phone back in your pocket.

Also, for the matter of paradigm equivalents, there is no person sitting down and looking at these checks like there would be at the teller window.  I’m not so naive to think that this has happened much in the past 20 years, but it’s still an abstraction for which we have not come away with an equivalent.  If a crook can find a sufficiently large bank account with sufficiently poor accounting controls, even if they’re depositing to their own account, they can store up a decent amount of money in fairly short order.

Imagine the crook having their company deposit paychecks to their bank, and then photographing and altering a check picture of their paycheck equivalent to an account with USAA every 2 weeks.  They’ve just doubled their salary, and insufficient accounting controls may not notice—same amounts, same payees, but mysteriously twice as many transactions.  And again, all they have to do is photograph a good check somewhere on company property / at home before making any alterations.

Frequency is also likely to be a learning experience for USAA. Not many people have scanners at home, but lots of people have iPhones.  There’s a large potential for the frequency to increase, which may inflate the losses that they’ve already suffered in the scanned check arena.  It may not have let them accurately predict their risk with the new, portable medium.

Philip’s point about re-presentation of checks is another good one.  USAA does not bear the risk, necessarily, if a criminal photographs a check presented to them for deposit to their own account and then modifies the check for presentation to another bank to be cashed.  In this scheme, USAA gets the real check and a second bank gets an altered-payee check drawn on the same account.  According to Frank Abagnale (The Art of the Steal 59), altered payee fraud is the liability of the first bank of deposit.  But unlike a typical altered-payee crime, the “real” check could have already been deposited and has cleared the issuers statement, when the uncontrolled check then gets modified and reused for more money.

USAA could be opening a door for the criminal get paid once and potentially twice on the same check, because the bank is not keeping control of the original instrument.

Kirk Brooks Oct 10, 2009

I am a USAA customer and have greatly appreciated the ‘deposit at home’ feature. Since the bank is in Texas the previous requirement was to mail checks for deposit - which could take up to 10 days to process. I have inadvertently attempted to deposit a check twice and once attempted to redeposit a check that bounced. In both cases the site refused to accept them. I don’t know how it determined the duplication but it did.

I think the comments about multiple images of the same check being presented to different banks are the digital equivalent of stealing the ream of blank checks. It’s a crime and it will be noticed quickly. The issue is detecting it. Unlike passing physical fraudulent checks there’s a pretty strong paper trail (as it were) here. Plus, the money has to go into an account rather than convert to cash. To convert the fraudulent digital checks to cash, or a safe account, the money has to move out of the deposited account. This is one bottleneck the bank controls - the availability of funds. I’m not suggesting it can’t be done - but given the traceability of electronic transactions I think it will be very difficult.

You know, a couple of years ago I noticed my landlord deposited my rent check 3 days early. And 3 days prior to the check date. It didn’t cause a problem but could have. I called USAA to ask what would have happened if I had been overdrawn because of that. I was told the date on the check is, essentially, irrelevant - a check becomes payable when it’s presented. Period. The reason has to do with the fact there is rarely any human review of transactions. The cost of running deposits through an ATM would make them prohibitive if a person had to read each one. This is another of the changes that have crept in to the deposit rules we rarely read but sign off on by having our account. Shifting the responsibility onto us and off of the bank allows them to work faster and more profitably. Most of us carry on as though things were the way they were when we first learned about banking. But things aren’t the same.

My point is the banks have been working to shift more and more responsibility for transactions onto consumers. Doing so they can be more responsive and agile but consumers bear more costs as well. It will be the case here too.

Richard Aceves Oct 10, 2009

@Kirk

Thank you for your thoughtful dialog. 

You raise some valid issues that I hope people will consider as we move increasingly to a ‘digital world.’  The example of a date on a check is excellent (in 2009, I will have written maybe six checks—it’s too easy to issue payments directly from a bank).

Historically, people have tried to outwit whatever systems were in place: how long ago was it that you could alter the amount of a check, have it clear and abscond with with funds before someone caught it?  That’s nearly impossible now; similarly, the technology of security will ensure that if depositing a check via iPhone isn’t foolproof today, it will be soon enough.