What is mobile check deposit and how does it work?

November 16, 2022

Although the number of checks being used by customers has decreased over the years, check fraud still manages to pose a significant risk to financial institutions. Each year over 500,000 people in the U.S. fall victim to a check fraud scam. In 2018 alone, 60% of all attempted financial frauds were done via checks.

Recent advances in technology have given rise to mobile check deposit as an easier alternative to the traditional way of depositing checks. By simply having a phone with internet access, users are able to deposit checks from anywhere in the world. On the flip-side, this has opened up new avenues for fraud to take place.

This article takes a look at how mobile check deposit work in online banking and what type of technology offers the best balance between a great customer experience while maintaining a high level of security and compliance.

What is Mobile Check Deposit?

Mobile check deposit is a digital banking tool that allows you to deposit checks to your checking or savings account using your mobile device. Instead of depositing checks at the ATM, a drive-through window, or with a bank teller, you can add them to your account from wherever you happen to be; whether that’s at home, at work, or on vacation.

The types of checks you’re able to add to your account using mobile check deposit include any type of paper check, such as personal checks, business checks, cashier’s checks, and government-issued checks. This includes tax refunds and stimulus checks. Some banks also allow the use of mobile check deposits for foreign checks, third-party checks, money orders, and traveler’s checks.

Mobile check deposits can be traced back to 2004 when the Check 21 Act first took effect. The act created a new negotiable instrument called a “substitute check,” which is the legal equivalent of an original check. 

A substitute check contains an image of the front and back of the original check that can be processed as the original check. This method of depositing checks enjoyed widespread adoption over the following years. 

As of 2008, Celent, a financial services consulting firm, estimated that two-thirds of all U.S. banks were offering remote check deposit in their mobile banking services. And in March 2008, the ABA Banking Journal reported 38 percent of community banks offered remote check deposits. The survey noted that the adoption rate for remote check deposits was “much faster than we saw with bank websites." Today, the adoption is industry-wide with most banks offering the service.

The benefits of mobile check deposit can be substantial: Convenience, reduced transportation risk and cost, better availability, the ability to consolidate banking relationships, and more.

How Does Mobile Check Deposit Work?

Three basic components are required for mobile check deposits to work. A banking app uses a phone’s camera to scan the check. An internet connection is required to transmit the information captured. And a service provider such as a bank or credit union for the check to be deposited.

While the exact process for mobile check deposits varies based on the financial institution, the following steps are typically taken:

  1. Signing into the bank’s mobile app: Once inside the mobile banking app, a savings or checking account is selected where the check will be deposited. The check amount is also entered.
  2. Endorsing the back of the check: It is important for the check to be signed. Some banks may require a note to be written on the back of the check as well, such as “Mobile deposit at Wells Fargo Bank only.” This provides a layer of security when processing the deposit.
  3. Photograph the check: A front and back photo will need to be taken of the endorsed check and uploaded to the app.
  4. Review: Once all of the information has been reviewed, the deposit is submitted via the app.
  5. Verification and deposit: Once the check is received, a series of verification steps are taken to ensure the funds can be deposited into the bank account.

After the check is received, banks use a variety of data points to make a judgment about the validity of the check. The data acquired is centered around the good standing of the check issuer’s account, availability of funds to make the deposit, and the amount of money requested for deposit. High dollar amounts usually go through further reviews.

Afterwards, a subset of the check’s images is sent to fraud employees within the bank. These employees are trained to spot signs of check fraud and make decisions on whether a check is good or bad. The verification process can be time consuming, involving multiple parties and rounds of verification. 
To reduce this time, banks often allow checks up to a certain amount to be made available to customers the next day, even though they have not technically been cleared. This time-consuming verification process is highly targeted and exploited by fraudsters.

Check Fraud Continues to Rise

There are several points along the check verification process where criminals attempt mobile check fraud. One of the most common ways involves creating a fraudulent check. Fraudsters can forge another account holder’s signature, steal checks, write a different amount by erasing the ink, or use a known account number with different payor information. 

Deposit fraud can also happen by taking advantage of funds being available the next business day. Fraudsters use this by creating new accounts, depositing bad checks on their phones, and draining the money from ATM machines the next day, before the checks can be verified.

Recently, fraudsters have been tricking unsuspecting Americans through stimulus check fraud. Scammers convince people via phone or email to pay a fake debt with their stimulus checks, or ask for the checks to be forwarded to them. By soliciting additional personal information, they later use those identity verification details to file false tax returns.

Check Fraud Defender: A New Line of Defense

The damage and losses from check fraud is on the rise, with attempts costing $15.1 billion in 2018. Checks and wire transfers continue to be the payment methods most impacted by fraud activity in 2020. Although check fraud may not be the top priority for many financial institutions more focused on digital transformation in banking, it is crucial that advanced online security solutions be in place to protect against the growing trend.

One area that many financial institutions can benefit from is AI, which can facilitate a significant amount of the check verification process. Using AI along with machine learning, banks can quickly and easily spot fraudulent patterns. This also presents an opportunity for banks to share their information across the industry to create a more robust range of fraud data. This is a significant time and cost saving opportunity in the fight against check deposit fraud.

With Mitek’s AI powered Check Fraud Defender, financial institutions are able to reduce the number of checks routed for manual review, helping to detect forgeries that may otherwise be missed. This advanced solution complements existing fraud prevention processes and tools by visually inspecting checks from all channels—mobile deposit, in-branch, and ATMs.

Using a proprietary visual inspection model, Mitek leverages AI & machine learning to track 18 check attributes. It’s a powerful tool that can help reduce risks associated with mobile check deposit scams, forged checks, and theft. Visit our website to learn more about how Check Fraud Defender can strengthen the security of your financial institution, or contact us and ask about a secure fraud assessment.