Smartphones are now the way people do even basic things like depositing checks. Yes, remote deposit applications are becoming more common and offered by more financial institutions every day. With the passage of the Check Clearing for the 21st Century Act (AKA: “Check 21″), financial institutions are quickly moving toward a world of digital checking. Thanks to the Act, a digital image of a check is now a legally binding document, just like the check itself. This change is what opened the door to direct deposit from your pocket.
Here’s how remote deposit works.
Someone writes you a personal check. You take a picture of both sides of the check with your smartphone using your financial institution’s app. The app then transmits the images to your financial institution, which deposits the check into your account.
Everyone who works with checks can stand to benefit from remote deposits. Small businesses can take personal checks without a waiting period, enabling them to take more forms of payment from more people. Busy workers can deposit paychecks without having to race the clock to make it to their institution before closing time. Consumers can quickly and securely transfer funds to their savings.
Institutions that offer remote deposits also benefit from the efficiencies gained. Paper checks have to be scanned and processed by hand, which takes lots of labor hours. Remote deposit takes considerably less time, allowing financial institutions to keep costs lower and pass on savings.
The one downside for consumers is the absence of float. Typically, check processing takes a day or so. So, writing a paper check might give a consumer a little time to get the money together and put it in the bank. Because remote deposit works much faster, the “floating” period, the time between when a check is written and when it’s deducted from the account, is much shorter. “Floating” a check like this is illegal and can cost a fortune in fees, fines, and penalties. It’s bad practice even when it is possible.
Unfounded security concerns.
While the remote deposit application does make it possible to deposit the same check twice, unique check identifiers make this process very easy to detect. One Kentucky man attempted to operate such a con with Western Union money orders and managed to defraud Kroger grocery stores of $12,000 before he was caught days later. The money was returned and the perpetrator went to jail. Realistically, the same concerns exist with photocopied paper checks, a problem that barely registers in the minds of most security experts. In fact, data clearinghouse EasCorp estimates that many more of these “double-deposit” incidents are simple accidents rather than complex frauds.
Conversely, a remote deposit may be a way to stop an under-reported style of check fraud known as check kiting. In a kiting scam, a criminal writes a check with insufficient funds from one account and then writes another check from a different account, also one with insufficient funds, to cover the first check. Because paper checks typically take a day or two to process, these “floating” checks are never returned for insufficient funds and the scammer gets away with the balance of the first check. Thanks to the nearly instantaneous return of mobile deposit checks, this kind of fraud is much more difficult, if not impossible.
No worries about data theft or other hacking.
Cell phone data encryption is the same as encryption for any other Internet service. There’s nothing unique about cell phone data that makes it easier to steal.
Taking reasonable precautions with remotely deposited checks will make life considerably easier. If you take advantage of a remote deposit, keep the check for a brief period after your transaction. This holding period ensures a usable image for every institution in the chain and that there are no processing issues. Once that period passes, clearly mark the check as-deposited and shred it. This could be quite a bit of paperwork if you’re a small business owner who takes a lot of checks. But if you just want to use it for your paycheck, it shouldn’t be too hard to keep up.
Remote deposit isn’t just the future of mobile banking, it’s already here. And it’s an exciting time for it. It will make a lot of your transactions easier, faster, and safer than ever before.
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