Can digital check deposit survive in the face of rising fraud?
Fidelity's recent move to reduce mobile deposit limits amid a rise in check fraud highlights a growing challenge for banks: balancing fraud prevention with customer experience. Emerging technology like AI may provide the bridge addressing both issues.
In response to widespread check fraud, Fidelity’s recent decision to cut mobile deposit limits from $100,000 to $1,000 while adding a 16-business day hold on some accounts has put a spotlight on a growing challenge for banks and financial institutions. In September 2024, Fidelity flagged a surge in fraudulent activity, with scammers targeting its cash management accounts by leveraging social media to recruit customers and withdraw funds before deposits could be verified.
“Many recent cases of a ‘glitch’ are straight-up check fraud by the first party (i.e., the customer),” Thomas French, senior financial industry consultant, fraud, at SAS, a data and AI solutions provider, told The Financial Brand. “In effect, the customer deposits a check from themselves. Knowing the account will not have sufficient funds to cover the check, they withdraw the funds before the item is cleared. This is first-party fraud and abuse.”
While Fidelity managed to stem the fraudulent deposits, the move raised larger questions. How can financial institutions balance fraud prevention while maintaining the customer experience their clients expect? According to Recorded Future’s 2024 Check Fraud Report, check fraud is up by 90% from 2021 to 2023, with an estimated $21 billion in suspicious activity. This challenge is forcing financial institutions to rethink their digital deposit policies — or risk losing customer trust.
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