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.
By Liz Froment
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.
Balancing Customer Experience and Fraud Prevention
Fidelity’s decision shows how quickly banks can tighten policies to reduce fraud risks. However, longer check hold periods and lower deposit limits can frustrate customers expecting fast, seamless banking. According to The Motley Fool Ascent’s 2024 Digital Banking Trends and Consumer Priorities survey, 91% of consumers view digital banking and security as top priorities, yet 76% are willing to switch banks if they find one that better meets their needs.
This highlights the pressure on banks to navigate a delicate balance: maintain security without compromising convenience.
David Donovan, EVP and head of financial services at Publicis Sapient emphasizes the trade-off between security and customer experience. "Longer hold times give banks more time to verify deposits, reducing the immediate risk of fraud, but they can frustrate customers who expect quick access to their funds," Donovan told The Financial Brand. "On the other hand, investing in advanced technology — like AI-driven fraud detection — allows banks to expedite deposits while maintaining strong security measures." However, he notes that while the upfront costs of adopting advanced technology can be a drawback, the long-term benefits offer risk mitigation and positive customer experiences.
The surge in digital fraud schemes, such as mobile remote deposit capture (mRDC) fraud, is pushing banks and financial institutions to make tough policy choices. "Institutions are taking a proactive stance, not just reacting to current fraud patterns, but anticipating more sophisticated schemes on the horizon," Donovan says.
Managing the Role of Marketing, Risk and CX Teams
With the growth of digital fraud, banks need to take a holistic approach, removing siloed data and teams and bringing together multiple stakeholders to shape deposit policies. French underscores the importance of collaboration between marketing, fraud risk, and customer experience (CX) teams. "Fraud risk executives must educate the other teams about fraud and the fraudsters (the who, what, and how)," he says. This can help ensure everyone across departments is aligned and working toward a customer-centric approach that balances security and experience.
Jeff Bucher, senior product strategy manager at Alkami, a digital banking solutions provider, also highlights that fraud education and awareness should extend to customers as part of marketing efforts. "From a marketing perspective, there needs to be continuous and meaningful education of financial institution clients around fraud, what to watch for and how to protect yourself as a consumer and as a business," Bucher told The Financial Brand.
Both Donovan and French highlighted the importance of collaboration and open communication across departments, citing a few best practices:
Collaboration is key: Marketing and CX teams need to be actively involved in the decision-making process for deposit policy changes, while fraud teams should be part of the discussions on new products or services before going live.
Share data: Access to the same data is critical. With marketing bringing customer insights and risk teams focusing on fraud patterns, aligning data allows for more cohesive strategies.
Customer prioritization: When deposit policies are crafted thoughtfully, with the customer in mind, financial institutions can position themselves as secure, compliant, and user-friendly, which can help create a competitive edge.
Hand-in-hand with collaboration is flexibility and customization in deposit best practices. "The best approach as a financial institution is to be flexible with your clients and do your best to customize holds and limits to the individual," says Bucher. "This is not always easy and takes resources to do, but there are tools out there that utilize versions of AI to automate holds and limits based on client-specific data."
Exploring Emerging Technologies to Reduce Risk
Stricter policies may help mitigate fraud risk but can come at the expense of unhappy customers and churn. Financial institutions are turning to technology and innovation to strike a better balance. AI, biometric verification, and predictive modeling are tools that can analyze vast amounts of data, helping banks more quickly detect anomalies and red flags without always needing to directly burden the customer through holds and limits on their accounts. According to the Association of Certified Fraud Examiners (ACFE) and SAS’s 2024 Anti-Fraud Technology Benchmarking Report, 83% of anti-fraud professionals plan on adding this technology to their toolkits in the next two years, with 51% of banks already implementing physical biometrics.
"Emerging technologies like AI and machine learning are game-changers in fraud detection, enabling banks to shorten check hold periods without increasing risk," Donovan says. "AI-driven analytics can detect anomalies in real-time, providing faster and more accurate fraud identification than traditional methods." He also notes that uses for emerging tech like blockchain can help provide secure transaction records and build customer trust through more efficient services.
Beyond detection, these technologies offer banks the opportunity to improve customer experiences (and safety) through personalization. Advanced data analytics and predictive modeling can let banks assess individual risk profiles rather than applying blanket policies. According to French, this technology can help financial institutions and banks implement personalized hold times based on a customer’s historical behavior, improving satisfaction without compromising fraud detection.
Ultimately, these advancements can give financial institutions an edge in reducing fraud risk while not just maintaining but potentially improving the customer experience.
Dig deeper:
- In the Battle Against Bank Fraud, The Very First Login is Critical
- Why is Bank Loyalty Dying? Listen to the Folks Around My Dinner Table
- NPS Under Fire: Inside 3 CX Giants’ Push for a Better Metric
Innovating to Stay Ahead of Fraud
The challenge for banks and financial institutions is to balance fraud detection, especially in the era of more sophisticated digital schemes and seamless customer experience. Technology can provide a bridge that connects both needs, though it will take upfront investments and more collaboration to ensure good messaging and compliance.
"By adopting these emerging technologies, banks can improve their risk posture while differentiating themselves in the market by offering customers faster access to their funds together with a high level of protection," says French. "These innovations can help banks build trust, improve customer satisfaction, and gain a competitive edge. Because, in the end, fraud never goes away — it just moves around."
Liz Froment is a financial services writer based in Boston. She specializes in banking, lending and wealth management with an interest in technology. Her work has appeared in Business Insider and The Motley Fool, among others.
