Paper Checks and Digital Fraud:
Why Are the Numbers so High?

Have you deposited a check through a mobile banking app? Have you thought it might be an opportunity for digital fraud?

If so, you are one of the 12 million and counting Americans who have used their smartphones to deposit a check. Businesses and consumers nationwide have been charmed by the convenience of using the technology in their pockets to make deposits. Gone are the days of trekking to the bank to deposit a check – now, mobile banking apps can make deposits using just pictures of the front and back of your check.

Unfortunately, this new technology is not just convenient for businesses and consumers. It is also incredibly convenient for fraudsters. Check fraud previously required obtaining a physical copy of someone else’s check by theft of counterfeiting. Now, fraud can be committed without a physical check in sight. To commit digital fraud, all a fraudster needs is a picture of a check. From there, they can electronically edit the payee name and amount. Then, they can deposit this doctored check directly into their own account through their banking app.

Furthermore, if a fraudster does acquire a physical copy of someone else’s check, mobile deposits make it even easier to get away with doctoring physical checks. While banking apps do have security measures in place to try to detect edited checks, apps will never be as effective at detecting fraud as human bank tellers. A teller would easily notice when the original payee’s name has been erased with white-out. An app would probably not catch the edit.

And it is not just intentional check fraud that is putting payers at risk of losing money. Rather, mobile banking apps have opened up another new category of check fraud that is often committed unintentionally.

When you deposit a check at a bank, the teller confiscates it. But when you deposit a check with a banking app, the physical check stays in your possession. Many banks even instruct depositors to hold onto the check for another 30 to 60 days to ensure that the transaction is successful.

This can make it difficult to remember if a check has already been deposited. “Double depositing” is when a payee deposits a check (at least) twice, whether accidentally or intentionally. It has become an unfortunately widespread problem.

Banks typically catch when a check is deposited multiple times through the same channel, like when a payee tries to deposit the same check multiple times through their banking app. But a payee can usually get away with depositing a check through their app, and then again in person at their bank. And there are no measures in place to prevent people from depositing the same check at completely different banks.

When a double deposit occurs, the depositor is credited with twice the amount written on the check and the payer loses twice the amount they had expected. It is then the payer’s responsibility to notice the mistake and contact their bank to correct it. Consumers and businesses typically have a 60 day or so time period in which they can flag such problems. If they fail to notice fraud within that time period, then they are on the hook to pay.

It is important to note that double deposits and other forms of mobile check deposit fraud do not just affect those who use mobile banking apps. Rather, everyone who writes checks is at risk. And as mobile deposits grow more common, the problem will only get worse. Mobile deposits are convenient, but they combine brand new technology with old-fashioned paper checks, a piece of technology developed in the 19th century. Paper checks and mobile apps are a fundamental mismatch, and fraudsters will continue to find ways to exploit this still-developing system.