Mobile RDC Continues to Garner Prepaid Industry’s Attention
Paybefore Update | November 2011 | Volume 5 Issue 17 | www.paybefore.com
Mobile remote deposit capture, or MDC—enabling consumers to deposit funds into their accounts by photographing checks with their smartphones—is causing a stir within the prepaid industry.
Several industry experts say MDC could be a game changer because of the convenience to prepaid cardholders, who can deposit a check anywhere, instead of having to go to a brick-and-mortar check cashing location—and MDC could be cheaper for them too.
“Mercator expects MDC will create a huge increase in innovation around prepaid products,” says Tim Sloane, director of Maynard, Mass.- based Mercator Advisory Group’s prepaid advisory service.
“Watching these business models evolve will be fascinating in that fees can be reduced if experience demonstrates reduced churn and higher load values or increased [number of] load transactions,” Sloane tells Paybefore.
Judith Rinearson, a partner at Bryan Cave LLP, considers MDC an important developmental step for prepaid because many GPR customers are underbanked or under- served.
“[MDC] helps morph one of the more time-consuming and clunky aspects of prepaid cards into the next generation, where the prepaid card becomes substantially easier to reload. It’s one of the more exciting things I’ve seen in prepaid. It can change people’s lives, as prepaid already is doing,” says Rinearson.
Opportunity Knocking
Drew Edwards, founder and CEO at Chexar Networks Inc., sees firsthand the attention MDC is generating.
“Nothing holds a candle to the interest the industry has taken in MDC,” Edwards says. Chexar is an Atlanta-based technology and solutions provider that enables clients to cash, deposit or load any U.S. dollar-denominated check with immediate funds availability.
The company announced in September an agreement with Minneapolis-based Cachet Financial Solutions and Atlanta-based FirstView LLC to offer MDC services to FirstView prepaid MasterCard cardholders with Android, BlackBerry or iPhone devices equipped with the Cachet mobile check-capture app.
Prior to the FirstView launch, expected by year-end, Edwards says another prepaid card provider that wishes to remain unnamed is scheduled to launch its MDC service in a couple of weeks. “And we have two other prepaid card providers under contract and all teed up for Q1 [2012],” he adds.
“With our technology and the prepaid card, we can complete that alternative bank account proposition. Right now, prepaid cards can do virtually everything a bank account does except for take check deposits for good funds conveniently.”
Edwards tells Paybefore that about 65 percent of all checks processed are approved and loaded in 3 seconds, and the remaining checks are visually reviewed with an average turnaround time of approximately 6 minutes. The average on MDC checks, in particu- lar, may be much shorter because they are typically less than $5,000 in value, he adds.
“We are empowering prepaid [issuers/program managers] with a good funds check-load product in which they control the price, instead of sending their customers out to the street to incur whatever a particular check casher decides to charge them to convert their check into good funds,” he says.
For nearly a decade, Chexar has been providing check cashing services to consumers through retailers, banks and alternative financial services providers.
“We have always managed risk remotely and centrally,” says Edwards. “The only thing that’s new in this process for us is the mobile aspect. And, the fact that the check is still in the consumer’s hands.” And there’s the rub.
With Opportunity Comes Risk
Check fraud has been around since the advent of checks, and nefarious people looking to make a quick, ill-gotten buck have been around even longer. It’s natural that this method of converting paper checks to funds on a prepaid card might make some queasy about potential criminal abuse.
Before an image of the check is sent, it could be forged or altered. Or, someone could try to reuse the same check by sending the image electroni- cally to multiple cards, then walking into a check-cashing store to double or triple his money, for example.
“It’s a potentially risky product with a business entity. And it could be a very risky product with a consumer you don’t have a long history with. If you don’t put appropriate controls in place, you can find yourself suffering significant losses,” says Terry Maher, partner at Omaha, Neb.-based Baird Holm LLP.
While prepaid program managers always need to be aware of risks and take prudent steps to protect them- selves, many technology companies are willing to take on that risk.
Chexar and other companies, such as New York-based FactorCheck LLC and FIS in Jacksonville, Fla., have risk-management software to vet the check images, and those companies, rather than the program manager or issuer, accept the risk on MDC transactions.
Edwards says Chexar’s vetting process includes tools to validate bank accounts, companies and consumers, among other information. In certain instances, Chexar has called the person who wrote the check to verify its legitimacy.
“The issuing bank also makes us hold a reserve and holds us accountable, which enables program managers to offer this service without being in the check cashing business and the risk business,” Edwards tells Paybefore.
Creating a National Database
In addition to Chexar’s standard risk-management procedures, the company is opening up its national duplicate check database. Edwards says his business relationships with remote deposit and mobile providers, banks, issuers, check cashers and others, puts Chexar in the unique position to see much of the check traffic and offer an API to enable others, including com- petitors, to access the database. Edwards says he also is calling upon his resources from his early days at the Federal Reserve Bank of Atlanta to collaborate on the solution.
“What we think the industry needs to do … is come together to a central database” as a way to more quickly identify duplicate checks, Edwards says. “It’s my hope all those guys will see the wisdom in pinging the same database to make sure we all haven’t looked at that same check. I’m not really trying to get rich off of that; I’m just trying to protect all of us from fraud.”
Despite the fraud potential, MDC has the possibility to provide prepaid industry players with an additional revenue stream, enhanced customer stickiness and a point of differentiation with their competition. Furthermore, it offers prepaid cardholders a convenient and possibly cheaper alternative for loading their GPR cards compared to cashing their checks and then loading cash onto the cards.
“Let’s face it, it would be easy for a bad person to misuse this, so the industry really does have to proceed with caution,” says Bryan Cave’s Rinearson. “But it would be a real shame not to be able to use this technology that would benefit so many people because of a few bad apples creating fraud or altering payment instruments.”
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