The CPA supports the introduction of new payment methods and technologies while carefully monitoring and managing related risks. In Part 1 of this series, we explained the importance of understanding the risk of duplicate payment items (duplicates) in the cheque imaging world. We also provided an overview of a recent CPA workshop designed to open industry dialogue on this issue. At that workshop, U.S. experts shared lessons learned about duplicates since the American transition to an imaging environment. What can we draw from the U.S. experience to help monitor and manage risk effectively while maximizing the benefits of imaging for Canadians?
The U.S. experience
In 2004, the U.S. implemented Check 21. Today, nearly 100% of cheques in the U.S. are cleared electronically.
Image technology has advanced significantly in the past decade, and many U.S. banks now offer Remote Deposit Capture (RDC) solutions and services. These allow customers to take pictures of cheques using a smartphone app or cheque scanner and submit the images to the bank electronically. This eliminates the need for the customer to make a trip to the branch or bank machine, saving both time and money.
Image-based clearing and RDC offer unsurpassed convenience and efficiency, but have also introduced new and different causes of duplication into the U.S. clearing system. Experts at the workshop shared that the number of duplicates being detected by duplicate detection software far exceeds what they'd anticipated prior to the rollout of RDC. They explained that today, some high volume banks are intercepting between 40 and 100 duplicates per million payment items. Factor in the effort and cost per item of resolving these issues and the burden begins to take shape.
Image-captured payment exchange and RDC are now possible in Canada, thanks to the CPA's Image Rule project. If we were to see similar proportions of duplicates in Canada once all of our cheques are cleared electronically, our numbers could grow to upwards of 80,000 duplicates per year.
Causes of duplicates in the U.S. imaging environment
Experts at the Electronic Cheque Clearing House Organization (ECCHO) have identified 3 main causes of duplicates in the U.S. imaging environment: internal bank duplication, fraud, and customer RDCduplication.
Internal bank duplication
When duplicates originate within the banking system. This could be due to internal system or printing issues, or employee error. For example, a bank employee could mistakenly process a large file containing many image transactions twice.
When fraudsters intentionally create duplicates. For example, a fraudster could deposit a cheque via RDCat multiple banks and try to collect the funds from each one. Or they might deposit a cheque via RDC at one bank and then take the paper cheque to a cheque cashing store.
Customer RDC duplication
When customers unintentionally create duplicates using RDC. For example, one spouse could deposit a cheque to a joint account via RDC, then the other, unaware of the RDC deposit, could physically deposit the paper cheque at the bank. Or an excited guest at a cocktail party could demonstrate (multiple times) how his RDC bank app allows him to deposit his cheque electronically. Although the incidence of mobileRDC duplicates is relatively low, the pain point of resolving these issues is high for both financial institutions and their customers.
Lessons learned and high level U.S. concerns
While understanding the causes of duplicates in the imaging environment is important, the U.S. experience has shown that it is perhaps even more important to detect duplicates as early as possible and quickly resolve the issue.
Current high-level concerns about duplicates in the U.S. environment include:
Enhancing duplicate prevention and detection: to minimize unintended impact to the customer and speed up resolution.
Establishing and maintaining robust rule frameworks: to effectively identify and manage risk.
Clarifying responsibilities: to establish which financial institution should bear the risk of loss in the case of a duplicate payment.
In the next article in this series, we'll examine the current Canadian framework for duplicates. Based on the U.S. experience, are there any elements of the Canadian framework which could be improved as image capture and payment exchange gain traction in Canada?