Is RDC Risk Overblown?

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29 April 2014
Bob Meara
In retrospect, sure. Looking forward, I’m not so convinced. I had the pleasure of attending WAUSAU Financial System's annual Customer Conference in Chicago last week. One of the sessions focused on surviving RDC audits. The prevailing consensus among banks in the session was: “RDC and ACH are very different animals. What are the regulators thinking? Why all the scrutiny on RDC?” Despite the regulatory scrutiny, remarkably few financial institutions have suffered loss uniquely attributed to RDC. In Celent’s October 2013 survey of US financial institutions, 95% of respondents indicated that losses associated with RDC were at or below established risk thresholds. But, history is not always a good predictor of what is to come. With the growth of mRDC popularity, it is incumbent upon banks to both be vigilant and to use the best tools available to manage what will certainly be increasing risks associated with RDC. After several years of relative tranquillity, fraudulent activity is on the rise. The changing state of things is apparent when we look at where losses have occurred. Once the near exclusive domain of commercial banking, RDC losses are quickly migrating to the retail bank – along with 20 million or so consumer users of mRDC. RDC Loss MixSource: Celent surveys of US financial institutions, Oct 2012 and Oct 2013, n>200 And the loss mechanisms are changing too. From 2012 to 2013, the percentage of losses associated with check kiting and fraudulent or altered items declined, while losses associated with duplicate presentments increased. The most vexing challenge is how to manage items deposited at more than one financial institution. This unintended consequence of Check 21 legislation presents a systemic risk with no particularly good fix at the moment. As banks seek more automated and flexible RDC risk management approaches, Celent sees a replacement market emerging. Vendors are increasingly competing based on the efficacy of RDC risk management capabilities along with the ability to be the bank’s enterprise distributed capture platform, managing all deposit channels, from RDC to branch, ATM and lockbox. This is where the action needs to be if RDC is to deliver its full potential.

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