Deposit Check - Fraud Library

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Deposit check is used to validate the consumer by depositing an amount of money into their bank account and having them validate the amount of money that was deposited.

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Expensive, and creates lag time for new customers...

Deposit check is used to validate the consumer by depositing an amount of money into their bank account and having them validate the amount of money that was deposited.

How Good Is It? 

The deposit check was primarily used by PayPal for validating customers. As a general rule this is a good method to validate a person’s identity, but it does have limitations. As we all know true identity theft is a real issue, and in these cases fraudsters can set up bank accounts that look completely legitimate. Over 700,000 cases of identity theft were reported last year.

This check is not really good for traditional retail or businesses that are looking to have a one-time real-time purchase process. This is better suited to businesses that are establishing long-term arrangements with consumers in which the consumer will be coming back over and over for services, such as subscription services.

• Doesn’t catch true identity theft cases

• Costly to set up, merchants have to put money on the line for setting up accounts

• Timely, merchants introduce a longer time period to close an order because the consumer has to go back and validate the deposit. This can take up to month to validate a consumer.

Considerations When Implementing or Buying This Functionality    

•  Will the solution need to support credit cards and bank accounts?

• Does the solution need to be able to credit back the initial purchase amount in future sales?

• Some consumers want instant gratification; make sure the solution will meet the needs of the consumer base that the merchant services. Also make sure the consumer base feels enough loyalty and desire to use the service that they will still be around to complete this process.

• From a consumer perspective this is a very long and burdensome process.

Estimated Costs – High

Alternative Solutions – Consumer authentication, out-of-wallet checks

Vendors – None

How Does it Work?  

It’s a three-step process:

When a new consumer comes to do business, a merchant will need to set up a new account for them. The merchant will get their credit card information or bank account information, address and phone number. They will notify the consumer that they will be making a deposit, if banking, and a charge if credit cards. The charge, and/or deposit, will be between $0.01 and $5.00. The merchant tells the consumer that they will receive an e-mail when the deposit or charge has been made, and they will have to validate the deposit or charge by responding to the e-mail.

Consumers  can get this information by accessing their bank or credit card information online, by phone or when their statements come in.

The merchant will receive an e-mail from the consumer with the amount they received or were charged. The merchant then validates this amount against their records. If they match they set up the account and proceed on. If not, they either decline the business or do a second deposit check.

How Do I Use the Results? 

Whether a consumer passes or fails this test it is valuable information. Make sure you set up processes to maintain all credit card, bank account and demographic data to check future account set up attempts against them. This really helps with pre-screening transactions.

Building This In-House 

Remember that a merchant needs to have good systems in place to check for consumers that are failing multiple times. Also make sure to implement positive lists, hot lists and warm lists to prevent fraudsters from working the site to get in.

Make sure to re-run the process on any new credit cards or bank accounts that are added to the account. Fraudsters will set up with a valid card, and then use bad cards inside the account.

Consider allowing consumers to place orders, or use the service, while they are being validated. Just don’t allow fulfillment to take place, or for other valid orders to be superseded by these orders.

Put in velocity of use checks to see how many accounts are associated with a consumer’s data points such as, address, phone number, credit card number and bank account number.

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