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Tuesday, November 2, 2010

Point, Photoshop, Fraud

I saw an ad for the new Chase iPhone app that allows you to make deposits.

That's right, deposit a check into your bank account via a cell phone.

How it works seems to be quite simple from the ads and reviews that I have been reading.  Basically it involves snapping a picture of the front and back of the check with the phone's camera inside the app.  I imagine that there are various other security features that require you to log in, supply a password, and so forth.

I read a few reviews and there are apparently some deposit limits on this - $1,000 per check, $3,000 per week.

What I have not been able to find is anything about how this works with check fraud or with the varieties of miss use that youngsters looking to "borrow" some money from old mom and dad might come up with.

Let's think about check fraud first.  Years ago Forbes magazine did an article on how crooks were committing check fraud.  Part of the article discussed the basic uses of a tool like PhotoShop to create realistic looking checks.  To anyone with a graphic arts background this is not rocket science.  The only tricky part was using the right kind of MICR toner cartridge to print the routing and account numbers on the checks so that they would correctly process at the bank.

The more crafty aspect of this article was related to what routing and account numbers to use.  Basically they said something to the effect of "find accounts on checks where there is a lot of money and activity".  Examples were along the line of rebate checks (copying info from the one you get in the mail), utility accounts as vendors (they had some discussion of becoming a vendor to a large company), that sort of thing.  Not rocket science but basic, simple fraud.

The idea in the article was that you would create a fictitious business and business checking account, collect a ton of routing and account numbers, fabricate checks, make a months worth of deposits, withdraw the money, and head for the hills.  This was no small effort - creating accounts, acquiring software, printers, toner, and so forth - but for crooks it might be a way to make some quick cash.

This caused quite a stir at the time because it was seen as blatantly promoting fraud.  Forbes pointed out that it was a service so people would know what to look for to prevent fraud.

Which brings us to this app.  Now, the Forbes article I mention was from a number of years back.  But the ideas in it are as old as the hills.  Unfortunately, what I don't see with the Chase app is any way to mitigate fraud - not the kind perpetrated by Nigerians looking for someone to handle their $10 million dollar surplus accounts - but the kind perpetrated by little Johnny and his friends.

It would seem Chase (and not just Chase - other big banks have similar technologies) has taken all the hard work out of check fraud.

Most parents today have had at least on experience with little Johnny or little Suzy using "the Bank Card" in an unfortunate way.  Borrowing the card, taking out more money that you requested them to take out, that sort of thing.  What the money goes for, well, you'll have to ask them but let's just say the days of little Johnny pinching a 5-spot to run down to the quick mart and get cousin Joey to buy him a six pack are long gone.

The other issue here is little Johnny and little Suzy are handy with computers - both phone and laptops - as well as camera and PhotoShop style apps.

Based on this my prediction here is that this app from Chase is really a tool to collect overdraft fees.

If the phone is used only by responsible adults to deposit small checks - then I don't see a problem - but phones get left in the hands of troublemakers whether teens or Latvian gangs.

So let's put ourselves in shoes of little Johnny.

First of all, little Johnny probably already knows your pin number for your bank card as well as any phone passwords - perhaps even better than you.  An no doubt he has watched you use this app.  So, left to his own devices with his friends on a rainy afternoon with your forgotten I phone and this iPhone app its not hard to see how the idea of manufacturing checks to deposit might come into play.

Specifically what they might do I cannot say - but my guess it it will involve you being charged fees to fix it.

Now the whole reason for this app is for you to do the job of the bank teller - Chase does not have to pay the teller, you do all the work, they make all the money.  Here they will simply follow this as well as have the option for you to pay when you (or little Johnny) screws up.  Overdraft fees, fees for multiple deposits, fees to reimburse Johnny's friends parents when deposits are made using their checks.  Trust me, Chase will do well with this...

(Not to mention the fun that Latvian nationals will have when they discover your forgotten phone in the restaurant - cousin Vladimir can always use an extra $3,000 wired to his personal account.)

Four years ago I wrote this article about how big companies profit from things like drugs by "drafting" fees on top of expected account misuse.  This is no different.  Of course you won't turn in little Johnny because he's a minor and its embarrassing - for you, little Johnny, for your friends you might have to repay.

My guess is that enterprising twelve to fourteen year old kids could figure this out - not to mention professional criminals...

So be careful out there...

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