Pub. 2 2011 Issue 1

www.wvbankers.org 16 Understanding and Addressing Risk of Merchant Capture By Chris Joseph, CPA, CISA W hile working on various bank clients and attendance at vari- ous seminars, we have noted that more and more financial institutions are offering Remote Capture Services at their business/commercial customer locations (Merchant Capture) as a service to their customers. Merchant Capture can provide several benefits to your bank including increased efficien- cies in processing deposits, decreased costs and if planned properly, increased security in some areas (especially as advances in technology continue to improve in areas such as signature verification, etc.). However, there are also additional risks that are intro- duced and they need to be considered as the bank implements and monitors the ongoing operations of its Merchant Capture solution. Electronic Delivery . Before getting into these risks, let’s take a moment to define remote capture services. Remote capture provides a bank the ability to receive digital information from deposit documents captured at remote locations. These locations could be from various sources including: • Branch locations of the bank • ATMs • Correspondents – domestic and foreign • Customers – commercial and retail The effect of the transaction is similar to what deposit transactions have been in the past. However, the delivery system is different in that the transactions are delivered electronically from remote locations, even from customers. There- fore, remote deposit capture should be viewed not as just a new service, but as a new delivery system of “deposit taking.” Opportunities and Risks. The introduc- tion of “remote” in the deposit capture process brings new opportunities to financial institutions. However, it also introduces new areas of risk that need to be considered. The “traditional” deposit taking systems that have been in place for years occurred predominantly at the bank. The transactions occurred at the teller line and then were processed at the bank’s back office area. The main em- phasis in this environment was that the process was typically under the control of the bank. More specifically, within the control of specific bank employees and departments that were trained in the area and segregated from other opera- tions of the bank. With remote deposit capture, deposit transactions are oc- curring at other locations such as other locations of the bank (i.e. branches, tellers) as well as at customers where the bank has little control over how they function. With the introduction of cus- tomers performing deposit transaction functions, an element of direct control was removed from the bank. Regulatory Guidance. In January 2009, regulatory guidance was released regard- ing the use of remote deposit capture. The guidance addressed the necessary elements of remote deposit capture risk management process which included: • Risk identification • Assessment • Mitigation • Measurement and monitoring of residual risk exposure Removed from the thought process was that, if the customer was utilizing the Merchant Capture service, a bank did Q Merchant Capture — continued on page 17