Check Fraud-Fighting Adapts

Check imaging has long been touted as an antidote to fraud because it reduces check float, which scammers can exploit. In addition, the availability of images of questionable checks can start an investigation earlier. But banks are recognizing some downsides of imaging, namely the elimination of many physical security features on which they have come to rely. Imaging will eliminate not only fingerprints, but also features like special coloring, raised printing or even smells that processing staff have used to detect fraud.

Banks are now working with vendors to develop a wide range of new tools to compensate for the lack of physical characteristics in imaged documents. San Francisco-based Wells Fargo & Co., for example, has introduced a payee validation service at the teller line. Traditionally, this function has been performed by specialists in the backroom, who validated payees by examining special printing on the backs of checks.

"With image, that's a lot more difficult to follow," says Keith Theisen, senior vice president of electronic payment products.

Wells Fargo's new service lets corporate customers include the names of payees in their issued-check files. Then, when someone comes to a teller window to cash a business check, the system matches the name on the check with the one in the file to ensure it has not been altered.

One new vendor technique encrypts check information, such as the payee and amount, onto a bar code printed directly on the check. Receiving banks validate the check by decrypting the bar code. A similar technology uses shadings of horizontal and vertical lines known as signature seals, rather than bar codes, to encrypt information. Another approach taps into a database containing information about an account, such as the signature of the account holder and the exact coordinates of preprinted items on the check. Artificial intelligence then compares a check's signature and preprinted stock against the information stored in the database.

Charlotte-based Bank of America Corp. has either adopted or is piloting many of these new techniques. Dick Clausen, senior vice president, liability risk management, says he expects benefits from the new methods to be fully realized in 2006 or 2007, when a critical mass of imaged checks is flowing through the system. But at least some benefits should accrue immediately. "With computer power, we'll be able to look at more checks than in the physical world," he says. Plus, evaluations of signatures will be automated, which should be an improvement over the more subjective judgments of human examiners, Clausen says.