Shared Employee Database Aims to Stop Hiring Mistakes
An industry initiative designed to keep financial institutions from hiring one another's fraud-perpetrating employees was unveiled yesterday to a largely receptive audience at BAI's 11th Annual Combatting Payments & Check Fraud Conference in Las Vegas.
In the Q&A following the presentation and in conversation afterward, however, conference attendees wondered whether their organizations' legal counsel would approve participation in a BITS Shared Internal Fraud Database that seeks to screen new hires on the basis of information provided by previous employers. Many cited employee privacy protections as a hurdle that could inhibit the initiative.
A database of shared information would be expected to save an employer from being vulnerable to a job applicant who had previously defrauded another financial institution. Although employers currently have access to criminal records, many employee-related frauds go unprosecuted by financial institutions, enabling dishonest employees of all levels to leave one institution and seek work at a next. This approach is being pursued, in part, because existing screening programs have become less effective.
The initiative is being organized by a BITS working group composed of large banks (including JP Morgan Chase, Wells Fargo, Citigroup and Fifth Third) that consulted with representatives from HR and legal departments of their institutions.
"I hope your legal work will satisfy our legal," commented one audience member.
Consumers are reluctant to turn off paper media for fear of giving up what they perceive as permanent, convenient and safe records.»more
"We've got to get our banks to feel comfortable with it [the database]," acknowledged presenter Jan Otwell, Vice President, Delivery Controls, at Chase. She added that "topdown" educational materials would precede an effort to implement.
The working group conducted a three-month pilot using historical hiring data. According to BITS Project Manager Heather Wyson, the pilot found that there was value in collecting bank-to-bank data and it uncovered patterns of employees being released from one institution and hired at another. Building the third-party database was a job awarded via RFP process in August to Primary Payments Systems.
The project timetable calls for operating rules to be finalized this year, beta testing in the second quarter of 2006 and the database to be in production by mid-2006.
From the audience, longtime fraud-fighter and chairman of the BITS Fraud Reduction Steering Committee, Shirley Inscoe of Wachovia Corporation, encouraged small banks to participate. With their leadership in creating such a database, she said, big banks are sending a message that they "are not going to tolerate [internal frauds] ... If the big banks start screening new hires, where do you suppose they're going to go? They're going to go to small banks." Wyson and Otwell later said that the pricing, which was not disclosed, was designed to be affordable for smaller banks.
A shared database may be a solution to an industrywide problem exacerbated by merger and acquisition activity, according to Otwell. She later told the story of a crook who had defrauded three consecutive banks without prosecution and took the proceeds to open a liquor store. "Every time I think of that, I think how did that happen and what can we do to keep that from happening?".
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PAPER STATEMENTS: EXPENSIVE AND LESS SECURE
Printing and mailing paper statements can cost banks between 55 cents to 75 cents per month per customer, according to a recent report from Javelin Strategy & Research. Online statements, of course, cost nearly nothing. But as motivated as financial institutions are to wean their customers off the pricey paper and despite more than a decade's worth of explosive growth in online banking, relatively few customers have budged.
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E-MAIL ENCRYPTION: OVERKILL OR NO? How secure can e-mail be made, and how secure does it need to be? Not everyone agrees.
Bank Web sites do use secure socket layer (SSL) encryption, which protects e-mail passing through servers. But much of the e-mail sent by banks to customers and vendors is not encrypted, leaving those messages vulnerable to would-be fraudsters. »more
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A CHECK 21 SPOT CHECK Our spot check of the impact of Check 21 (we couldn't let Friday's one-year anniversary of the implementation date pass without a mention) touches on remote capture, substitute checks, new purposes for ATMs, returns processing gains, suppliers and contaminated checks.
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RANDOM NOTES Banks have known for a while that retail online banking customers are typically more profitable, but recent research suggests that this is true of small business customers, as well. Looking at companies with $100,000 to $10 million in annual sales, Barlow Research concludes that online banking customers are more likely to purchase additional products from their primary bank and interact with that bank through multiple channels. However, they are also more likely to experience an error. »more
