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To date, much has been written on the direct and indirect benefits of Check 21.
Many bankers have even been led to believe that upon becoming image-enabled, a bank’s exposure to fraud losses will be greatly reduced or even eliminated.
While there are numerous positive aspects to this legislation, those who subscribe to this assumption could find themselves vulnerable to a host of fraudulent schemes.
For example, Check 21 can be expected to cut the time and cost involved in physically transporting paper items and to reduce float, especially in cases in which items were not already being delivered same-day or overnight.
But for a variety of reasons, imaged items may not be posted as quickly as they are received.
The day or more from the time an image is received until it is posted still represents a window of opportunity for the criminal element to exploit.
If history has shown us anything, it is that fraud will evolve as criminals regroup and exploit new weaknesses and vulnerabilities.
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All indications suggest that with a general decrease in float, fraudsters will attempt to perpetrate various schemes closer to the time of presentment.
These will likely include but will not be limited to account takeovers, a proliferation of counterfeit checks, and a migration to faceless transactions.
Partially enabled and non-image enabled institutions may be most at risk, as checks drawn on their accounts may be perceived as the path of least resistance to fraud.
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The big advantage is time. A criminal who had three or four days between the time a check was cashed in Los Angeles and presented in New York could find that window cut to one day.
Any process that reduces the time between an act of fraud and the point at which it is identified as fraud is an advantage.
Further, automated image-based methods have the potential to increase the number of checks that can be analyzed, and digital processes enable integration of fraud-detection activities within a bank and among banks.
Many in the industry believe that because check images are digital, they create new possibilities for detecting fraud.
However, other experts are far less optimistic, arguing that criminals have access to the same new technologies and benefit from the public standard-setting process that is necessary for widespread acceptance of any new security practice.
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Clearly, the migration to images will deprive bankers of fraud clues that come from feel, color and smell.
In addition, a December 2003 review of image-survivable security features by The Standard Register Co. and Abagnale & Associates concluded, “there are no known image-survivable security features that are fully effective.”
In response, financial institutions need to move beyond their current practice of reviewing physical checks and become more adept at visually inspecting images of those same items.
It is also recommended that they educate themselves on the various commercial products that are available to help preserve image survivable security features.
Finally, an additional opportunity exists to alert others that checks drawn on a particular account should contain an image survivable security feature.
This information could potentially be housed in a national shared database and used to notify both depository and paying banks of a discrepancy.
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Fraud filters will continue to play an essential role for risk management departments.
However it is those products and services with the ability to evolve and complement a processing environment that is continually transitioning from paper to image that will prove most effective.
To that end, Early Warning Services has already launched variants of it its most popular solutions.
These solutions effectively accelerate notification to the actual point of presentment for both face-to-face and faceless transactions.
By delivering factual and pertinent information and doing it more quickly, these services can help bank staff better perform critical business functions such as account validation, check verification, identity verification, compliance screening, and verification against known incidences of fraud.
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