Predictions about the demise of the paper check have been haunting the print circuit for decades. But here it is in 2010, and checks still represent the largest category of noncash payment instruments. Unfortunately, check fraud is the most dominant method of fraudulent payments and produces the greatest losses. Check fraud also continues to be one of America's least prosecuted financial crimes, posing a risk for all organizations, according to Robin Johnson, marketing and sales for Canoga Park, California-based SAFEChecks.
Payment fraud has even increased over the last year, perhaps due to the economy. Johnson cited information from the annual 2009 Payment Fraud and Control Survey conducted by the AFP (Association for Financial Professionals). She said, "The percentage of companies experiencing payment fraud attempts rose from 55 percent in 2005 to 71 percent in 2009. Check fraud accounted for 91 percent of those attempts, down slightly from 94 percent in 2005. Check fraud accounts for 60 percent of all the financial losses resulting from payment fraud. In fact, losses from check fraud were more than all forms of payment fraud combined."
Even worse, these numbers could be underestimating the problem at hand because not all companies release information on fraud, said Rick Gagnon, vice president of purchasing for Dover, New Hampshire-based Relyco. "Not all companies, but I believe some companies keep to themselves in cases of fraud as in they show vulnerability within their company and that virtually could affect their revenues," he said, "because some of it's visible and some of it's invisible, the real numbers [make it] kind of hard to see what's going on."
Johnson believes SAFEChecks' beginnings give the company a huge advantage when detecting check fraud. With a background as a banker, SAFEChecks has the "banker's mentality." In 1993, the company was merely a division of a southern California business bank battling an epidemic of check fraud. Greg Litster, SAFEChecks president, was then a senior vice president of the bank and was responsible for solving this crisis. Upon Litster's recommendation, the bank hired Frank Abagnale, best known for his history as a former conman, check forger, skilled impostor and escape artist, as a consultant.
Abagnale's suggestion? Use higher quality checks. However, at that time, Johnson recalled, only corporations ordering 50,000 checks or more could get high-security checks, and those checks only had two or three security features. Together, Litster and Abagnale created the SAFECheck, with eight security features.
"Litster organized the SAFEChecks division within the bank and required all the bank's customers to use these new checks, and [implemented] the internal fraud prevention controls recommended by Abagnale. Over the next three years, fraud losses and fraud attempts dropped by 95 percent," Johnson noted.
Litster eventually acquired the SAFEChecks division from the bank in 1997, and SAFEChecks, as a private company, remains strong.
Part of the reason it remains strong is the Abagnale SuperBusinessCheck contains three types of security inks: thermochromic ink (fades when warmed and reappears when cooled), UV ink (used for Abagnale's seal and "signature" on the back of the check), and SICPA ink (chemically reactive ink used to create the high-resolution border). The dark blue border of the SuperBusinessCheck dissolves when placed in acetone.
Though an ounce of prevention equals a pound of cure, Bob Diamond, president and marketing manager of Redmond, Washington-based The FTI Group, explained that most security features don't come into play until fraud issues arise. "Companies that use no or limited security place themselves in a very vulnerable position. The best, as well as the least expensive, is [the] use of heat-sensitive inks. We recently patented a new step-and-repeat heat-sensitive ink that offers a new security feature," he mentioned.
Diamond continued, it's not always about selling the feature, but selling the benefit. He encouraged users to focus on the benefits. "Selling security is selling sizzle," he said.
Gagnon didn't want to elaborate too much on what types of security features Relyco offers, but he did insist that its check stock offers above and beyond the minimum due diligence required in standard business practice.
In addition to microprinting and security inks, Gagnon said, "We have certain information that we require from customers and when they can't supply that information to us, we look at this as something we potentially are not going to ship. Also, when we ship our secure products, we use identifications that ensure the integrity of a product where it's not very [certain] as to what's in the carton."
Diamond mentioned Positive Pay is something most banks offer for high security. "A user sends the bank a magnetic or Excel file listing check number, date and amount. The bank matches these to all checks received," he explained. "If there is any difference, then the bank notifies the user to verify that it is a good check."
Johnson added that some banks have recently added payee name detection to their programs, known as Payee Positive Pay. "Criminals are now finding new ways to get around Payee Positive Pay, by adding a fraudulent payee name above the X/Y coordinates used to detect the payee name," she said.
It may sound expensive, but think of the money saved with a high-security check versus attorneys' fees. Johnson asserted, "The actual cost of the check itself is only a tiny portion of the overall costs of the entire check disbursement process. The overall disbursement costs are somewhere between $1.00 and $1.50 per check. The difference in price per check between a 'vanilla' check and a high-security check is literally pennies. So, the question becomes, 'Do I want to spend $1.50 and use a vanilla check, or spend $1.55 or $1.56 and use the SuperBusinessCheck?' That extra nickel or so will protect a check worth hundreds or even thousands of dollars. It will also protect a $100 check from being turned into a $100,000 check."
It is difficult for a bank or an institution to authenticate a check because most checks are processed automatically, or are converted into images before they are ever seen by anyone at the bank, Johnson said. Both she and Gagnon agreed that tellers and cashiers are the few people who do see checks that are processed at the counter and should be provided with extra education on detecting fraudulent checks.
The Positive
Check fraud isn't the only thing happening in the business. For instance, all kinds of testing is being done with check imaging, observed Relyco president Mike Steinberg. There's even some technology that he has yet to see, but there are other areas where Relyco is concentrating much of its time.
In addition to being a member of the ASC X9.B Committee, which oversees the standardization of image interchange, electronic check exchange, X9 and paper-based, inter-financial institution payments and payment documents such as checks and money orders, Relyco is the exclusive provider of Samsung-powered MICR secure check printing solutions. Some of the new Relyco MICR printing solutions powered by Samsung include the RS-ML-2855ND-MICR printer (a compact, standard duplex economical solution for small business and home office users), the RS-ML-4050ND-MICR (a compact, high-performance solution with standard duplex ideally suited for a small business/workgroup users), and the RS-SCX-5635FN-MICR and RS-SCX-5835FN-MICR (high-speed, multifunction high-performance solutions for departmental size users who require large monthly duty cycles).
Meanwhile, The FTI Group imprints MICR laser checks and has a web-to-print portal that can be branded with the distributor's name.
Finally, SAFEChecks partners with a company that creates secure check writing software. "The most recent security advancement is a state-of-the-art encrypted barcode technology that is laser-printed on the face of a check," Johnson said. "The barcode, which is unique to each check, contains all the critical information found on the check, including payee name, dollar amount, check number, routing and account number, and issue date. It also can record information such as who printed the check, at what time and on which printer."
She went on to say this barcode data can be "read" at the point of deposit and compared with the printed information on the check. If the information on the check does not match what is read in the barcode, the check can be rejected. This technology is image-survivable, meaning it can still be read after being imaged.
Through high-security features and high-quality equipment, distributors can discourage loss. Said Johnson, "Every loss begins with an attempt. If you can discourage the attempt with a high-security check—like building a bigger fence around your house—you have automatically eliminated the loss."
- Companies:
- SAFEChecks
- Places:
- California
- Canoga Park