walker, david print.ppt - chicago - fed
TRANSCRIPT
Image Exchange2008 Payments Conference08 yPayments Fraud: Perception vs.Reality 6
, 20
Federal Reserve Bank of ChicagoJune
D id W lkDavid [email protected]
I d t T dIndustry TrendsChecks &
Image Exchange
Avg # of Images Rec / Day42 y
363942
ns
42.1
/day
42.1 million Images/Day
303336
llion Annualized =
10.6 billion Images/Yr
212427
n M
il = 45% of all transit checks
151821
ms
in
69
12
# Ite
m
036#
3 Source: Federal Reserve, PaymentsNation, SVPCO and local / regional exchanges
# of Image Based Trans.1 200 7
1 0001,1001,200
ns ing
1,17
7
Grew 89%
800900
1,000
illio
n
arch
Tot
alGrew 89%from
3/07 & 3/08
600700800
n M
i
ays
in M
a3/07 & 3/08
400500600
ms
i
21 d
a
Transactions Originated as Images for Collection
200300400
# Ite
m as Images for CollectionTotals 60% of Transit Items
0100
#
Substitute Checks
4 Source: Federal Reserve, PaymentsNation, SVPCO and local / regional exchanges
# of Receiving Institutions
12 00013,00014,000
R/T
s
ng R
/TsRepresents
9,784 Receiving
10,00011,00012,000
ng R
5 R
ecei
vin9,784 Receiving
Institutions
7 0008,0009,000
eivi
n
13,3
45
Or Approximately60% of all U.S.
5,0006,0007,000
Rec
e 60% of all U.S. Institutions
2 0003,0004,000,
# of
01,0002,000#
5 Source: Federal Reserve, PaymentsNation, SVPCO and local / regional exchanges
Transaction $ Amounts
8
$1 200
$1,400
ng $
1,45
8
$1,000
$1,200
ns rch
tota
lin
March ’08A li d $17 5 T illi
$800
$ ,
illio
n
ys in
MarAnnualized = $17.5 Trillion
$600
in B 21
day
$200
$400$
$0
$200
6 Source: Federal Reserve, PaymentsNation, SVPCO and local / regional exchanges
Total Check Values$41.7
$42.0
6$41.1$41.5
3 2006 Check
payment $41.0
2003 2
ons system is
more $39.8
$40 0
$40.5 2
Trill
io valuable in 2006 than in
$39.5
$40.0
000T 2000!
$39.0
20
7$38.5
Data Source: Federal Reserve Payments Studies for 2004 and 2007
Average Check Valueck
$1,366$1,400 6
Che
c
$950$1,104
$1,200
$1,400
3 2006 Average
check
vg C $950
$1,00000 20
03 2 check payment is
more
er A
v
$600
$800
200 2 more
valuable in 2006 than in
$ pe
$400
$600 2006 than in 2000!
$
$200
$
8$0
Data Source: Federal Reserve Payments Studies for 2004 and 2007
Fraud RiskImage Exchange
Check Image Fraud• Traditional Authorization Issues and
Fraud Sources ContinueFraud Sources Continue
– Typically, these involve parties outside of theTypically, these involve parties outside of the banking collection and return processes
– Those same parties continue to participate in the process at the same process points; for example
• If a fraudulent signature is placed on a check or if the amount is changed, it will appear on the g , ppimage as deposited with the bank
10
• If a kite is initiated via paper checks and those checks are imaged, the kiting continues
Check Image Fraud• Traditional Authorization Issues and
Fraud Sources ContinueFraud Sources Continue
Th f d t ll d i th t diti l– These frauds are controlled in the traditional ways by the paying bank and its customer
• For check images and for substitute checks
11
Complicating Factors• New, More Complicated Environment
– Possible confusion by financial institutions, their customers and vendors
• Was the payment authorized?
Was the truncation authorized?• Was the truncation authorized?
• What is it legally? A check or a non-check?
• Is it properly payable?
• Which payment is the duplicate?
• What is the return deadline?
12 • What do you return and to whom?
Complicating Factors• If It Looks Like a Check, Is It a Check?
– Electronically initiated payments that are formatted to look like checksto look like checks
N d t k h t ti th i– Need to know how customers are creating their electronic deposits
– Need to have agreements in place to allocate appropriate liabilities between all the partiesappropriate liabilities between all the parties
• No law to cover check image exchange
13
No law to cover check image exchange
Complicating Factors• If It Looks Like a Check, Is It a Check?
Moo, Moo
14
Complicating Factors• Duplicate Images & Substitute Checks
– Need enhanced controls to:
• Prevent the creation/acceptance of duplicates
• Testing for duplicatesA t t– Across payments systems
– Across multiple days
– Without a more efficient adjustment system it takes too long to unwind interbank accounting
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too long to unwind interbank-accounting
Complicating Factors• Non-Conforming Images (NCIs)
– Intended to protect paying institutions from receiving poor quality imagesreceiving poor quality images
Current image quality assessment (IQA)– Current image quality assessment (IQA) applications are inadequate
• High percentage of NCIs would not impact posting (if presented) verification of signature, customer service, etc.
• Primary impacts are delays in collection of the items and increases in the cost of the collection
16
Complicating Factors• Non-Conforming Substitute Checks
– Mostly conforms except for technical deviations???
• A Shakespearian dilemma: – To post or not to post?
???
• Another Dilemma:
– To keep or not to keep?p p
• Risk of subsequent entry into the payment
17
stream creating duplicates
Loss of Controls• Loss of Traditional Controls
– Look and feel of the original paper
– Special security features
18
New Controls• Speed of Collection and Return
– On-demand electronic payments are faster than on-demand paper payments
– Later exchange windows for electronics
• More Sophisticated Prevention, Detection and Resolution of Duplicatesp
• More Sophistication in Pay / No PayMore Sophistication in Pay / No Pay Decisions
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– New analysis, new detections
New Controls• Enhanced Adjustment Processes
– To shorten windows of opportunities for would be fraudstersfraudsters
• Image S r i able Sec rit Feat res• Image Survivable Security Features
– Replaces some of the paper-based features
20
New Controls• Duplicate Detection & Prevention
– Looking for dups at new places in the process; e.g. BOFD and at the paying bankBOFD and at the paying bank
Comparisons must be across multiple days and– Comparisons must be across multiple days and multiple payment channels
• Complication
– There are some legitimate duplicates
21
Cl i C tClosing Comments
Closing Comments• Check Payment System is Growing in
Value and Therefore in Importancep
• Check Image & Substitute Check FraudCheck Image & Substitute Check Fraud– Same as for paper
• New Processes and Changes in Party Participation Create New ComplicationsParticipation Create New Complications– Creates opportunities that could be exploited
• New and Different Controls are Emerging
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– Should reduce the opportunity for losses generally– And reduce opportunity for fraud