From the retail point of sale to core banking systems, online security issues have dominated financial headlines in 2014. But amidst the reports of one data breach after another, check fraud has remained a constant thorn in the industry’s side, with 82% of U.S. retailers reporting being targeted, and banks suffering an estimated $650 million in losses from deposit account fraud, according to separate reports by AFP and the American Bankers’ Association.
One tool that banks around the world have begun using to fight fraud is ultraviolet scanning – a new twist on the pen lights and UV lamps that have been used to validate other important documents for decades. The Banking.com staff recently connected with Alex Trombetta, Vice President of Digital Check‘s international division, to discuss a recent study they released on ultraviolet check security and technology.
Last year, you released the study, “Ultraviolet Check Security: Understanding a New Era of Automated Fraud Prevention.” Can you give a brief overview of the current state of UV validation technology?
Ultraviolet printing has been used on checks for quite some time, but it’s only in the past couple of years that we’ve been able to scan it by machine – mainly because UV cameras have finally become small enough and inexpensive enough to place inside a check scanner. So that has opened up a whole new range of security techniques that weren’t possible with visual inspection: UV barcodes, numerical algorithms in UV, special position markers. There’s been some real enthusiasm as banks rush to see what they can do with all these new types of features.
On the other hand, you need standardization for UV scanning to be effective. That applies both to what is printed on the checks and to the quality of the printing. That’s what’s being worked out right now in a lot of countries that are adopting it. Over the next year or two, as banks and regulators gain more experience with UV, I think we’ll see a tremendous reduction in check fraud in countries that get it right.
Why is ultraviolet technology more secure than other technologies?
It can protect against both alterations and forgeries at the same time because of the different techniques we can use with machine reading. For example, 62 percent of the fraud attempts reported in the AFP study were attempts to alter the MICR line, which contains the account number. But if an invisible UV pattern is printed over the MICR, any attempt to erase it is going to produce a smudge that will be detected at once. We’ve actually seen countries that have started using UV on the MICR line, and within a few months, most of the fraud attempts had moved to other parts of the document.
UV is also obviously going to be harder to work with if you’re a forger– of course because the ink itself is invisible, but also because things like getting the wavelengths and intensity correct are difficult. Even for professional printers, it takes some getting used to.
We’ve also found that having sophisticated fraud detection right at the teller window makes an especially effective deterrent. If the bank is able to inspect 100% of checks as they come in, and you have to fool the machine right there in front of employees and security guards, it’s really quite intimidating.
What chief industry problems does UV validation solve?
The biggest difference is that validating by machine raises the number of checks that can be screened for fraud to effectively 100%. UV checks were around before UV scanners, but banks could only inspect a small percentage of them thoroughly when it was a manual process.
Another nice effect is that with the machine able to flag suspicious activity, you’re no longer relying on an employee who, in many cases, would be an ordinary teller with only very rudimentary training in spotting fraudulent documents.
Do you think the UV technology will be more popular in certain regions of the world?
It’s clearly picking up quickly in areas where fraud has historically been prevalent – Africa, parts of Asia and Latin America, for example. Ultraviolet checks were also already in circulation in some countries, which obviously makes automation a lot simpler. India and Jordan are among the countries at the forefront of UV scanner deployment for this reason, and when the UK switches to image-based check clearing around 2016, we expect UV to be a part of it as well.
Why isn’t UV used in the United States? Will it be someday?
We’ve noticed that UV tends to be a popular option in countries that are just beginning to convert their entire banking systems from manual processes. When you’re starting a whole check truncation system from scratch, it makes sense to go with the most modern technology available.
Unfortunately, in the U.S., we built our current check clearing system about a decade before ultraviolet scanning was available. So we’d need to replace every paper check in everyone’s checkbook, as well as perhaps a million scanners that are out there in the field. As a scanner manufacturer, we’d love that, but just about no one else would. The message is that it’s simple to build in UV as part of your new system, but it’s not easy to go back and make changes later.
What is the biggest barrier to adoption of UV scanning?
It’s definitely the standardization issue. If banks are printing different features on their UV checks and not coordinating with each other, a machine isn’t going to know what it’s supposed to be looking for.
Poor-quality UV printing has also proven to be a much bigger problem than we anticipated, particularly in developing countries. If the legitimate checks are full of mistakes, it’s impossible to tell what is real and what is a forgery – and now you’ve got thousands of these checks out there in circulation, causing false positives. If there’s one message we’d like to get out to banks in those countries, it’s that it’s worth paying for a high-quality document – the cost is not that much different from the discount printers in any case.
What would say is the biggest misconception about bank check security?
That the magnetic MICR printing at the bottom of a check is a means of fraud prevention. This may have been the case when it was first introduced in the 1950s and 1960s, and had to be printed on special equipment. But today, anyone can buy magnetic ink for home printers and download the fonts from the Internet very easily, so the MICR line is simple for fraudsters to reproduce.
It’s also become increasingly common to see legitimate checks containing weak magnetic ink or no magnetic ink at all – mostly checks from cheap online sources, or from businesses that print their own. So the MICR line is still useful as a reliable way to extract key account information, but its days as a security feature are long past.
What type of technologies are you using to ensure the most secure experience for your customers and members? Let us know by tweeting at @Bankingdotcom, posting in the comments below or contacting us here.