FAST, CONVENIENT AND SECURE CHECK CASHING COMBINES BIOMETRIC AUTHENTICATION WITH ID AND CHECK ANALYSIS

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1 FAST, CONVENIENT AND SECURE CHECK CASHING COMBINES BIOMETRIC AUTHENTICATION WITH ID AND CHECK ANALYSIS Sophisticated application program combines biometric authentication A Business White Paper with ID and check analysis technologies to provide unmatched convenience and security in check cashing operations. April, 2003 Copyright Applied Computer Systems, Inc. All rights reserved. Patent-Pending. Secure, Convenient Check Cashing White Paper 1

2 Executive Summary Retailers and financial institutions face a great number of challenges maintaining profitable growth while managing risk. A significant issue, which continues to grow at an astonishing rate is check fraud. While there are many tools available to eliminate the acceptance of non-fraudulent bad checks (NSF, account closed), such as RCK, POP and truncation, to name a few, there are very few tools available to help our front-line clerk identify a fake ID or check. The fraudsters know it, and with little more than a PC and a printer, they are taking advantage, stealing profits, and contributing to increased prices at the counter. The Dilemma According to recent industry publications, 30 million consumers cash 180 million checks valued in excess of $55 billion at financial service establishments annually. Even with the proliferation of electronic commerce, the check is still one of the most popular methods for performing financial transactions. In fact, check use continues to grow at an annual rate of 10-15%. Unfortunately, check fraud continues to grow with it (estimated at 2-3% annually). In fact, check fraud is estimated to cost U.S. businesses including the retail and banking industry more than $21 Billion a year according to the Federal Reserve. These figures are difficult to confirm due to the fact that there are no official initiatives tracking it, and most establishments and law enforcement agencies only keep statistics on those crimes which are reported. Many crimes are never reported! The rapid development of computer technology, coupled with the reduced cost and increased availability, has truly opened the door for new types of crime. Computers, sophisticated check-printing software and check stock itself, can be purchased at most common computer and office supply houses. A computer/software configuration, costing less than $2,000, provides all the necessary equipment to reproduce corporate and payroll checks, traveler s checks, certified bank checks, money orders, as well as drivers licenses and social security cards. Today s common desktop technology has enabled criminals to forge, on average, 1.4 million fraudulent checks PER DAY, worth $9.9 Billion in Growth of fraudulent check cashing has been estimated at 5-15% annually. Identity Theft Retailers and banks are not the only victims. More and more often, individuals are finding themselves the victims of the same technology in the form of identity theft. With the same technology, identification cards can be altered or generated in minutes. The United States Secret Services estimates that in 2000, an estimated 500,000 to 700,000 people were victimized by identity theft. Figures are growing at rates estimated between 5 and 10%. The U.S. government s lack of enforcement of common standards for identification between states for does not help the situation. Secure, Convenient Check Cashing White Paper 2

3 Contributing to the problem There are several factors that contribute to this dilemma: Banks and retailers primary business objective is to grow profitably. They accomplish this by providing fast and convenient service to their customers. There is a fine line between a focus on customer service and a focus on preventing fraud. One fights the other. The customer wants security, but not at the price of inconvenience. Banks and retailers do not have the necessary tools to eliminate ID and check fraud. Not all check makers/payees utilize tools to help eliminate fraud. direct deposit and positive pay No national identification card standard exists. Drivers license standards, state to state, are inconsistent. Technology has given the advantage to the fraudster. An Ounce of Prevention... punishment for fraud and recovery of stolen funds are so rare, prevention is the only viable course of action. Frank W. Abagnale the subject of the recently released film Catch Me If You Can is one of the world's most respected authorities on the subjects of forgery, embezzlement and secure documents, lectures and consults public and private organizations on fraud prevention techniques and programs. The key to success in battling check fraud can only be found in prevention. By the time a case is developed, the thief pursued, apprehended, and prosecuted, your enterprise has already expended significant resources, costing hundred or thousands of dollars. Fraud is fought on four fronts, and each front has to carry it s own weight to keep a leg up on fraudsters. The following is a list of techniques employed that can help: Companies should be utilizing secure check stock with such features as watermark, holograms, and controlled paper, to name a few. Direct deposit and positive pay programs coordinated with the bank are critical. Banks work closely with corporate customers to ensure that direct deposit and positive pay are employed. Retailers diligence in reviewing customer credentials and presented checks. Maintain a negative database of past offenders to keep fraudsters from re-entering the system. Police foster communication between communities, retailers, banks and other jurisdictions to closely monitor fraudulent check cashing trends. Check cashing establishments need to stay one step ahead of the criminal. Check security features (I.e. watermark, hologram), Direct Deposit and Positive Pay programs are among a few of the best prevention techniques. If you are not utilizing these solutions, you are putting Secure, Convenient Check Cashing White Paper 3

4 yourself further at risk of becoming a target. Many choose to build an internal negative database where past offenders information (social security, drivers license number, name, etc.) are kept on file, and made available electronically, or over a dial up connection, preventing fraudsters from re-entering the system. Fraudsters evade this technique by supplying false identification. To date, the best tools available to the cashier/teller have been their ability to identify fraudulent documents with their hand and their eyes. Without the proper tools, it may be impossible to confirm a false ID. Couple this with the hectic business of keeping customers happy, during busy hours, and the fraudster clearly has the advantage. Biometrics, BarCodes and Magnetic Stripes Better technology is available to help fight fraud. To date, 45 of the 50 states have made 1D, 2D, magnetic stripe, biometric or combination of each on the drivers license. With the right tools, those IDs may be better analyzed for their integrity. The combination of these technologies with the proper readers can completely take the decision-making process out of the cashiers hands, and thereby increase the accuracy and speed of verifying IDs. Unfortunately, until today, the technology to read these IDs has not been made available in a package that is intuitive and easy to use. Biometrics offers an additional advantage in the fight against fraud. At birth, every individual is blessed with several unique identifications: DNA, iris, fingerprint, facial and more. Since the tragic events of September 11, biometrics have taken on new importance in maintaining security in our great nation.} It is difficult if not virtually impossible to reproduce an individual s biometric characteristics The Under banked A Significant Opportunity In every city, there are thousands of people that do not have bank accounts, or access to their bank accounts (I.e. transients, traveling workers, etc). This group is referred to as the under banked. They still have banking needs, but no banking home, and they represent a significant opportunity for any commercial operation willing to risk serving them. For the banker, servicing the under banked provides an opportunity to market, and potentially convert the under banked to the banked, with their financial institution. For the retailer, servicing the under banked provides the opportunity to increase revenues in the form of increased sales. Where the under banked can cash a check, is where the under banked will spend that cash on goods and services. The challenge, of course, is acquiring and keeping this customer while managing the risk of potential fraud. This customer group represents the highest risk, and the greatest opportunity for additional revenue. Unfortunately, to date, the only tools available to scrutinize the payroll check cashing clientele are the same negative file tools that are utilized by retailers to prevent general check fraud losses(i.e. NSF). This is also a dilemma. Secure, Convenient Check Cashing White Paper 4

5 The same person that has been banned from writing checks in an institution, is the same person standing at your counter with a real need to cash a payroll check. Payroll check cashing clientele and retailer customers purchasing goods with checks require a different solution to help mitigate fraud. Summary The toll that check fraud and identity theft has taken on corporate profitability and personal finances, as well as the economy as a whole, is measurable and vast. The toll taken on personal lives is immeasurable. With each year, increasing security measures, taken to deter criminals, negatively affect commercial institutions ability to maintain profitability and increase customer satisfaction. Increased security, inevitably, negatively affects customer satisfaction long lines, more questions, more proofs of identification. The unique needs of the under-banked, coupled with the significant revenue opportunity that they represent, requires a powerful, unique approach to check cashing service and security. Fortunately, for financial institutions and retail locations involved in cashing checks, there is a solution that provides a measurable increase in profitability and customer satisfaction, without sacrificing the integrity and security required to maintain control. Secure, Convenient Check Cashing White Paper 5

6 The Solution IdentiCheck Applied Computer Systems (ACS) has developed the IdentiCheck TM System that combines a sophisticated software application with state-of-the-art drivers license and check scanning technology along with biometric (fingerprint) scanning into a turnkey secure check cashing solution. A powerful deterrent for fraudsters, IdentiCheck provides a tool to increase the speed-to-counter for your preferred customers. With a drivers license scan, your good customers are authenticated within seconds, and checks cashed while fraudsters are rejected. Bank, retailers/supermarkets, and neighborhood financial service centers benefit from increased check cashing operations and reduced fraud. Functionality The IdentiCheck TM Solution walks operators through the check cashing process with minimal effort. The touchscreen-based operator interface provides an easy to read intuitive display summarizing your clients check cashing history, and image data. Through simple onetouch steps, the operator can update images, and notify regional business offices of potential fraud suspects. Customized to your company s image, IdentiCheck TM becomes an extension of your existing business operations providing an additional channel of revenue. Features include: Drivers license (bar code and magnetic stripe) and check (MICR) authentication Biometric (fingerprint) scanning Scan and view images of checks and drivers license Optical character recognition(ocr) authentication of drivers license and check data (future release) View check cash history Browser-based access to administration capabilities and customer profile Immediate download of suspect fraud risks to other area branches/stores One click fraud case development Secure, Convenient Check Cashing White Paper 6

7 IdentiCheck TM System Architecture The IdentiCheck TM System is available in three different configurations based upon the specific needs of an operation (see below): Stand Alone - single store/branch Small Business small multi-site operation; fewer than five (5) sites Enterprise large multi-site operation; more than five (5) operations with regional loss prevention center. IdentiCheck TM Inputs IdentiCheck TM operates as a stand-alone solution for your local stores/branches with the ability to network to your regional business offices/market area via secure dial-up or LAN. Multiple regional centers may be linked to provide a rapid notification network for fraud suspects. IdentiCheck TM Small Business System Architecture The IdentiCheck TM Small Business System operates as a multi-store (five or less) networked solution. Stores / branches are provided the ability to network to one another via a master/ slave configuration via LAN or secure remote modem connection. Regional Detection System functionality is provided with a browser-based interface. IdentiCheck TM Enterprise System Architecture The IdentiCheck TM Enterprise System operates as a multi-store/branch (more than 5) networked solution. Stores are provided the ability to network to your regional business offices/ fraud prevention department via LAN or secure remote modem connection. Multiple regional centers may be linked to provide a rapid notification network for fraud suspects. Secure, Convenient Check Cashing White Paper 7

8 The Registration Process New Customers 1 Step 1 A customer arrives at counter to cash payroll check. Customer places fingerprint on electronic fingerprint collection unit. Fingerprint is saved to customer profile. In the event that this is a fraudulent transaction, fingerprint is available for investigation purposes. 2 Step 2 Customer drivers license bar code is scanned. IdentiCheck scans existing customer profiles to verify that this is a NEW customer. Once verified that this is not an existing customer, a customer profile is created. 3 Step 3 Customer drivers license is scanned through the magnetic stripe reader. Check is scanned for MICR data collection and verification. 4 Step 4 Throughout the registration/check cashing process, five (5) digital images are taken of your customer. These images are saved in the customer profile for future authentication. 5 Step 5 Customer drivers license and check are scanned. Images of each are saved to the customer profile. Image data is made available for follow up analysis and possible investigation. 6 Step 6 If all data passes through the verification processes, the customer s check is tagged cashable. If this is a fraudulent transaction, the check is tagged fraudulent and NOT cashed. In this case, not only is the fraudster stopped, but all transaction data is available for local law enforcement Secure, Convenient Check Cashing White Paper 8

9 Existing Customer Approved Status 1a Step 1a Existing customer arrives at counter to cash payroll check. Customer places finger on biometric fingerprint authentication unit. 1b Step 1b Customer drivers license is scanned. IdentiCheck scans existing customer profiles to verify that this is an existing customer and displays profile. Timeframe : 2-3 seconds. 2 Step 2 Clerk reviews customer profile on display and confirms customer photos match. 3 Step 3 Checks are cashed quickly and securely resulting in a happy customer. Fast, reliable processes ensure an increase in happy customers per hour and increased revenues from check cashing operations. Secure, Convenient Check Cashing White Paper 9

10 Regional Detection System (RDS) Management Capabilities The Regional Detection System (RDS) provides real-time centralized reporting and management capabilities for Small Business or Enterprise networked customers. This tool can be run from a browser from anywhere on the network. The RDS provides all the required profile management and reporting utilities required to effectively manage your check cashing business. Management/Reporting Capabilities Query/report on all field entries Check cashing statistics Customer profile management Add, modify, delete customers Change profile status Fraudster profile management Change check cashing status Update stores/branches with fraudster information Reports on demand Print weekly/monthly/yearly summaries of check cashing operations including good checks cashed, returned checks, etc. One Click fraud reporting; one click develops a summary report on fraud incidents; including drivers license, facial images, check images and check history. The Regional Detection System Dash Board runs on a browser, can be accessed anywhere on the company intranet, and provides quick summary and store by store check cashing results. Secure, Convenient Check Cashing White Paper 10

11 Benefits The benefits of implementing IdentiCheck TM are compelling. Customers will appreciate the speed with which their transactions are processed when authenticated using a simple drivers license scan. Ease of processing will lead to increased customer loyalty. Once your customer s data is input, check cashing becomes quick and convenient. Fraudsters with fake IDs and checks will not pass this system. Most importantly, check cashing becomes secure... fraud is eliminated. Once IdentiCheck TM is implemented, fraudsters become your competitions headache. Since photographs and fingerprints are proven to be fraud s biggest deterrent, you can expect to eliminate fraudulent check cashing. Take advantage of IdentiCheck s unmatched security by opening your doors to payroll check cashing, and increase store sales. Benefits which guarantee to deliver a rapid return on investment include: Prevent fraudsters from cashing fake checks Cash checks faster; cash larger amounts Increased check cashing operation revenues Never cash a check from anyone that has cashed a bad check Improved customer satisfaction; increased customer loyalty Reward good customers through special incentive programs Safeguard customers from identity theft Improved fraud case tracking/reporting to local law enforcement agencies 1 National Check Fraud Center 2 Texas A&M University, Department of Statistics 2002 Applied Computer Systems. All rights reserved. Applied Computer Systems, Inc., ACS, and IdentiCheck are either trademarks or registered trademarks of ACS in the United States and/or other countries. All other trademarks or brand names are the properties of their respective holders. All features and specifications are subject to change without notice. 01/02 About Applied Computer Systems, Inc. Applied Computer Systems, Inc. (ACS), established in 1970, designs, manufactures, and markets fraud prevention solutions, and video and audio networking solutions to commercial, education, government and military institutions. Our reputation was built serving Fortune 500 companies, small and medium sized businesses, colleges, schools, military and government clients. Our mission is to provide practical, cost effective solutions to our customers that help improve customer service and increase profitability. Applied Computer Systems, Inc Johnstown-Utica Road Johnstown, OH Phone: Fax: URL: identicheck@acs-linksystems.com Secure, Convenient Check Cashing White Paper 11