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RISK MANAGEMENT IN PAYMENTS PROCESSING. Cheque Fraud Solutions for Banking Banking & Mobile Money West Africa1.

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Presentation on theme: "RISK MANAGEMENT IN PAYMENTS PROCESSING. Cheque Fraud Solutions for Banking Banking & Mobile Money West Africa1."— Presentation transcript:

1 RISK MANAGEMENT IN PAYMENTS PROCESSING. Cheque Fraud Solutions for Banking Banking & Mobile Money West Africa1

2 Topics 1.Business Considerations 2.Payments “Line of Business” 4.Fraud Prevention Solutions UV Detection Fraud Buster Positive Pay Signature Verification Web Review Customer Information Verification 5.Summary & Conclusion Banking & Mobile Money West Africa2

3 Business Considerations Attracting New and Retaining Existing Customers Maintaining and Improving Competitive Positioning Managing, Limiting & Mitigating Risks (Security) Positioning to adopt, or adapt to, future changes (Agility) Reducing Cost-to-Income Ratio (Efficiency) Strategic Business Drivers in Banking Today (Effectiveness) EffectivenessEfficiency The big challenge for any bank is to achieve ‘Efficiency’ while retaining ‘Effectiveness’, ‘Security’ and ‘Agility’ – a balancing act! Banking & Mobile Money West Africa3

4 Customers make less and smaller value payments but… – want to pay the same way – want same or improved security on instrument – want to deal with one interface – want improved customer service – want higher visibility (look & feel) Banking & Mobile Money West Africa4

5 Banks, MFI’s, RSP’s… need cost effective solutions that can scale need to measure and control risk need for fraud prevention are faced with investment squeeze on projects must plan for new regulation that increase cost but offer no customer value Banking & Mobile Money West Africa5

6 Tower Group: Global Payments Top 10 Technology Initiatives for 2011 Banking & Mobile Money West Africa6 “Now regulation and a business case furthering the evolution of payments from a product to a line of business are driving changes. In this period of increased regulation, banks have the opportunity to grow their payments capabilities and improve operating efficiency as well as provide relief to parts of the bank that face reduced fee income or increased capital requirements.”

7 to CEO’s, COO’s and CIO’s Efficiency Improvement? Fraud Risk is elevated due to limited scrutiny levels within current system Processing Costs high due to manual paper content and not meeting current & proposed clearing regulations. Customer Service Levels are constrained by manual and paper- based records Value-Add Service Offerings also constrained by what is possible given your banks paper-based records Effectiveness Improvement? Compliance Risk – lack industry standard functionality & support for image processing technology & applications Competitive New Offerings –image based initiatives by other banks can erode your client-base Competitive Cost Reduction -lower service fees by the same banks will see your bank disadvantaged in local market Competitive Window of Advantage created by new regulations could pose a threat to your bank – one of erosion of income due to erosion of client-base Improving both Efficiency and Effectiveness makes for a compelling argument for Banks to act – and act soon! Banking & Mobile Money West Africa7

8 8 Customer makes deposit at Bank Branch Teller Captures Image of Cheque and Deposit Slip Transaction Teller, in real-time in back office or over Network using advanced software tools (ICR, CAR, LAR) and/or human operators Once captured, proofed and archived physical items are destroyed Electronic data transferred to: 1. Regional Office 2. Branch Office 3. Head Office 4. Electronic Clearing House 5. Payee Bank & onward All subsequent processes are performed using data and image using suitable workflow software and transaction based processes to feed legacy systems Banking & Mobile Money West Africa

9 Payments Processing System Flow Banking & Mobile Money West Africa ECH Bank Branch Other Bank Branch Other Bank Processing Site Core Banking System Processing Centre Teller Transit Items Inward Clearing Outward Clearing PoD Input Proof-Set Data CLC Data Files KEY to Flows Image/Paper Data Archive Copies Image Archive Central Bank Verification & Statements Interbank Clearing & Settlement Branch Image Capture

10 Banking & Mobile Money West Africa10 Risk Management: Transaction Volumes Value/Cost Cheques & EFT’s Debit/ Credit Card 70% RTGS 15% OTHER 10% SWIFT 5% Medium & Low Value = Affordable cost High Value = High Cost

11 Cheque Fraud – US survey Even as cheque volumes fall cheque fraud increases

12 Cheque Fraud Facts (AFP) 71% of organizations experienced attempted or actual payments fraud in Cheques were the payment format most frequently targeted for fraud, with 93% of attacked organizations reporting that their checks were involved. Among the most widely used techniques to commit payments fraud were counterfeit checks using the organization’s MICR line data (68 percent), alteration of payee names on checks issued by the organization (56 percent), and alteration of dollar amount on checks issued (35 percent).

13 Cheque Fraud Facts (AFP) Checks were the payment method subject to the greatest financial loss resulting from fraud in 2010 for surveyed organizations. Fourteen percent of organizations that were victims of at least one attempt of check fraud during 2010 suffered a financial loss resulting from the fraud. Checks are still the most widely used payment instrument for B2B payments. Banking & Mobile Money West Africa13

14 Typical Defences High quality cheque stock – Relies on teller and back office staff vigilance – Most methods are not image survivable Imaged inward items from other banks Signature Verification – Visual verification based on signature cards – Time consuming – only higher value cheques verified Bad account lists Analytics

15 Background Traditional protection is based on secure paper and ink technology i.e.; Watermark Prismatic Printing Chemically Reactive Paper/ink High-resolution Borders Micro printing All of the above are not “image survivable”

16 Cheque Fraud Solutions: 1. “Active UV” Leverage you LOB (truncation) infrastructure

17 “Active UV” Ultra-Violet light Invisible spectrum Image survivable feature Automatic detection at point of capture Protects fields of interest, if UV ink is present Deters Counterfeiting of checks, if invisible UV logo is printed Print and auto-read secure code/number with UV ink Existing workflow unaffected Banking & Mobile Money West Africa17

18 APERTA UV LOGO DETECTION Banking & Mobile Money West Africa18

19 APERTA UV CHANGE DETECTION Banking & Mobile Money West Africa19

20 2. “Active Positive Pay” Secure Corporate/ Government Payments

21 Overview Bank receives details of customers issued cheques When cheque presented for encashment details received are compared with cheque details Any differences detected Customer asked to make pay/no pay decision

22 Benefits Minimise risk and improve cash management Make pay /no pay decisions online in real time – Helps customer to return items on time Option to automatically accept/reject all suspect items – Alerts to suspect fraud Reduce potential for fraud loss Customer controls check disbursement activity Can be extended to EFT

23 How Positive Pay Works Compare Amount Payee MICR Date Positive Pay

24 Reverse Positive Pay Reverse Positive Pay

25 “Active Positive Pay” “The majority of the (check fraud) losses were due to; a failure to use some type of positive pay or “post no checks” service, failure to perform a timely review of positive pay or account reconciliation, or not returning a check in the legally mandated time frame.” Not the silver bullet but AFP 2010 Survey concludes......

26 3. “Active Fraud Buster” Encrypted Barcode print

27 Background Payee name Date Amount MICR Protected fields AFB+ AFB

28 AFB Process

29 AFB+ Process

30 Features Fully automated process High-density image survivable barcode Cost effective Fully controlled by the bank Process and encryption AFB - Protects all cheques AFB+ - Effectively provides positive pay on the cheque for high volume cheque customers Removes the need for issued item files Machine readable information

31 4. “Active Signature Verification”

32 Overview Two stage process: 1.Capture - reference signature images and data for each account Image signature cards Extract signature snippets from signature cards Extract signatures from validated/paid cheques Use existing CBS signatures 2.Review - Verify reference image with deposited cheque image Visually Semi-automatically Fully automatic Technical checks from image

33 Banking & Mobile Money West Africa33 5. “Active “

34 other “Active Solutions” 6.Non MICR code line on cheque Automatic detection during capture at teller or back office Whole code line or fields 7.Duplicate item detection Detects if same cheque presented more than once for payment within last x days

35 “Active” Solutions for Fraud CommercialAll Clients Types of Fraud Positive Pay AFB+ (Secure Barcode) Signature Verification AFB Duplicate Detection MICRUV Derog Lists Forged signatures √ Copied cheques √√√√√ Altered MICR √√√√√ Altered amount √√√ Altered payee √√√ Stolen cheque - blank √√√√ Forged endorsement √ Links with Analytics √√√ Positive Pay & Signature Verification resolves most cheque fraud issues as does AFB + & Signature Verification.

36 8. “Active Web Review” Pulling it all together Consolidated view of all exceptions including fraud Allows branches to verify original paper versions of suspect cheques Final pay/no pay decision Browser interface allowing easy branch access Filtering of items by branch, type of exception etc

37 Summary Manage Risk and become compliant; Leverage LOB truncation infrastructure – UV read Innovate with efficiency in mind – Positive Pay – Fraud Buster – Verification of signatures, KYC profiles and payments information at point of entry via Web Review Become Agile with Mobile! Banking & Mobile Money West Africa37

38 Banking & Mobile Money West Africa38 Conclusion The Aperta solution suite is highly configurable and can be focused to specific needs to help detect and prevent fraud, detect and warn of approaching processing boundaries and limits, to manage risk effectively, and prevent financial loss Reduce business risk by creating a secure and simple operating LOB environment which is automatically audited. Control financial limits and thresholds and provide associated alert mechanisms when they are approached.

39 Banking & Mobile Money West Africa39 Conclusion Provide a secure LOB operating environment with automated failover and business process continuity (disaster recovery). Improve automated reporting by providing comprehensive audit trails, consolidated and specific reports, and comprehensive management reports. Improve regulatory compliance, such as meeting Payment Card Industry (PCI) requirements. Prevent fraud using positive pay, signature verification, image-survivable features such as UV markings, secure barcodes, and other anti-fraud solutions.

40 AiDPS Overview 40Banking & Mobile Money West Africa Transaction Generation, Customer Verification & Fraud Prevention Payments Processing, Document Archiving & Management

41 Contact details: Marius Krige – – – Aperta Africa, PO Box 533, Ifafi, South Africa, 0260 Martin Wylupek – – – Aperta, 12 Mollins Court, Westfield Park, Cumbernauld, UK, G68 9HP Banking & Mobile Money West Africa41


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