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Risk Management in Payments Processing.

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Presentation on theme: "Risk Management in Payments Processing."— Presentation transcript:

1 Risk Management in Payments Processing.
Cheque Fraud Solutions for Banking Banking & Mobile Money West Africa

2 Banking & Mobile Money West Africa
Topics Business Considerations Payments “Line of Business” Fraud Prevention Solutions UV Detection Fraud Buster Positive Pay Signature Verification Web Review Customer Information Verification Summary & Conclusion Payments is the “life blood” between a customer and a bank. Payments provide stable revenue for banks There is a reversal of priorities for payments business in the last year Cost pressures are stronger than ever Systemic risk as experienced at the onset of the global recession in “bulk payments” was horific So where do we invest as banks? Banking & Mobile Money West Africa

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

4 Banking & Mobile Money West Africa
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 Africa

5 Banking & Mobile Money West Africa
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 Africa

6 Tower Group: Global Payments Top 10 Technology Initiatives for 2011
“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.” Banking & Mobile Money West Africa

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 Africa

8 Payments Processing Line of Business (LOB)
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 Electronic data transferred to: 1. Regional Office 2. Branch Office 3. Head Office 4. Electronic Clearing House 5. Payee Bank & onward Once captured, proofed and archived physical items are destroyed 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
Core Banking System Teller PoD Input Proof-Set Data Bank Branch Outward Clearing Branch Image Capture Image Archive Processing Centre Transit Items KEY to Flows Image/Paper Data Archive Copies Inward Clearing Verification & Statements ECH CLC Data Files Transit Items Interbank Clearing & Settlement Other Bank Branch Other Bank Processing Site Central Bank Banking & Mobile Money West Africa

10 Risk Management: Transaction Volumes Value/Cost
SWIFT5% OTHER 10% High Value = High Cost RTGS 15% Cheques & EFT’s Debit/ Credit Card 70% Medium & Low Value = Affordable cost Banking & Mobile Money West Africa

11 Cheque Fraud – US survey
10/04/2017 Cheque Fraud – US survey Even as cheque volumes fall cheque fraud increases

12 Cheque Fraud Facts (AFP)
10/04/2017 Cheque Fraud Facts (AFP) 71% of organizations experienced attempted or actual payments fraud in 2010. 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 Africa

14 Typical Defences High quality cheque stock Signature Verification
10/04/2017 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 Banking & Mobile Money West Africa
“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 Africa

18 Banking & Mobile Money West Africa
APERTA UV LOGO DETECTION Banking & Mobile Money West Africa

19 Banking & Mobile Money West Africa
APERTA UV CHANGE DETECTION Banking & Mobile Money West Africa

20 Secure Corporate/ Government Payments
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 Positive Pay How Positive Pay Works Compare Amount Payee MICR Date

24 Reverse Positive Pay Reverse Positive Pay

25 “Active Positive Pay” Not the silver bullet but AFP 2010 Survey concludes...... “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.”

26 Encrypted Barcode print
3. “Active Fraud Buster” Encrypted Barcode print

27 Background Protected fields AFB+ AFB Date Payee name Amount MICR
10/04/2017 Background Protected fields Payee name Date Amount MICR 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:
10/04/2017 Two stage process: 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 Review - Verify reference image with deposited cheque image Visually Semi-automatically Fully automatic Technical checks from image Automate existing process

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

34 other “Active Solutions”
10/04/2017 other “Active Solutions” Non MICR code line on cheque Automatic detection during capture at teller or back office Whole code line or fields Duplicate item detection Detects if same cheque presented more than once for payment within last x days

35 “Active” Solutions for Fraud
10/04/2017 Commercial All Clients Types of Fraud Positive Pay AFB+ (Secure Barcode) Signature Verification AFB Duplicate Detection MICR UV 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 Banking & Mobile Money West Africa
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 Africa

38 Banking & Mobile Money West Africa
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. Banking & Mobile Money West Africa

39 Banking & Mobile Money West Africa
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. Banking & Mobile Money West Africa

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

41 Banking & Mobile Money West Africa
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 Africa

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