The third white paper written by the TALL Group of Companies
FRAUD: A CHANGING LANDSCAPE
In terms of recent history, cheque fraud losses peaked in 2008 and during the following 10 years they reduced by more than 85%, far in excess of the decline in cheque volumes over the same period. However, the latest statistics published earlier this year have revealed that cheque fraud losses have increased throughout 2018.
According to “UK Finance Fraud the Facts 2019”*, cheque fraud losses increased to £20.6 million last year – the first rise in cheque fraud reported in seven years. The volume of fraudulent cheques increased by only 16%, indicating that a small number of high-value fraudulent transactions led to the rise in losses last year, rather than any change to the longer-term trend.
A total of £218.2 million of cheque fraud was prevented in 2018, up by 3% on 2017. This is equivalent to £9.14 in every £10 of attempted cheque fraud being stopped before a loss occurs. This remains the highest proportion of attempted fraud prevented across all types of payment fraud.
There are three main types of cheque fraud:
- Counterfeit – a cheque that has been created on non-bank paper to look genuine. It relates to a genuine account, but has actually been created and written by a fraudster for the purposes of committing fraud.
- Forgery – a genuine cheque, however the signature is not that of the account holder. The fraudster has forged the signature by signing the cheque themselves.
- Fraudulently altered – a genuine cheque made out by the genuine customer but it has been altered by a fraudster before it has been paid in (e.g. by altering the recipient’s name on the cheque or the amount. It is no longer a genuine cheque).
Of the total £20.6 million lost to cheque fraud in 2018 (up 109% on 2017), counterfeit cheques accounted for £15.9 million, forged items resulted in a £3.4 million loss, and fraudulently altered accounted for £1.2m.
As expected, fundamental change to the clearing system – the introduction of ICS in October 2017 – has inevitably attracted more attempts of fraud, as criminals pro-actively look for any weak links in the new Image Clearing System (ICS).
THE IMPLEMENTATION OF ICS
Whilst cheque volumes continue to decline in the UK – at around 15% per annum – the payment method still plays an important role for many sectors, organisations and individuals alike, with more than one million issued every day.
As detailed in our first white paper of 2019, “Fighting Cheque Fraud in the 21st Century: Cheque Fraud Detection in the New Clearing Model”, the UK banking industry has been delivering the digitisation of the paper cheque and the roll-out of the Cheque Imaging Clearing System (ICS) has recently been completed. All cheques now benefit by reduced clearing times to the next working day following the cheque being banked on Day 1. New methods for paying cheques into your bank account are being introduced, such as capture on your smartphone and remote deposit for businesses using desktop cheque scanners. Subsequently, there is a faster clearing period with value credited and certainty of fate known by the end of Day 2, whilst you are now no longer required to visit your bank or pay in at your local Post Office. The cheque has finally come into the 21st century technology revolution.
Commenting in October 2017, at the launch of ICS, Martin Ruda, Group Managing Director at the TALL Group of Companies, said: “The digitisation of cheques has proven to be very effective across numerous countries for many years, and the long-awaited introduction of ICS is a significant event as the UK follows suit. With an emphasis on speed and convenience, we encourage banks and building societies to fully embrace the modernisation of the cheque clearing process, which will lead to increased efficiencies for the financial organisations as well as their valued customers.”
Fraud liability model and secondary legislation
Currently, in the event of losses, direct participants are bound by the ICS Rules for compensation in cases of fraud with the paying bank typically compensating the customer for the loss albeit the payee’s bank, or the collecting bank (if different to the payee’s bank) can compensate the customer depending upon the circumstances surrounding the loss.
Last year, the government introduced secondary legislation to provide a safety net in respect of compensation for losses suffered by users of cheques to ensure the innocent customer, particularly the payer of the cheque, should not be left out of pocket.
Where a cheque is lost or stolen from a payer and collected by a fraudster, the banker who has provided the facilities for the image to be captured from the original cheque, normally the payee bank, is deemed the responsible banker, and is liable to make full compensation to the payer or paying bank, irrespective of fault. Compensation is excluded in those cases where the payer has been grossly negligent or been knowingly involved in fraudulent activity.
This ‘re-balancing’ of the fraud liability model is recognized as a fair and reasonable step to mitigate risk and is a further change to ensure all parties to the cheque image clearing process contribute to its integrity and reliability.
DEVELOPMENTS IN TECHNOLOGY
Innovative anti-fraudulent solutions
The introduction of ICS has given the wider industry the opportunity to innovate and develop new and highly sophisticated Image Survivable Features (ISFs) to help combat fraudsters, many of which were discussed in-depth within our second white paper, “Cheque Image Clearing System: An Innovative Approach To Defeating Cheque Fraud”. These solutions have been designed to protect financial organisations and their customers from any attempted fraudulent activity as they adapt to the new processes that form part of the new clearing model.
The introduction of scanner-based features at the point of collection, including the use of ultraviolet (UV) image capture and alteration detection, and the application of Image Quality Assessment (IQA) routines, can flag items that are not imaging correctly, or which may have fraudulent history (wrong size, shape, information). This will prevent the collecting bank from submitting fraudulent and non-standard items into the central clearing system.
This is being supplemented by the use and gradual adoption by the paying banks and their customers of the new and enhanced ISFs – which include UCN and UCN Plus® to very specifically trap counterfeit, tampered and fraudulently altered items.
Encouragingly, these solutions are also having a positive effect on the level of fraud being detected. For instance, modern technology has now evolved to identify alterations, counterfeits and forgery, in addition to the traditional security features on the cheque, which has reduced the reliance on human eye-balling. Whilst ISFs have become increasingly important to confirm the cheque payment details, these sophisticated solutions are also responsible for the rise in reported cases, as they are quickly and efficiently highlighting many fraudulent items that may have gone undetected through the previous paper-based clearing model.
COLLABORATION IS KEY
In order to fight fraud in the most proficient manner, it is vital for all participants involved in the transaction process (collecting bank, the payee bank and the paying bank) have to accept they have a duty of care to check for poor image quality and to identify fraud. Similarly, indirect participants (agencies) also have that obligation where they assume any of the roles within the transaction.
With the introduction of ICS, the collection participant is now the only one that has sight of and can feel the paper and check the paper security features, and it is most important that this task is fulfilled in the most effective manner.
The image, once captured, must be clearly readable thereby enabling the paying participant to undertake their own specific checks. If that particular organisation is unable to read the image clearly, then the paying participant will not pay the cheque, resulting in the item being represented. This will lead to all parties having to undertake additional work, frustrating delays to the beneficiary in receiving the funds, as well as negatively impacting the reputation of ICS.
With the completion of cheque imaging in the UK, the transfer of the paper document from one bank to another has now become a thing of the past, and now the UK cheque industry looks to its technology service providers for innovation, quality assurance and protection from fraud. Early evidence suggests it will not be disappointed.
SONY BANK SECURES AND ENHANCES MOBILE BANKING WITH ONESPAN’S MOBILE SECURITY SUITE
App shielding, biometric authentication and additional technologies secure and improve the customer experience for Sony Bank’s mobile banking app
OneSpan™ (NASDAQ: OSPN), the global leader in securing remote banking transactions, today announced that Sony Bank is protecting its mobile banking transactions with OneSpan’s Mobile Security Suite. OneSpan helps the bank secure and improve the customer experience by detecting and preventing mobile threats in the background, while integrating convenient features like facial recognition and fingerprint biometrics.
Mobile banking adoption continues to increase and the frequency of mobile attacks like malware and trojans continue to rise. Sony Bank was able to address both customer experience and security by launching its banking app and securing it using OneSpan’s suite of mobile SDKs. Mobile Security Suite integrates application security, biometric authentication and Application Shielding, which detects and mitigates fraudulent activities and helps ensure the integrity and protection of apps and data.
“Addressing security and customer convenience was key for us, and with OneSpan’s solutions we are able to achieve both,” said Sony Bank Senior Manager of the Systems Planning Department, Shuichiro Sumimoto. “The technology comprehensively protects the device and the application, while providing an easy way for our customers to complete mobile transactions.”
“OneSpan’s Trusted Identity solutions enable banks to simultaneously fight an ever-increasing number of threats while ensuring a seamless and easy customer experience,” said OneSpan CEO, Scott Clements. “With Gartner predicting that by 2022, at least 50% of successful attacks against mobile apps could have been prevented using in-app protection,[i] Sony Bank is taking the right steps to future-proof its business.”
While mobile threats are on the rise, so too are regulations designed to make banking more secure and transparent. In particular, the global move toward Open Banking has triggered regional regulations such as the Amended Banking Act of 2017 or the Second Payment Services Directive (PSD2) in Europe. Using OneSpan’s technology, Sony Bank can address today’s PSD2 requirements with the aim of using the technology to address potential future regulations.
KOREA’S KB BANK USES TRUSTONIC IN-APP PROTECTION TO ENHANCE MOBILE BANKING EXPERIENCE
Using Trustonic Application Protection enables KB Bank to dramatically improve the authentication experience for users of its mobile banking app and allow secure high value transactions
Mobile cybersecurity leader, Trustonic, today announces the successful implementation by KB Kookmin Bank (KB Bank) of Trustonic Application Protection (TAP™) to enable a simpler authentication experience for users of its KB Star Banking app. By combining TAP with its new digital authentication certificates, the bank is dramatically simplifying customers’ access to banking services and enabling them to authenticate higher value transfers in-app, without the need for cumbersome user authentication practices like security tokens.
The largest Korean bank by number of mobile users, KB Bank provides online and mobile banking services to over 10 million customers. Trustonic’s mobile application protection is enabling the bank to provide faster, simpler and more secure digital banking services by isolating authentication certificates in the hardware security of today’s smartphones. Since launching in summer 2019, the app has acquired 3 million active users, and adoption among KB Bank customers continues to grow rapidly.
Mr. Han, Senior Executive Vice President, Kookmin Bank commented: “In Korea, users need to install authentication certificates to use mobile banking services. This can be a complex and time-consuming process that often requires revalidation and multiple passwords. With our long-standing partner Trustonic, we are able to vastly improve the in-app user experience and allow our users to authorize much higher value transactions. Some security solutions make you choose between security, user experience and performance but with TAP there’s no compromise.”
Enhancing user experience & enabling high-value transactions with advanced security
Historically, public certificates need to be regularly renewed by the app user, which can be frustrating and time consuming. Now, because the new KB Mobile Certificates have the advanced in-app protection provided by TAP, they do not need to be renewed unless revoked by the customer or unused for one year. This significantly simplifies and enhances the user experience.
High-value in-app payments are now possible because of this advanced protection. KB Bank customers can transfer up to 2 million won (approx. $1,700 US) using their account password, and up to 50 million won (approx. $41,000 US) with a password and six-digit PIN. Amounts between 50 million won and 500 million won (approx. $413,000 US) can be verified by entering their password and PIN before receiving an additional authentication code via an automated phone call.
Improving in-app functionality through trust
The TAP in-app protection platform protects mobile applications by securing sensitive code, data and processes in a highly protected environment. The environment dynamically upgrades over the course of an app’s lifecycle to take advantage of the most advanced hardware and software security technologies available on smartphones. Banking, payment, acceptance and fintech app developers benefit as they can use the TAP SDK to build secure next-generation experiences.
Dion Price, CEO of Trustonic, says: “Korea’s certificate-based authentication infrastructure has historically limited the user experience for mobile banking apps. By making its banking app more seamless and secure with Trustonic’s unique combination of hardware and software in-app protection, KB Bank has vastly improved the user experience. This is a perfect example of how advanced security can enrich apps for end users, which is why TAP is being adopted to protect financial services across payments, banking, fintech and mPOS.”
For more information about how TAP is enhancing both security and user experiences, visit the Trustonic website.
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