The financial sector is waking up to the fact that by the end of October 2017, the cheque clearing process will be dramatically changed to allow for the exchanging of some cheque images and data, in lieu of the actual paper cheque. From that date, all banks will be required to clear some cheques on the image and data files alone, and no further paper cheques will be exchanged between banks in the clearing process beyond the end of 2018. With some 478 million cheques written in 2016 (C&CCCo figures) to a value of £600bn, equating to almost 2 million cheques per working day, cheques remain an important part of the payments landscape, critical for certain groups and situations.
The time taken to clear a cheque will be reduced from the current four to six day cycle, allowing transactions to be irrevocably completed next working day, a major benefit to the payee. The future of the cheque is secured and individuals and businesses can still write cheques, as they do now, enabling the use of cheques for as long as they want to do so.
To guarantee the new system, a robust IT solution is required at the central switch. Standardised platforms will be made available for those who wish to deposit images taking advantage of the reduced clearing cycle, with smartphone or desktop scanner, using Remote Deposit Capture (RDC).
The industry’s challenge is to develop automated tools to further protect banks and building societies against fraudulent activity. With a much time-reduced clearing process, the clearing system is exposed to an even shorter window in which fraudulent activity could occur. However, the same short time frame requires innovative and automated fraud prevention solutions to identify, trap and reject counterfeit or fraudulent altered items.
Perpetrated cheque fraud has been well controlled by the financial industry – albeit no fraud is an acceptable fraud – in the current cheque clearing environment, and Financial Fraud Action UK report a year on year reduction of cheque fraud of 28% to £13.7m in 2016 (Fraud the Facts 2017).
Interesting item validation and fraud prevention tools are emerging, both at the point of first deposit/scan – which may be at a bank or building society, a bureau, a drop box/lock box or indeed a corporate running Remote Deposit Capture (RDC) – and at the central switching infrastructure where proven profiling and account history analyses are being deployed.
Collecting banks and their agents can apply these new tools to their scanning application, and bring an alert to screen that flags a suspected invalid item. For example, alerts can highlight missing dates, invalid code lines, or a noncompliant document size. In addition, where the Ultra Violet (UV) image is being captured, some clever image analysis can identify a ‘smudge’ in the invisible UV pattern, and flag up a potentially fraudulent alteration that would otherwise go unnoticed, as the physical paper document no longer travels through the clearing process.
The industry agrees that there is still much work to be done, however, the project is well down the track, and from October 2017 Societies will see the early stages of a world class cheque clearing system, with fraud prevention rates which will remain the global benchmark.
A guest blog for Associate Knowledge by BSA Associate, The TALL Group of Companies.
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