California's Imperial Bank, after implementing aggressive check fraud detection measures, reduced its fraud losses by 77% in 1994, officials said.
The Los Angeles-based bank, the principal subsidiary of $2.6 billion- asset Imperial Bancorp, put in place two security measures that account for the majority of the savings, officials said.
One, called SafeChecks, is a secure check series that incorporates a number of safeguards to deter counterfeiting. The other, called "positive pay," compares the customer's record of issued checks with the actual items presented for payment, which results in the bank's honoring only the authorized checks.
Imperial was prompted to institute the security measures because of a significant increase in check fraud attempts over the last several years.
In 1992, over half a million dollars in fraudulent items came into the bank, said Greg Litster, senior vice president. "We didn't catch any of it," he said.
Fraud attempts increased significantly in 1993, amounting to over $3 million. The bank caught most of it, said Mr. Litster, but "too much got through."
With the implementation of positive pay and SafeChecks, check fraud decreased dramatically in 1994. The combination of the two security measures "makes it virtually impossible to take a hit on an account," said Mr. Litster.
Imperial has found that the majority of check fraud attempts are done with desktop publishing equipment.
To combat the problem, Imperial offers commercial customers SafeChecks, which incorporate a combination of safety features that foil attempts to produce counterfeits.
For example, the word "void" appears when checks are photocopied or scanned. The checks also use special paper that reacts when ink eradicators are applied to a check, a method used to change payee and dollar amounts.
Another feature is "microprinting," tiny words that, at first glance, appear to be a solid line. The words can, however, be read with magnification.
The checks, manufactured by Dayton, Ohio-based Standard Register, are available in standard formats and in a variety of colors at a cost comparable to generic checks.
Approximately 30% of Imperial's customers use SafeChecks. Of those, only one has had a fraud attempt. The check was detected and returned.
The goal is to have the checks used by 80% of the bank's customer base, said Mr. Litster.
The bank also promotes positive pay, providing it to customers free of charge.
"Savings as a result of positive pay were immediate and significant," said William L. Capps, Imperial Bank executive vice president and chief administrative officer. "In some cases, we've thwarted fraud attempts that could have cost the bank tens of thousands of dollars."
One Imperial Bank customer using positive pay had four checks stolen which were later presented for payment. Because those documents were not recorded in the customer's check register and could not be verified, they were not honored, saving the customer and the bank more than $1 million.
