CashEdge Inc. says it would not have been comfortable offering its new service that lets individuals send each other payments through online banking sites if it had not made parallel advances in fraud detection.
Technology the company has offered since 2001 lets individuals move money between their retail accounts at different financial companies, but not to each other. The New York company said that technology is set up that way largely because of security concerns, not technology limitations — it assumes the risk for some of the clients' transactions.
Now CashEdge executives say that as the company has gathered more transaction data, it has become easier to determine which transfers fit the patterns of normal use and which are likely fraud, and that improvement has made possible its person-to-person service.
Last week CashEdge announced that it would begin allowing transfers to third parties and transfers between retail and small-business accounts. Next year, by allowing people to send money using just an e-mail address or phone number, it will do away with the requirement that senders know the recipient's account number.
These new services are offered through the Intelligent Money Movement platform, which can help banks "become the hub of money movement needs of consumers and put them back in the saddle rather than be disintermediated" by alternative payment providers, Sanjeev Dheer, CashEdge's president and chief executive, said in an interview last week.
The P-to-P transfers could become a substitute for the paper checks that are created and mailed through many banks' pay-anyone bill pay services, though it is not designed to replace online payments to more established billers, Mr. Dheer said.
CashEdge envisions its new transfer capabilities becoming an integral part of clients' bill payment services, making it possible for consumers to make electronic payments to each other as easily as they can to their phone company.
Another goal of Intelligent Money Movement is to streamline consumers' options for paying one another, Mr. Dheer said. Today a consumer who wants to move money online must first decide upon a method — automated clearing house, wire, third-party payment provider, and others — but CashEdge's platform will make that decision for the consumer.
"Consumers are faced with all these confusing choices of payments," he said. "It's dictated by payment instruments," not the actual needs of the consumers, such as how fast the payment needs to arrive, he said.
To make sure Intelligent Money Movement can adequately solve this problem, CashEdge is working to add more payment options on a regular basis. Mr. Dheer said it will add options every six months.
Amir Sunderji, CashEdge's chief risk officer and a senior vice president, said that the transaction and fraud data his company has gathered on client transactions plays "a substantial role" in its ability to offer transfers to third parties, "especially when you have an organized syndicate of rings who may attempt to use information repeatedly across the client base."
CashEdge combines invisible methods, such as identifying a user by hardware and location, with more visible methods such as challenge questions.
For a fee, it will take on the risk for transfers between a single user's accounts. It does not plan to take on the liability for P-to-P transfers, he said, but it will monitor those transactions for fraud.
Wachovia Corp. uses CashEdge's transfer applications. In February of this year it also began using knowledge-based authentication technology from EMC Corp.'s Verid after spotting fraud on money transfers initiated online.
Nancy Parzych, Wachovia's vice president of e-commerce and online payment services, said in a presentation at a CashEdge client conference in New York last week that before it decides whether to offer CashEdge's new transfer services, Wachovia would have to evaluate the risk implications of each new capability.
The Verid technology that Wachovia is using creates challenge questions from a customer's public records and credit history, rather than using pre-selected questions and answers. "If you're doing it right, and you are presenting multiple challenges to the same person, you're probably right on target," Ms. Parzych said.
Avivah Litan, a vice president and research director at the Stamford, Conn., market research company Gartner Inc., said new money movement services should be adopted only after the security concerns are addressed.
CashEdge's new options are "tremendously convenient," but "I shudder at the security implications," she said. "I think a bank should be very cautious. … With near-real-time fraud detection, I imagine they could get the risk down to manageable levels."
Bankers should consider going beyond knowledge-based authentication for riskier transactions, as it has proven less secure against fraudsters who know their victims and may have an easy time guessing the answers; it is also vulnerable to man-in-the-middle attacks, Ms. Litan said.
"Crooks have beaten knowledge-based authentication when they're determined," she said.
