Hoping to take a bite out of check crime. Chemical Banking Corp. has begun selling a cash management service to detect forgeries of corporate checks.
Called FraudGuard, the service is being pitched as easier to use than another forgery detection service, called positive pay, that Chemical and most other large banks have offered for years.
"This effectively performs a function similar to positive pay," said Vincent Caranante, a Chemical vice president and FraudGuard product manager. "But this is for clients that can't accommodate positive pay."
Growing Problem Seen
While hard numbers are hard to come by, bankers and cash managers say that check forgery is a growing problem.
One reason is that the growing sophistication of color copiers and image processing systems for personal computers are making it easier for con artists to make authentic-looking copies of checks, with altered payee names and dollar amounts.
Chemical has hundreds of forged checks presented against corporate accounts every year, Mr. Caranante said. He added that the total has tripled over the past five years.
Positive pay is designed to help banks detect forged checks before making payment on them by opening up an electronic communication channel between banks and their corporate customers.
Companies send computer transmissions each day to their banks listing the serial numbers of the checks they have cut, and the dollar amounts. Banks flag for investigation any check presented against the companies' accounts that doesn't match the information on the list.
Chemical makes positive pay services available, for a fee, to all of its corporate customers that have opened controlled disbursement accounts.
But of the 6,000 controlled disbursement accounts the bank has, only 1,000 have positive pay, Mr. Caranante said.
He said he believed that the use of positive pay is limited because many companies find it difficult to compile a listing of each check they cut to transmit to the bank.
FraudGuard is designed to be attractive to these companies, since they will not have to transmit a list of checks to use the service.
Instead, the companies will use software from Chemical that plugs the check serial number and dollar amount into a secret algorithm that uses this information to come up with a number to be printed next to the account number on the bottom of the check.
When the check is presented for deposit at Chemical, the bank's computers run the check data through the same algorithm, to see if the bank comes up with the same number.
If the number doesn't match, then the check is flagged for investigation, to see if the dollar amount or check serial number have been altered.
"This is equivalently secure to positive pay." Mr. Caranante said.
May Be Unique
He added that Chemical will charge fees for FraudGuard that will be the same or less than are charged for positive pay.
He declined to detail the FraudGuard fees. But Mr. Caranante said the positive pay fees include a monthly charge of at least $50 a month per account, and data transmission charges ranging from $50 to $500 per month, depending upon the number of checks a company cuts.
Cash management experts said the FraudGuard service appeared to be unique, and could be interesting to some companies.
"To me its an interesting idea," said David L. Shafer, national director of cash management consulting at Ernst & Young in Kansas City.
"I could see how it could be attractive" to a company, he added.