KeyBank, which has been carving out a niche in the often-ignored small-business banking segment, is looking to extend that strategy with the introduction of a combined online check/ACH fraud prevention tool that allows small and mid-sized companies to stop and reverse potentially fraudulent items from a Web-based treasury management portal.

Sounds relatively simple, but until now it's been a tool out-of-reach of most mom n' pops. Like Goldilocks unable to find a decent bed, many small businesses find themselves torn between an unaffordable full-fledged treasury management banking suite with reverse positive-pay features, and standard retail DDAs, which are inappropriate since consumer protections such as Reg Z safeguards in ACH drafts don't apply to businesses. "There is a lot of talk in the market about consumer fraud, but corporate fraud among small and large businesses is a much larger problem that doesn't get discussed by the banks," says Avivah Litan, vp and security analyst at Gartner.

Just four months after KeyBank launched an home-built small-business portal, Key Business Online (KBO), the $102 billion-asset Cleveland-based institution offered the new monitoring services to clients.

It's a premium element of KBO, to boot, with generous fee-generation potential. "I think that's the broad market trend that's been unfolding over last couple of years," says Eric Girard, vp of Key's Internet business services. "We've seen many of the top banks [start to] roll out products for small business clients."

Through the monitored accounts section, small businesses can review a list of previous-day items including those flagged according to parameters and thresholds set by the company. Questionable items can be reversed, and funds credited back into the firm's accounts.

Unlike consumer account holders who have 90 days to challenge fishy transactions, businesses get two days to seek a reversal of ACH draws from their accounts-a window easily missed unless a small entrepreneur is vigilant on day-to-day account matters. As a result, small companies are three times more likely to suffer ACH fraud-related losses, according to the Association for Financial Professionals. That same AFP survey found that 72 percent of organizations reported being victimized by attempted or actual payment fraud.

"Small businesses are a long tail," says Tom Wills, senior risk analyst at Javelin Strategy & Research. "They are very high volume when you aggregate them,'s a very fragmented space." With small businesses entailing everything from a dry cleaner to a restaurant, Wills says, banks have faced an almost endless task segmenting the specific individual needs of merchants within their corporate banking offerings. "It's very difficult for the industry to get products organized [in order] to serve that segment, because of that fragmentation."

That pathway has smoothed a little due to niche targeting by companies like financial software giant Intuit and small-business payroll provider PayCycle, according to Wills. In addition, a 2007 survey by Aite Group found a bulging adoption curve of online banking by small enterprises: 72 percent plan to bank online by 2010. More than 60 percent in the same survey said they would be interested in cash management services offered by their banks, if only their banks would offer them; only 11 percent noted they had the choice. Others were turning to third parties like Intuit and Microsoft to handle more sophisticated financial functions. Fifty-one percent expressed interest in positive-pay services.

In KeyBank marketing surveys, says Girard, "one of the first leads that would drive a small business client up-market into the treasury management world would be the need for some type of fraud prevention solution." But the technical challenges and the "sheer volume" of potential enrollments made it difficult for the current treasury management group to handle potentially hundreds of thousands of small businesses, he says.

That led to April's launch of KBO, the cash optimization portal that includes first-time small-and-medium-sized enterprise features such as a single-view of multiple accounts, various e-payment processing options, plus designating user management rights.

In addition to the online fraud prevention services, KeyBank has also compiled a team of 80 in-house investigators and anti-fraud specialists to assist small-business clients. (c) 2008 Bank Technology News and SourceMedia, Inc. All Rights Reserved.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.