As paper checks are transformed into such varied forms as digital images, image replacement documents, and automated clearing house transactions, there is a growing risk that they will be settled more than once, experts warn.
Several vendors have developed products to prevent duplicate payments.
Metavante Corp., the technology subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., said Monday that Cullen/Frost Bankers Inc. of San Antonio has licensed its Vector: Duplicate Detection database to catch these types of duplicates before the payments are posted to customers' accounts.
That announcement, at the Bank Administration Institute's TransPay conference in Orlando, followed announcements by Conix Systems Inc. of Manchester, Vt., that its Dupe Detective database had been licensed by BB&T Corp. of Winston-Salem, N.C., and by the Fiserv Imagesoft unit of Fiserv Inc. in Brookfield, Wis., for resale to its item processing customers.
David Rathke, the senior vice president for float management at Frost National Bank, said that with the growing use of electronic check conversion formats by banks and billers, the risk of duplicate payments is increasing.
"We're seeing more and more problems on duplicates," he said. "It's across the board. Whole files are being duplicated. Partial files are being duplicated. Single items are being duplicated."
The problem is not so much fraud as it is handling errors, Mr. Rathke said. He described a typical problem: After the office manager at, for example, a medical practice scans a stack of checks and sends the images to the bank, the doctor picks the checks up and places them in the drop box at the branch.
Inexperienced bank employees can also make errors, Mr. Rathke said. More than once a correspondent bank has sent a file of check images to be cleared, then has also mistakenly delivered the original checks as well, he said, though he said that such cases are "not a deliberate intent to defraud."
Frost has already installed the Vector database at one of its item processing centers and plans to begin using it at its other two sites eventually, Mr. Rathke said.
Frank Stokes, the president of Conix Systems' technology group, said banks typically report between five and 7.5 duplicate payments for every 1 million payments.
The banks reported that correcting each error costs an average of $75 in processing expenses, "not to mention the fact that they've really upset a customer," Mr. Stokes said.
Mr. Stokes and Vijay Balakrishnan, the vice president of strategic marketing at Metavante image solutions, said the new generation of systems are being designed to work across multiple payment systems.
Mr. Stokes said Dupe Detective can maintain the transaction records of the largest bank in the country over an entire payment cycle.
Vector: Duplicate Detection can process 50,000 items per second, comparing the incoming transactions against a database of as many at 3.6 billion items to catch duplicates, and has interfaces to receive data from multiple payment systems, Mr. Balakrishnan said. "The solutions need to transcend the silos," he said.
Bob Meara, a senior analyst at the Boston research and consulting firm Celent LLC, noted that banks are already converting billions of consumer checks into ACH payments at lockboxes, and he said conversion rates will likely jump again after a new rule takes effect next month allowing merchants to convert them in their back offices.
More banks are adopting "all items files" to prevent duplicate payments, Mr. Meara said. "If you don't put all that data in one spot, it can be a tough nut to crack."
