Banks can reduce check fraud by beefing up the automated alerts they offer to online customers about unusual activity in their checking accounts, experts say.
Indeed, they say, to some extent customers are already using those alerts to combat check fraud. And some simple, low-cost changes can provide fraud-fighting power that rivals the sophisticated systems used in the credit card world, experts claim.
Account holders have the best ability to spot fraud in their own accounts - "better than any bank or any software can," said Sanjeev Dheer, the president and chief executive of CashEdge Inc. of New York. Banks, including some of the biggest, hire his company to transfers funds through the automated clearing house systems and manage the risks involved.
Many banks now offer alerts through their online banking services, and bankers say more customers are using them. It is not clear, though, how much they are doing so to spot fraud instead of, for example, to learn when checks clear.
Furthermore, many banks offer only a limited range of alerts, said Penny Gillespie, a senior analyst at Forrester Research Inc. of Cambridge, Mass.
It does not cost much to write code for new kinds of alerts that can help more to spot fraud, Ms. Gillespie said.
"Certainly there's technology to support it," she said. Banking alert systems are based on business rules, so providing a thorough consumer-driven account monitoring service is a simple matter of writing new rules to warn of different events, she said.
Beefed-up online alerts can help banks protect checking accounts from fraud as well as card accounts are protected, Ms. Gillespie said. Customers expect such protection, she said, but "checking is behind, because it's not as electronic as credit cards."
Consumers can make themselves safer by setting up alerts for activities they personally define as unusual, even for a transaction using a paper check instead of a debit card, Ms. Gillespie said.
Some banks let consumers set alerts that tell them when specific checks clear; Ms. Gillespie said this can be modified to let consumers know when any checks clear.
"You can set up alerts for anything, depending on how sophisticated the system is," she said.
And with cell phones increasingly prevalent, banks can call consumers directly and immediately when unusual activity is detected, she said.
In fact, some banks are have been adding more kinds of alerts and plan to do so, as well as more channels through which to send them.
PNC Financial Services Group Inc. of Pittsburgh offers online alerts for events such as an unexpected low balance and plans to add new alert triggers in 2005, in response to customer requests, said Alan Trivilino, its group manager for checking and transaction products.
Even PNC's current set of alerts, such as one triggered by a low balance, can be used to detect fraud, said Mr. Trivilino, a senior vice president.
The alerts give customers a sense of security, he said. "We want people to be secure and in control of their money."
Customer use of the service is "slightly ahead" of PNC's forecasts, he said, but he would not give a number. Nor would he say what kinds of alerts will be added, except to note that the upgrade would include alerts in Spanish.
Some customers seem to have taken the expansion of bank alert services into their own hands.
Wachovia Corp. set up an online alert system in 1998, but not until two years later did it offer the option of having alerts sent to account holders' cell phones and pagers as text messages. In the meantime, customers apparently set up their own systems to forward alerts to their phones, the Charlotte company says.
Wachovia now sends more than 1.5 million customer-elected alerts each month, including 60,000 directly to cell phones and pagers.
Citibank.com has what may be one of the most advanced alert systems. Like most others, it can notify customers when their account balances fall too low. But in addition, Citibank.com can alert them to any deposit or debit made the preceding business day. Such fast alerts can tip them off to check forgeries.
The Citigroup Inc. operation also can alert customers that specific checks have failed to clear. Such failures may indicate that a check was stolen in the mail.
Watchfire Corp. of Waltham, Mass., evaluates commercial Web sites. Michael Weider, its chairman and chief technology officer, said online banking can provide customers with more than simple transaction or balance information.
One useful feature is to let them see when they last logged in, he said. "Some banks do that and some banks don't." Showing the last log-in can alert customers to unauthorized access that could signal fraudulent transactions to come.
Still, Mr. Weider said, banks must do more. Neil Platt, CashEdge's vice president for sales and business development, agreed.
For example, though helping customers police their own accounts is good, Mr. Platt said, "it doesn't protect the financial institution from the fact that one of its customers may be a fraudster."
"You don't want people using a 'bank X' account legitimately to illegitimately debit a Bank of America account," he said.
Mr. Weider said that even banks offering extra alerts must provide other assurances, such as a zero-liability promise for funds fraudulently withdrawn.
"The banks need to make people confident that there's some level of protection or guarantee" when the security barriers crumble and money starts to disappear, Mr. Weider said.
The growing wave of phishing scams makes such protection especially important, he said, because phishing tricks the customer into doing something - "it's not necessarily that the bank screwed up."
Banks should cover such a loss, as many do, even if they are not really to blame, he said.
"If you cover it, then it's costing you money," Mr. Weider said. "If you don't cover it, it's costing you lost customers. Which is worth more?"
