Since the establishment of the first ATM networks in the early 1970s, ATMs have become an essential and convenient component of consumer banking. Across the world they are being used for new and innovative services, such as cash withdrawals, deposits, currency exchange, printing checks and paying bills.
In a dynamic and highly competitive world it is imperative for banks to answer these needs and expand ATM services. However, in the United States ATM functions are limited to basic services. About 80 percent of transactions involve cash withdrawal, 20 percent are used for basic banking functions, such as balance inquiries, transfers and deposits, where deposits account for half of the activity, according to www.TheBankWatch.com in May 2006. Throughout the years, ATMs have had periods of active expansion and of abated interest, when the rise in the number of machines has been accompanied by a decline in utilization.
For obvious reasons, security is a big concern for both banks and consumers and is one of the reasons limiting ATM usage. Aware of the potential for abuse, many customers are afraid to use ATMs for transactions beyond cash withdrawal. Banks simultaneously limit the functionality of the ATM to cash withdrawal and deposit transactions and do not employ the full potential of the machines for the fear of fraud losses. However, trying to hamper progress and suspend the development of a convenient service that has already become an integral part of modern life is hardly the best solution against fraud.
Unfortunately, crime is a concurrent element of modern society and it benefits from the same technological advances that are created to open new opportunities, to facilitate and raise the efficiency of processes and operations, and to improve the quality of services. ATM fraud has become more widespread, as well. But rumors of the scope of ATM fraud are often exaggerated: the percentage of incidents of fraud relative to the total number of daily transactions at ATMs is less than one percent, according to an issue of Financial Services Technology.
Just as there are different fraud methods, there are also different circumstances that allow fraud to happen. It may be the imprudence of a customer, the negligence of a bank or sophisticated techniques applied by crooks. Fortunately, solutions are available that help to eliminate or, at least reduce the number of successful criminal attacks in all of these cases.
For instance, withdrawals with cloned cards (or white-card fraud) can be prevented by checking special security codes embedded in the magnetic stripes on the back of every ATM card. This procedure allows the bank to verify the authenticity of the plastic being inserted into the ATM, but many banks skip checking the codes, relying on PINs to prove the authenticity of the ATM card.
Similarly, shoulder surfing (looking over another person's shoulder in an attempt to obtain a password for an ATM or other data), and card skimming (using a hidden card reading device and a camera to steal a customer's card information) can often be avoided by educating the consumer and increasing his awareness and vigilance.
Image-enabled ATMs using OCR technology can completely eliminate empty-envelope fraud, as well as help to stop check kiting and closed-account fraud, as processing times become significantly shorter. Once checks are deposited, they are imaged and OCR technology automatically does courtesy and legal amount recognition on a deposited item, without having to rely solely on the input from the customer. Images and relative transaction data are sent to the central check processing site, where item processing and a complete audit are executed for clearing purposes. Thus, an image-enabled ATM becomes a remote deposit capture system. As soon as the check is deposited, the image can be processed as a remote deposit item, resulting in faster processing and posting.
Although envelope-free ATMs cost more, the multiple benefits provided by the technology help to justify the investment. Besides eliminating fraud losses, which are often hard to measure, these machines save banks millions of dollars by scanning images of the checks and eliminating the need to transport paper documents to the processing centers. In a May 7, 2006, article, www.TheBankWatch.com estimated that envelope deposits made at ATMs and by tellers cost about $1.70 each to process, while electronically scanned versions cost 40 cents.
These are just a few examples of software capabilities that can provide a reliable safeguard against crime. The industry is full of products and technologies that may counter various threats. Better communication with vendors and collaboration in working out the requirements for emerging technologies or products, will help to equip banks with powerful, innovative and secure solutions that will satisfy customers, generate revenue, minimize fraud and become a competitive differentiator for banks.
Mr. Fenton is vice president of sales and operations for Parascript. He can be reached at mike.fenton(at)parascript.com or 303-381-3105.