The spiraling costs of fraud investigations and losses are a pressing problem facing the banking industry. According to research conducted in 2006, U.S. financial institutions were losing $5 billion a year on average to fraud.
Despite increased investments in video surveillance, banks have found little improvement in their ability to reduce fraud. It’s a typical business conundrum: surveillance systems are necessary to fight against fraud and bank robbery, but when those things aren’t happening the system eats up money and fails to deliver a return on investment.
The solution? Financial institutions need to take a look at the total cost of their systems and evaluate ways to reduce that cost and increase ROI.
The fraud problem
Fraud remains a huge and growing problem for U.S. financial institutions. Using a conventional DVR, fraud investigators can’t track criminal activity across branches and time, and even if they could, the average branch DVR doesn’t have the storage to keep up with such a search. Because it can’t track a suspect, investigators can’t determine if they’re a one-time offender, a repeat offender, or part of an organized crime ring.
All of this adds up to a low percentage of solved cases and less quality evidence for cases that do get solved, which results in shorter jail sentences and a higher probability of repeat offences.
Intelligent video management systems, on the other hand, take an integrated approach to fraud that combines video analysis, such as motion and face recognition, alert functionality, and a variety of investigative tools to provide a multi-pronged fraud-fighting strategy. This approach not only helps financial institutions fight fraud, but also helps to improve customer service and employee satisfaction.
Real world examples
One such system, 3VR’s Searchable Surveillance System, has been deployed by the Bank of Hawaii with great success. According to Brian Ishikawa, vice president and director of corporate security at the bank, the 3VR system greatly reduces investigation time. “Previously, it would take investigators at Bank of Hawaii 10 to 15 hours to search through video tape to locate and resolve a disputed transaction,” he said. “The new system cuts it down to a few minutes. That creates operational efficiency.” Ishikawa added that the bank has already used the Searchable Surveillance System to address a disputed transaction situation, but declined to provide details.
Mike Sheppard, vice president of security at Metropolitan National Bank, has also used the 3VR system to successfully reduce costs and address fraud. Sheppard points out that when fraud is perpetrated, his bank is out not only the stolen money, but also the time wasted and, sometimes, an employee.
"This takes a huge weight off my employees’ backs," he said. "It protects their jobs and protects the company from having to fire an employee who cashes a stolen check."
More than fraud
But what about banks that don’t have a huge fraud problem? Or even those that do have to deal with fraud on a fairly regular basis, but want their system to be working for them all the time, not just during crisis situations? Today’s modern surveillance systems are equipped to do far more than just respond to security incidents — they work efficiently to reduce the total cost of owning a surveillance system and they gather data that can be useful not just to track criminals but to provide quality customer service.
“The 3VR system could be used to alert tellers to top-tier customers, and subsequently, have the information at hand to greet those individuals personally,” said Sheppard.
The average financial institution spends at least $16,000 per branch on surveillance equipment alone (assuming a 12-camera, one-DVR installation). If a branch needs to expand beyond the traditional 16-camera limit, it must buy not only more cameras, but also another system. And once the system is installed the physical costs don’t end.
While everyone agrees that DVRs and IP cameras have brought security into a much-needed digital age, bandwidth, switch and router ports, data storage and IP addresses are not bottomless resources. Moreover, the majority of systems are not easily upgraded and thus need to be completely replaced every four years or so.
Now, the good news. Thanks to advancements in digital technology, it is possible to reduce some of these costs. Many of the leading surveillance system providers are now applying digital technology, which has reduced costs in other sectors, to the security market.
Virtualization technology, for example, enables companies all over the country to optimize investments in servers. One server can be “virtualized” to act essentially as three servers, which optimizes storage capacity and enables different clients to use the same server. Similarly, camera virtualization technology enables security managers to deploy one megapixel camera as though it were several cameras. Megapixel cameras are more expensive than IP or PTZ cameras, but if you only have to buy one for every four IP cameras, you’re going to save money.
Similarly, some currently available systems support hybrid camera installations; users can hook a single DVR up to an assortment of IP, analog, USB and megapixel cameras without purchasing expensive encoders. This new development enables users looking to “go digital” to keep and use some of their analog cameras rather than scrapping perfectly good cameras and purchasing new ones. These systems also enable users to add cameras to a traditional 16-camera unit without purchasing an additional DVR (priced at $4,000 for an average eight-channel system, or $7,000 on average for a 16-channel system). Systems with all of these features have the potential to save financial institutions thousands of dollars per branch above and beyond the money they save by effectively dealing with fraud.
The storage story
Storage is another major cost associated with surveillance systems, both in terms of dollar value and investigative value. Most DVRs gradually degrade stored video, dropping frames arbitrarily until video eventually disappears after about 30 days. This process, called pruning, can be hugely problematic in investigative scenarios.
Today’s smarter surveillance systems, however, are taking a new approach to pruning by making the security manager, rather than the security system, the pruner. Managers can set these systems to keep and store key images, such as faces or transaction events for as long as two years. This small feature can be hugely important to fraud investigations down the line, and also allows users to optimize their investment in video storage.
Tech-savvy engineers at surveillance video companies are also starting to consider storage long before video is recorded. Today’s systems begin maximizing storage from the beginning by organizing footage and optimizing images as they come in. These systems recognize what is important and what is dead space, using simple motion and face algorithms, and store only relevant footage. During periods of non-motion, recording parameters can be lowered or even turned off to save storage space. After all, if you’ve only got a few hundred gigabytes of storage, why waste it on footage of an empty bank with no activity?
Most modern digital video systems are equipped with advanced health monitoring features. These systems automatically monitor various components and alert users early of possible malfunctions.
This helps financial institutions to save on emergency technical support calls. If you know a hard drive is going to fail in two weeks you can plan for it instead of panicking when it suddenly happens. And money is saved that could potentially be lost while the system is down. Most systems are also built with fail-safe features, such as embedded RAID or a flash drive, to ensure that if the system fails, the video stored on it is not totally lost.
Many of today’s more advanced systems also include central system administration capabilities. System administrators can centrally manage user IDs and passwords and, for those dealing with multiple branches and a single system, configuration templates can be set and applied across branches with a single click. This greatly reduces the time spent by administrators maintaining and updating the system, and also enables users to easily set universal recording parameters as well as user permissions.
At one bank, an IT professional spent the bulk of his time traveling around to regional branches to set and then delete temporary passwords for technicians. When his employer replaced its standard DVRs with an intelligent video management system it freed up his time to concentrate on optimizing the bank’s network, leading to improved performance and improved job satisfaction for the IT professional.
By far one of the greatest costs associated with check fraud is that of the investigation required to address it. The majority of financial institutions have a limited number of investigators to solve multiple cases. In the case of large chain banks, branches are being added monthly, but a new investigator is not hired every time a new branch opens. For this reason, financial institutions looking to crack down on fraud need to think not only about preventative measures, but also about maximizing their investigative capabilities as well.
A new breed of surveillance systems, known as intelligent video management systems are equipped with a whole host of features geared toward making investigators more effective in less time. With legacy DVR systems, an investigation could take several days as investigators track transactions across various systems, wait for video to download, sit through hours of real-time video, and try to pinpoint the best images and video to support their case.
In addition, few traditional DVRs are equipped with integrated enterprise case management applications — financial institutions have to buy separate systems and investigators then need to spend time entering data into the case management system and moving between their video management system and their case management system. With the new, more intelligent systems the process is streamlined and investigators can cut the time required to conduct the average investigation by as much as 66 percent.
How? There are various explanations, but the simplest is: search. Intelligent video management systems have taken the same technology that search engines like Google use to make the billions of pages of the Internet searchable and applied it to the thousands of hours of video stored by most DVR systems. Rather than sitting through video, investigators can search for a particular event and find what they’re looking for in minutes.
Integrated case management systems further streamline the process, enabling investigators to search and save information in the same system. Thanks to the use of enterprise platform technology, investigators working with intelligent video management systems can also easily share information with other branches and with local law enforcement, which strengthens any financial institution’s ability to prevent future fraud attempts. Users can even add suspects to watchlists and set alerts tied to those suspects that will trigger if any of them enters any other branch connected to the system, even if the branches are on opposite sides of the country.
Being able to present law enforcement with all the evidence it needs to convict a fraudster is hugely important in any fraud case, not just to satisfy management and close the case, but to help a financial institution build a reputation as a difficult target. Even if fraudsters are caught and sent to prison, they are usually back out committing fraud within months. If they are caught easily and prosecuted quickly, however, they are less likely to return to the same target and they may also warn other would-be criminals to steer clear of that target as well.
While fraud remains a major problem for financial institutions, it is important for security managers to keep in mind the total cost of their surveillance systems. As new technologies become more prevalent, financial institutions must look for ways to leverage those technologies to prevent loss and to lower the total cost of ownership to deliver meaningful ROI.
Tim Ross is the co-founder of 3VR Security, a security company based in San Francisco.
Copyright © March-April 2008 Western Banking (BankNews Publications)