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By Mike Fenton, Parascript, LLC (www.AllPayNews.com)

Powerful market forces are changing today's banking and financial services market. With further globalization, consolidation, deregulation and diversification of the financial industry, banks face many challenges: competition gets tougher, customer service demands increase, profit margins shrink, technology evolves, and new products are introduced more frequently. To gain an advantage in this intensely competitive environment, banks need to recognize changing customer needs, find appropriate products to meet them, and manage risks associated with new products.

ATMs are just one important aspect of interacting with customers that continues to evolve. Customers have come to rely on them for convenience and ease in accessing their financial institution and making transactions without the need for a human interface or bank teller. This type of service answers the demands of our fast-paced society and may seem unconditionally attractive. Since the establishment of the first ATM networks in the early 1970s, ATMs have become an essential and convenient component of consumer banking technology. Across the world they are already being used for new and innovative services that keep customers satisfied: cash withdrawals, deposits, currency exchange, printing checks, paying bills, to name a few.

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% of transactions involve cash withdrawal, 20% are used for basic banking functions, such as balance inquiries, transfers and deposits, where deposits count for half of the activity.[1] 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.
A few factors influence the significance of ATM technology, including security of transactions and the breadth and convenience of services provided for customers, and fraud prevention and the security of transactions and justification of costs associated with ATM functionality and services for banks.
For obvious reasons, security is a big concern for both banks and consumers and is one of the reasons limiting ATM usage. While ATMs create convenience for customers and generate income or cost savings for banks, they also allow criminals, who have multiple methods of fraud in their arsenal; from sophisticated gadgets that allow them to steal personal information from a card when swiped, to setting up and operating their own ATMs. Aware of 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[2]. Of course, the menace of fraud should not be underestimated, and it is necessary to be aware of existing threats, as well as of available technological innovations that safeguard against them. 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 either eliminate or, at the least, significantly reduce the number of successful criminal attacks in all of the cases mentioned above. For instance, withdrawals with cloned cards (or so called "white card" fraud - when stolen data is loaded onto the back of a blank plastic card that looks like a credit card) 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. Therefore, in this case security is just a matter of the meticulous maintenance of a prescribed procedure. 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/her awareness and vigilance. Hardware solutions can also hinder the skimming of data from cards. Additionally, technology is available to provide powerful means of protection against other types of fraud. In particular, software can be used to combat empty-envelope fraud, which according to industry reports is the number one type of fraud affecting ATMs.
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 (CAR/LAR) 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, allowing for Day 0 or Day 1 processing as part of the financial institution’s check processing workflow. 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. It is estimated that envelope deposits made at ATMs and by tellers cost about $1.70 each to process, while electronically scanned versions cost 40 cents[3].

However, the idea of image-enabled ATM is not enough to ensure the success of the project (enterprise). The quality of implementation is one of the key factors that may either bring few to little, or significant benefits. That is why it is crucially important to choose a reliable provider that is able to ensure a read rate and accuracy acceptable for the application. Such products are available, and have been used (and proven in efficiency and reliability) by financial institutions in back office check processing for years. Nowadays, read rates and accuracy have achieved a level that is acceptable for applications that involve direct interface with a customer, where a high false alarm rate could cause discontent and a reduction in usage. In addition to amount recognition, technology can execute CAR/LAR mismatch detection by verifying that the legal amount and courtesy amount are the same. This feature helps to detect check alterations and prevent fraud. Other fraud detection solutions are also available and, if integrated in ATMs, can help combat fraud. For example, signature verification can be performed at the time of deposit on “on-us checks,” as well as be used to verify signatures on checks between members of an image exchange network if the images of signatures are shared.
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 the industry 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 (www.parascript.com) and has more than 25 years of experience in the industry. He can be reached at mike.fenton@parascript.com or (303) 381-3105.