A secure cheque substituting payment method – WANTED, but which one to choose?

Payments fraud is still a pressing matter for the business community and individuals alike. Fraud costs the UK over GBP 30 billion a year, according to estimates released by the National Fraud Authority (NFA), the UK Governments strategic lead agency on fraud. In the private sector, the report (released in January 2010) shows that the financial services industry recorded the highest loss to fraudsters, estimated to be GBP 3.8 billion, with GBP 1 billion in mortgage fraud and over GBP 2 billion lost in insurance fraud, with fraud in plastic cards, online banking and cheques comprising most of

A study released by Action Fraud, UKs fraud reporting centre, indicates that during H1 2010, the amount of money people had been tricked out of ranged from GBP 6 to over GBP 1 million. Research conducted at Experian Payments’ annual Payment Strategies event in June 2010, which involved 71 UK based organisations across various sectors, reveals that payment fraud is impacting over a third of corporates with cheque fraud being a particular concern for nearly a quarter of organisations.

In December 2009, the Payments Council voted in favour of abolishing the use of cheques as a means of payment in the UK and already set a target date of 31 October 2018 to close the central cheque clearing system. The Payments Council said that over the next nine years it will focus on promoting existing alternatives. In this context, what alternatives are there for businesses looking to phase out cheques?

Peter Warner, Product Manager at Experian Payments, offers a possible answer to this question by discussing the importance of identifying a secure alternative payment method for the cheque.

“While cheque fraud affected only 1.8% of respondents in our 2009 survey, the figures jumped to almost a quarter of organisations within twelve months. This year, half of all telecom companies and 40% of public sector organisations and charities stated that they are concerned by this type of fraud. With cheques set to be phased out in the next eight years, the question is where will this fraud migrate to next?

“It’s well-documented that fraudsters don’t give up, but simply move onto the next weakest link. At present, the Faster Payments Service is the frontrunner as an alternative payments channel to the cheque and more companies are expected to make use of Direct Corporate Access to the service in the coming months. With fraud already a concern for those using the Faster Payments Service due to the real-time nature of the infrastructure, it will be more important than ever before that corporates have the right validation tools and techniques in place to effectively combat the fraudsters.

“The speed of the Faster Payments process significantly reduces the amount of time that originators have to identify potential fraudulent activity. It’s crucial therefore that corporates are able to verify the validity of the recipient’s account details at the point of entry and thereby reduce exposure to possible payment fraud. Strong payment validation tools that verify a customer’s ID can also be applied to where cheques are still used today as a way to verify the bank account and account owner during account opening for a mobile phone contract, for example.

“The end of cheque clearing should be a motivator for corporates and banks to future proof their payment systems. While the target date for closure of the system may seem some way off, corporates and banks should make the relevant changes now to ensure cheque fraud is not carried over to the new payments channel. That way, corporates will be able to reap the benefits that FPS has to offer, such as better data processing and higher STP rates as well as improved customer service through making customer refunds, loan transfers or benefit payments more speedily.”