By: Gordon Madgwick, Cheque Consultant, (ex-Operations Director, Cheque & Credit Clearing Company)
Cheque volumes are reducing by around 14% per annum but cheques remain an important and indeed essential payment method for various segments of society, with more than one million issued every day in the UK. Critically, you do not need the beneficiary bank account details to make a payment, just the beneficiary’s name, and if posted, then their address. Cheques are the only payment type that is protected by legislation as detailed in the Bills of Exchange Act 1882, the Cheques Acts 1957 and 1992 and a wide range of case law.
We are currently in the midst of the UK banking industry’s commitment to digitise the paper cheque with the roll-out of the Cheque Imaging Clearing System (ICS), thereby reducing clearing times to the next working day following the cheque being banked on Day 1. New methods for paying cheques into your bank account are being introduced, such as capture on your smartphone and remote deposit for businesses using desktop cheque scanners. Subsequently, there is a faster clearing period with value credited and certainty of fate known by the end of Day 2, whilst you are now no longer required to visit your bank or pay in at your local Post Office. The cheque is now finally coming into the 21st century technology revolution.
Identification of fraud on a paper instrument has been developed and refined over the years with greater use of technology, and bank staff checking for fraud have honed their skills in identifying fraud – counterfeit, forgery and fraudulently altered. The Cheque Printer Accreditation Scheme (CPAS) has also played an important role since its inception in the mid-90s in ensuring that cheque printing production meets strict standards and regulations, the design and ink coverage enables good quality images when captured, and all paper meets minimum fraud prevention requirements.
Fraud losses peaked in 2008 and during the past 10 years they have reduced by more than 85%, far in excess of the decline in cheque volumes over the same period.
Fraud – The Figures
Cheque fraud is at its lowest level ever and currently stands at 1.33% of overall payment fraud, as reported by the UK Finance Fraud the Facts 2017 Publication. Cheque usage may be unfashionable but from these fraud figures, it is currently the safest payment method (notwithstanding coin and paper cash usage).
In 2017, overall payments fraud decreased by 5% compared to the previous year and totalled £731.8m. The cheque fraud figure declined to £9.8m, representing an annual reduction of 28% with case volumes also down by 48%.
|2017 Cheque Fraud Losses
|Fraud type||Loss||Annual Percentage|
A cheque printed on non-bank paper to look exactly like a genuine cheque and drawn by a fraudster on a genuine customer account.
A genuine cheque that has been stolen from a customer and used by a fraudster with a forged signature.
A genuine cheque that has been issued by a customer but has been changed by a criminal before it is paid in, e.g. by altering the beneficiary’s name or the amount.
VALUE £9.8m (-28%) VOLUME 1,745 (-48%)
|Fraud Cases||1,745||48% down|
Source of information: UK Finance Fraud the Facts 2017 Publication.
For the period January to June 2018, the reported figure is a £3.2m fraud loss, a decline of 41% on the same period in 2017, with prevented fraud for the same half year being £74.3m – equivalent to £9.59 in every £10.00 attempted.
The Challenges with Imaging
Once the front and back of the cheque has been imaged in readiness for submission into the Image Clearing System it becomes the legal payment instrument and the original paper cheque then has no value.
The ICS automatically undertakes a validation check for file size that includes the images and data. If this validation check fails then the file is rejected, and it is for the collecting bank to correct and represent their submission. An Image Quality Analysis (IQA) check on both the front and rear images of each cheque against the ICS Image Standards is also undertaken following successful validation. Such checks cover readability – not too light or too dark, sizing of image – not too large or too small, skewing, tears and folds. The paying bank is advised for each item whether IQA has failed or passed and it is then for that bank to accept or reject the image.
The paying bank has to be able to read the images, not only to undertake technical checks i.e. words and figures match, within date and correctly signed but also for their fraud detection image analysis to work. Should the paying bank be unable to read the image then the cheque will not be paid with the need for the beneficiary bank to liaise with the collecting bank (usually the same bank) to recapture the image from the original paper and to represent both the front and rear images together with new data. As the cheque has not been paid due to the poor image capture then there is an unwanted and unwelcome delay for the beneficiary to be credited with the funds. Accordingly, the standard of image collection is important and a pre-submission check should be deployed at the point of capture to reduce exceptions within the ICS and to avoid elongated payment decisions. Rework is time consuming and expensive and can easily be avoided.
If the collecting bank chooses not to undertake IQA at capture, they do so at their risk that submitted images may be flagged as non-compliant and unusable with potential reputational damage to both the Scheme and that bank.
With a faster clearing timescale cheque fraud detection has, by necessity, got to become more agile and it is essential for all banks involved in the transaction to diligently undertake their checks to combat fraud, particularly as the paying bank will no longer be able to physically examine the paper cheque issued by their customer.
Normally, the customer will pay cheques into their account at their own bank and hence that bank has to assume duties as both the collecting and beneficiary banks.
The collecting bank has to undertake some legal obligations in their checking process e.g. the payee name is identical to the account name to be credited – cheques in sole name can go into a joint account but a cheque in joint names should not be credited to a sole account. If that is being sought – then investigate. Be aware of any additions to the payee line e.g. T/A (trading as) or For (with another name added), as they may be fraudulently altered.
The collecting bank has the only opportunity in the Image Clearing System to check the security features on the paper cheque e.g. alterations to words or figures and the payee line by checking there have been no changes to UV design – this can be automated with a UV scanner – and to do a ‘wet finger test’ to ensure that the ink smudges as part of the check for counterfeit items.
As the paper cheque is retained by the collecting bank or beneficiary customer at the point of deposit then it is essential for the beneficiary bank to “know their customer” – is the amount to be credited and frequency the norm? Does it fit the profile advised by the customer?
Where the beneficiary bank is not the same as the collecting bank then the ICS can send the beneficiary bank an early notification message providing details of the item being processed and thereby enabling them to be aware and to commence their checks.
When the paying bank receives the image of the cheque then “know your customer” and account profiling are paramount. Is the amount and frequency of cheques issued the norm? If not, check with the customer (e.g. telephone, text, fax message). Have there been previous incidences of fraud? Other checks include the need to ensure that the cheque number is consecutive and the presentation is not duplicated. Handwriting analysis together with cheque layout and design analysis have proved effective in detecting fraudulent changes and counterfeit cheques.
The central Image Clearing System automatically checks for the presentation of duplicate items and issues a warning message to the paying bank to check the item and their data records.
Image Survivable Features
The addition of Image Survivable Features onto the face of the cheque can greatly help with fraud prevention and ‘ISFs’ are becoming more readily available and prevalent. Such features enable the cheque data to be captured and encrypted within a unique coded number or barcode that can be applied to the original paper cheque, thereby ensuring the validation of the item when the image is scanned. Counterfeit items and fraudulently altered items can then be readily identified.
A New Payments Architecture is being progressed by Pay.UK with the aim of
undertaking an end-to-end data analysis across all transactional retail payments – faster payments, bacs and cheques – thereby improving data sharing and analysis to fight financial crime.
As payments become near real-time then real-time data analysis is essential to create a rich and varied database to achieve fraud detection and to further strengthen the fight against fraud.
Facebook ‘refriends’ Australia after changes to media laws
By Byron Kaye and Colin Packham
CANBERRA (Reuters) – Facebook will restore Australian news pages, ending an unprecedented week-long blackout after wringing concessions from the government over a proposed law that will require tech giants to pay traditional media companies for their content.
Both sides claimed victory in the clash, which has drawn global attention as countries including Canada and Britain consider similar steps to rein in the dominant tech platforms and preserve media diversity.
While some analysts said Facebook had defended its lucrative model of collecting ad money for clicks on news it shows, others said the compromise – which includes a deal on how to resolve disputes – could pay off for the media industry, or at least for publishers with reach and political clout.
“Facebook has scored a big win,” said independent British technology analyst Richard Windsor, adding the concessions it made “virtually guarantee that it will be business as usual from here on.”
Australia and the social media group had been locked in a standoff after the government introduced legislation that challenged Facebook and Alphabet Inc’s Google’s dominance in the news content market.
Facebook blocked Australian users on Feb. 17 from sharing and viewing news content on its popular social media platform, drawing criticism from publishers and the government.
But after talks between Treasurer Josh Frydenberg and Facebook CEO Mark Zuckerberg, a concession deal was struck, with Australian news expected to return to the social media site in coming days.
“Facebook has refriended Australia, and Australian news will be restored to the Facebook platform,” Frydenberg told reporters in Canberra.
Frydenberg said Australia had been a “proxy battle for the world” as other jurisdictions engage with tech companies over a range of issues around news and content.
Australia will offer four amendments, which include a change to the proposed mandatory arbitration mechanism used when the tech giants cannot reach a deal with publishers over fair payment for displaying news content.
Facebook said it was satisfied with the revisions, which will need to be implemented in legislation currently before the parliament.
“Going forward, the government has clarified we will retain the ability to decide if news appears on Facebook so that we won’t automatically be subject to a forced negotiation,” Facebook Vice President of Global News Partnerships Campbell Brown said in a statement online.
The company would continue to invest in news globally but also “resist efforts by media conglomerates to advance regulatory frameworks that do not take account of the true value exchange between publishers and platforms like Facebook.”
Analysts said while the concessions marked some progress for tech platforms, the government and the media, there remained many uncertainties about how the law would work.
“Retaining unilateral control over which publishers they do cash deals with as well as control over if and how news appears on Facebook surely looks more attractive to Menlo Park than the alternative,” said Rasmus Nielsen, head of the Reuters Institute for the Study of Journalism, referring to Facebook headquarters.
Any deals that Facebook strikes are likely to benefit the bottom line of News Corp and a few other big Australian publishers, added Nielsen, but whether smaller outlets win such deals remains to be seen.
Tama Leaver, professor of internet studies at Australia’s Curtin University, said Facebook’s negotiating tactics had dented its reputation, although it was too early to say how the proposed law would work.
“It’s like a gun that sits in the Treasurer’s desk that hasn’t been used or tested,” said Leaver.
The amendments include an additional two-month mediation period before the government-appointed arbitrator intervenes, giving the parties more time to reach a private deal.
It also inserts a rule that an internet company’s existing media deals be taken into account before the rules take effect, a measure that Frydenberg said would encourage internet companies to strike deals with smaller outlets.
The so-called Media Bargaining Code has been designed by the government and competition regulator to address a power imbalance between the social media giants and publishers when negotiating payment for news content used on the tech firms’ sites.
Media companies have argued that they should be compensated for the links that drive audiences, and advertising dollars, to the internet companies’ platforms.
A spokesman for Australian publisher and broadcaster Nine Entertainment Co Ltd welcomed the government’s compromise, which it said moved “Facebook back into the negotiations with Australian media organisations.”
Major television broadcaster and newspaper publisher Seven West Media Ltd said it had signed a letter of intent to strike a content supply deal with Facebook within 60 days.
A representative of News Corp, which has a major presence in Australia’s news industry and last week announced a global licensing deal with Google, was not immediately available for comment.
Frydenberg said Google had welcomed the changes. A Google spokesman declined to comment.
Google also previously threatened to withdraw its search engine from Australia but later struck a series of deals with publishers.
The government will introduce the amendments to Australia’s parliament on Tuesday, Frydenberg said. The country’s two houses of parliament will need to approve the amended proposal before it becomes law.
(Reporting by Colin Packham and Byron Kaye; additional reporting by Renju Jose, Kate Holton and Douglas Busvine; Writing by Jonathan Barrett; Editing by Sam Holmes and Mark Potter)
Oil rises on positive forecasts, slow U.S. output restart
By Bozorgmehr Sharafedin
LONDON (Reuters) – Oil prices rose on Tuesday, underpinned by the likely easing of COVID-19 lockdowns around the world, positive economic forecasts and lower output as U.S. supplies were slow to return after a deep freeze in Texas shut down crude production.
Brent crude was up 36 cents, or 0.5%, at $65.60 a barrel by 1212 GMT, and U.S. crude rose 39 cents, or 0.6%, to $62.09 a barrel.
Both contracts rose more than $1 earlier in the session.
“Vaccine news is helping oil, as the likely removal of mobility restrictions over the coming months on the back of vaccine rollouts should further boost the oil demand and price recovery,” said UBS oil analyst Giovanni Staunovo.
Commerzbank analyst Eugen Weinberg said optimistic oil price forecasts issued by leading U.S. brokers had also contributed to the latest upswing in prices.
Goldman Sachs expects Brent prices to reach $70 per barrel in the second quarter from the $60 it predicted previously, and $75 in the third quarter from $65 forecast earlier.
Morgan Stanley expects Brent crude to climb to $70 in the third quarter.
“New COVID-19 cases are falling fast globally, mobility statistics are bottoming out and are starting to improve, and in non-OECD countries, refineries are already running as hard as before COVID-19,” Morgan Stanley said in a note.
Bank of America said Brent prices could temporarily spike to $70 per barrel in the second quarter.
Disruptions in Texas caused by last week’s winter storm also supported oil prices. Some U.S. shale producers forecast lower oil output in the first quarter.
Stockpiles of U.S. crude oil and refined products likely declined last week, a preliminary Reuters poll showed on Monday.
A weaker dollar also provided some support to oil as crude prices tend to move inversely to the U.S. currency.
(Reporting by Bozorgmehr Sharafedin in London, additional reporting by Jessica Jaganathan in Singapore; editing by David Evans and John Stonestreet)
UK-Japan trade deal settled nerves for Japanese firms, Honda executive says
LONDON (Reuters) – Britain’s trade deal with Japan settled the nerves of a lot of Japanese businesses in the United Kingdom and gives them confidence about their future prospects there, a senior Honda executive said on Tuesday.
Japan, the world’s third-largest economy, has since the 1980s made the United Kingdom its favoured European destination for investment, with the likes of Nissan, Toyota and Honda using the country as a launchpad into Europe.
But Britain’s shock 2016 decision to leave the European Union had prompted Japan to express unusually strong public concerns. Their companies and investors warned that a disorderly exit from the EU would force them to rethink their four-decade bet on Britain.
“We welcome very much the Japanese trade agreement which as a Japanese businesses was very welcomed,” Ian Howells, senior vice president at Honda Motor Europe, told a parliamentary committee.
“On the point around confidence, that certainly amongst my peers in Japanese companies was very much welcomed, and probably settled a lot of nerves in terms of their trading prospects in the UK going forward.”
Britain and Japan formally signed a trade agreement in October, marking Britain’s first big post-Brexit deal on trade. It has also made a formal request to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of which Japan is also a member.
(Reporting by Kate Holton)
Facebook ‘refriends’ Australia after changes to media laws
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