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.
Three questions the financial services industry must answer in 2021
Xformative, a Mastercard Start Path recipient, shares what these questions mean for fintech partners and their innovations
This year, fintechs and institutions alike pushed the limit on how fast, innovative, and digitally-savvy they could be. Buzzwords like cloud and faster payments made headlines, but 2021 will be about refining best practices and putting them into action. Xformative believes that more industries should benefit from digital payments and that it’s not just about faster payments, but the option to offer multiple methods.
- Which industries are lagging in the digital payments space and why? The pandemic forced financial institutions and their partners to move digital transformation into a new phase of maturity. But this doesn’t mean every industry has transformed, there are still laggards. According to a survey of more than 1,400 American freelancers and contractors, conducted by Bill.com, more than half said they were still receiving their money in the form of a physical check. Checks still exist in spaces like Property and Casualty, though we did see some reassuring industry changes this year. The year ahead will require businesses to offer more payments flexibility outside of physical checks to meet the payment needs of their gig workers, freelancers, and contractors. Businesses will rely on technology partners to bring them up to speed and simplify the payments process.
- How can fintechs overcome the challenges of building in the cloud? Most businesses want to architect using a select cloud provider, or at least offer cloud-based services, to remain competitive in today’s fast-paced, disruptive landscape. There are assumptions that cloud architecture will inherently be less expensive to operate than legacy mainframe systems, but for many, these assumptions have turned upside down when developers fail to understand cloud cost optimization principles. As fintechs look to build in the cloud, they should ensure their technology is highly optimized, only leveraging real-time capabilities and transactions when required. Responsible fintechs should focus on balancing customer experience and economics with a mix of batch and real-time capabilities, constantly asking themselves, “is real-time the best choice?” Just because real-time can be offered doesn’t mean it should, and 2021 will be about drawing the line between utilization and optimization.
- Why is offering more payment choices important? Emerging faster payments are working in parallel, not as a replacement for other methods. People want options to be able to pay however they like, whether it’s with Zelle, Venmo, Apple Pay, or traditional methods like cash or card, and financial institutions need to be prepared to meet this demand. The card that consumers once kept in their wallet was a key component of the bank’s and/or program manager’s brand value, as well as potentially communicating the cardholder’s lifestyle and socioeconomic status. 2021 will reinforce the value of financial institutions having partnerships with fintechs who can help them evolve their brand value to include the broad scope of emerging payments.
It’s time fintechs and institutions partner to digitize payments and offer choices. 2021 is about building smart and partnering for capabilities that can open the door to new opportunities at a financial institution.
2020: The paradoxical year that has reshaped the future of motor insurance and related sectors
By Alan Inskip, Tempcover CEO & Founder
There’s no doubt that 2020 will be remembered as the year that changed the world. Whether that overall change was for the better or for the worse is a matter of perspective. One thing is for certain, 2020 has been the year of immense innovation and adaptability in the face of seemingly insurmountable adversity caused by the COVID-19 pandemic. In this piece, I’ll touch on some of the greatest challenges that could have had a potentially crippling effect on the economy but instead were overcome and ultimately paved the way for increased resilience and innovation.
Public transport shunned in favour of private vehicles, but driving patterns dramatically shift
With ten months of varying national and regional lockdown restrictions, passenger numbers on public transport have plummeted as many people continue to work remotely, and with most opting for the safety of travelling by private vehicle when they do need to get out and about. But because of restrictive travel measures, motorists have been using their vehicles far less frequently.
This posed a major challenge for traditional motor insurers that were not able to swiftly adapt to this change, with many coming under fire for failing to adjust annual premiums in line with new driver trends. As motorists became increasingly frustrated having to pay the same premiums or sometimes even more despite their vehicle usage being substantially minimised, the relatively new and still largely unfamiliar InsurTech industry was able to rise to the occasion.
In short, InsurTech involves the utilisation of the latest technological innovations such as data analysis, cloud computing, artificial intelligence and machine learning to enable insurance products to become more agile and flexible in line with modern consumer demand – all while remaining price competitive.
Being fully-digital and technology-driven, InsurTechs demonstrated the flexibility and agility that enabled them to adapt to the huge shift in customer demand and step change in how insurance is purchased and consumed. They did this by offering an entirely digital user experience in near real-time, with temporary policies tailored to the time actually needed – anywhere from 1 hour to 28 days.
In a time of furlough and economic uncertainty, this meant that many motorists who were not using their vehicles regularly did not have to take drastic action like declaring their vehicle SORN to achieve short-term financial relief. Nor did they have to risk driving uninsured or committing to an annual policy that they could ill afford at the time.
The rise of the digital dealership offering temporary insurance as part of the purchase journey
In the automotive retail market, dealerships were forced to make drastic changes to their operating models to comply with social distancing guidelines. Showroom footfall and subsequent sales initially plummeted. But in the face of this immense adversity, we witnessed the rise of the digital dealership, a concept that would have been unfathomable even just a year ago.
Cazoo was the first fully-digital platform to enter the vehicle dealership market in late 2019, and there has also been significant investment this year in new entrants such as Cinch and Carwow. Traditional dealerships such as Arnold Clark, Cargiant and Motorpoint have extended the digital aspects of their purchase journeys with services including home delivery and Click and Collect as alternative options to the full show room experience.
InsurTech has been instrumental in ensuring that car insurance supports this shift to digital, as several national blue-chip dealerships, with both physical and digital showroom floors, now offer temporary driveaway insurance policies that cover the vehicle for a fixed-term, usually between five to seven days.
The entirely online one-step user experience is the first of its kind in the traditionally outdated and inflexible driveaway insurance industry and it is dramatically simplifying the process of how insurance is purchased and consumed. Due to the flexibility and agility of the digital solution, each retailer has its own unique URL, where the customer can obtain a simple single-cost policy in just 90 seconds through an entirely digital process, which fits in line with the evolving consumer purchase trends.
This takes the stress out of searching for annual insurance on the spot and provides the driver with near instant cover so that they can immediately drive their new car while giving them the opportunity to thoroughly research the best annual policy to suit their needs. It’s also an ideal solution while the car is under its money-back warranty, as the driver does not have to commit to an annual policy on a car that might be returned. Another benefit is there’s no risk to any existing No Claims Discount, as it’s a separate and standalone policy.
Declining brand loyalty and a demand for a more personalised and convenient user experience
Insurance has an unenviable reputation for being inflexible and even unwilling to adapt to shifting consumer trends – making it confusing for most customers. Even pre-COVID, there was a clear trend that brand loyalty was in decline, as modern day consumers are no longer prepared to remain blindly loyal to any company for a long-term period. Instead, they will reward businesses that offer a simple and convenient user experience at best value. COVID accelerated this trend and many large insurers have struggled to adapt accordingly.
Conversely, this has enabled InsurTech to thrive, as the products and user journeys are developed with direct input from customers to ensure that they are receiving a straightforward and fit-for-purpose solution that best fits their needs and requirements. Just some examples of this are simplified terms and conditions, near-instant and paperless policy documentation via the web or dedicated app, and data-driven customer engagement initiatives that offer personalised discounts and communication via email and text messaging. The end result is a user experience that is easier, more convenient and better value for potential consumers in the market.
Cautiously optimistic (if somewhat uncertain) future
Even in the most stable periods, it’s a challenge to accurately predict future market trends. And with 2020 completely rewriting the rulebook on how business is conducted, it would be remiss of me to make outright predictions. One thing is for certain, the days of slow, inflexible and costly motor insurance are numbered. It is important to note that this doesn’t mean that InsurTech is gaining the upper hand at the expense of the traditional insurers in a bid to replace them.
Instead it is there to fill a gap and act as a complementary add-on to provide the best possible value to the consumer. Industry players that enter new collaborative partnerships will dramatically improve the consumer experience, leading to new business wins and return custom, which ultimately impacts positively on the bottom line. But those that fail to adapt will be left behind.
I believe that we can look forward to a futuristic economy in 2021, where ground breaking technology continues to advance at an unprecedented rate to adapt to rapidly evolving consumer lifestyles and subsequent purchasing habits. The real winner will be the consumer and that is in everyone’s best interest.
Leadership and management in a WFH world
By Carolyn Moore, SVP of People at Auth0
Although many of us will have settled into some kind of groove, having worked away from the office for the best part of a year, there are still numerous challenges that businesses and their workforces face in this new reality.
One particularly pertinent challenge is the one faced by people managers, especially those managing virtually for the first time. How can you ensure productivity from those in your charge when you don’t have direct oversight? How do you have those more difficult conversations over a video call? Some of your team may be handling remote working better than others, so how differently should you be handling them day-to-day?
For the majority of businesses these will be questions they’re still grappling with. When the pandemic hit, we happened to be in the fortunate position of being a remote-first business, where 60% of our nearly 700 employees were already working from home. As a result, the uptick to 100% was far less taxing for us. In seven years of working from home, we’ve learned a lot about managing teams remotely, a few of which may help leaders who are still navigating the transition.
Keeping communication channels open to build trust
Leading a remote team is wholly different to the usual, in-office set up. Strict hierarchy, and any notion of presenteeism do not translate well into the remote working environment. You have to accept that your employees’ domestic life will necessarily overlap with their professional one.
Leading a virtual team requires trust and a philosophy of work based on results, and managers need to learn to give them more freedom to do work on their own terms, as long as they produce the intended results.
Building trust is best managed with regular communication. Frequent written communications from leaders regarding strategy, objectives, and organisational learning is crucial. It’s natural when working remotely for team members to isolate themselves and get wrapped up in their own workload. Managers need to help their teams understand how their work impacts on the broader corporate objectives. At Auth0, we adopted and adapted a technique created by Google called ‘Objectives and Key Results’ (OKRs) to enable this.
Now more than ever, make it a priority to regularly check in with your employees and always be up to date and aware of what their needs are. One of the first initiatives we kicked off in an effort to do so was our Slack ‘Coronabot’. This is a tool we integrated with our main form of communication that allows employees to self-identify if their work capacity was impacted by the pandemic. Another way that we tried to better understand the concerns and needs of our employees was holding listening sessions. From these listening sessions, we’ve rolled out a couple of initiatives to combat burnout, including Slack-free weekends and no internal meeting Fridays.
Make flexibility a priority
As the worlds of home life and work life collide, the traditional ‘9 to 5’ workday needs to evolve. Leaders need to encourage their team to devise their own schedules and complete work at those times when they’re most productive.
If in doubt, ask your employees how best you can help and trust that their answers will be honest. In our own experience we saw a need for a different approach when it came to supporting our employees who are caregivers. With childcare much less accessible, caregivers are doing double duty. We rolled out a survey to these individuals to hear directly how best we could support them and used the feedback to plan future programmes and supports.
We have encouraged these employees to take advantage of flexible working hours, should they need to adjust due to the pandemic, and are using tools like Clockwise or Slack that allow our employees to set their working hours and snooze notifications when they’re offline. This alleviates the pressure to respond, and we’ve found employees are actually happier and more productive this way, especially if you have a team spread across several time zones.
Put your culture front and centre
When you work remotely interactions between management and staff become increasingly transactional. Leaders need to avoid making decrees without explaining the reasoning behind them, and the thought process that led to them. Failure to do so can create a secondary culture within the workforce composed of rumours and hearsay, which can lead to mistrust.
Leaders therefore need to firstly be clear in the reasoning for their decisions, but also explicit about the culture they want to create. Your corporate culture must be written down and communicated frequently so employees can use them to guide their everyday work.
This is particularly beneficial for multinational companies spread across geographies and timezones and encompassing multiple cultures. Whether your teams are based in Singapore or San Francisco, they all have a code of conduct to adhere to This is crucial for dealing with conflict in a productive way and creating teams that collaborate and respect each other.
Create virtual spaces to socialise
Leaders mustn’t forget the more pastoral benefits of the workspace. Spontaneous water-cooler chats may seem trite, but they’re an essential means of colleagues building rapport and learning about one another’s lives outside of work.
Socialising should not disappear when you transition to remote work. That would be bad for business, productivity, and employee wellbeing. Instead, I would encourage you to get creative and use different functionalities of the collaboration tools you’re probably using daily. We use Donut within our Slack channels, that randomly pairs three employees together and schedules them for a meeting. The intention is to bring employees together that otherwise may never interact and have them connect on topics beyond the workplace, such as life, family, etc. Donut has been a fantastic aid in keeping our distributed workforce feeling connected. We’ve also utilised the results of both our semi-annual engagement survey and more frequent pulse surveys to give us insight into how effective these engagement programmes have been and where we could tweak them to make them even better.
Don’t neglect security
Security should always be a top priority, especially especially as people are logging into more services remotely. Your business’ IT and Security teams should have set up multi-factor authentication as the minimum standard. As new apps are connected to better enable any of the measures described above, your IT teams and managers should also be educating their teams about the access third-party providers have to their data.
Managers have a crucial role to play as evangelists of security best practice. They should be monitoring whether their teams are completing their security awareness training and, if new apps or technology are being introduced, ensuring that the appropriate channels are open for them to ask questions. The pandemic has been a lucrative time for cybercriminals, who have taken advantage of some lapses in security best practice. Ensuring security is everyone’s business, but it starts from the top.
Building for the future
For many businesses the move to remote working will have been, and is continuing to be, a difficult transition. Admittedly, remote work is not a perfect substitute for personal communication. When circumstances allow, we would recommend managers meet with their teams in-person at least once a year. managers meet with their teams at least once a year.
However, even whilst the pandemic still hampers our ability to travel and meet face to face, it is still possible to have a distributed team that is productive, collaborative, and happy. If leaders take the time and make the effort to foster a culture built on trust, it will open up opportunities for you in the long-term, no matter what that future may be.
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