Apr 11, 2012 Dave King
Are your check verification procedures robust enough to keep the fraudsters at bay?
Online fraud is becoming a serious epidemic worldwide, and so far, it just keeps getting worse. In the last couple years, hacking attacks have quickly moved towards targeting personal consumer information, specifically for the purpose of enabling fraud. In fact, according to a recent Verizon study, 95% of hack attacks last year targeted personal info.
This is why it's vital for your business to have solid check verification processes in place to help prevent fraudulent sales when the customer is not present. In theory, you should be able to accept online checks as readily as physical ones, but in reality, this simply isn't the case.
Check verification is easy when the customer is present. You see them pull out their bank-issued checkbook and write the check. You can ask for ID, and verify their name and signature match. Fundamentally, the only real X factor is their funds availability.
Unfortunately, the same cannot be said for online check verification when the customer is not present.
Fundamentally, the current electronic check verification procedures are extremely lacking. The only element that is actually verified at the point of sale during customer-not-present transactions is the bank's own routing number. All other information, such as the account number and funds availability, are only processed days later, once the charge gets to the receiving bank. Worse, many elements - including the customer's name - are often not validated at all. This makes online check verification an inherently risky process.
It gets yet worse when you consider that, in the event of a disputed bank transaction; it is your business that gets left the proverbial lurch. You have already, in most cases, provided the goods or services, yet when the dispute goes through; the payment is taken away from you. This situation is far more likely to occur in cases of electronic checks, rather than physical ones.
All this simply illustrates the need for more robust online check verification procedures, to help keep the fraudsters from ripping you and your customers off.
The good news is, third party solutions are beginning to address this problem. Online databases of fraud reports can be linked into your payment systems, to help make your check verification procedures as trusted as credit cards. Any company looking to process online check payments would be wise to investigate these systems before proceeding.