The Fraud Prevention Source

Web Bill Payments and Bank Check Fraud

In recent years the number of companies offering Web bill payment services in the United States has grown dramatically and today most banks are also offering Web bill payment services to their customers.

How Web Bill Payment Systems Work

A checking account owner contracts with a Web bill payment company to pay some (usually most) of his or her monthly bills. The checking account owner, using software provided by the bill payment company and a computer connected to the Web, creates and continually updates a list of accounts payable vendors. As bills are received, the checking account owner enters the amount of each bill and due date into the Web bill payment system. The Web bill payment company creates and continually updates a "bills to be paid" file and it pays these bills in a timely fashion.

In the typical Web bill payment system the checking account owner continues to write checks, but usually a substantially reduced number, because the Web bill payment company has taken over the payment of most of the bills. The Web bill payment company uses electronic transfers from its client's checking account, and it also writes checks drawn on its client's checking account. Thus, there are three sources of routine withdrawals from a typical checking account:

• Checks issued by the owner of the checking account.
• Checks issued by the Web bill payment company.
• Electronic transfers initiated by the Web bill payment company.

Using the software provided by the Web bill payment company and a computer connected to the Web, customers have online access to their payment and deposit information 24 hours per day 7 days per week. Customers are also provided with online access to their files where they can see which bills have been paid, which bills are to be paid and other information pertaining to their account.

Bank Check Volume and Transaction Accounts

There are approximately 100 million families in the United States, and on average these families write about 10 checks for bill payments each month. Thus, the potential market for Web bill payment companies is about 1 billion checks per month or about 12 billion checks per year.

As more and more checking account owners use Web bill payment companies there should be an increase in the number of bills paid by electronic transfers in place of bank checks. Thus, there should be a reduction in bank check volume as the use of Web bill payment companies increases.

But even though bank check volume may decrease, the number of transaction accounts, upon which checks can be written, may increase. New checking and other types of transaction accounts continue to increase each year, and now over 90 million families have at least one checking account. When individual family members and other transaction accounts (savings, mutual fund, etc.) are considered, there are over 175 million consumer transaction accounts currently in use in the United States.

Because banks and other financial institutions continue to aggressively market new types of transaction accounts (for example, free checking, interest bearing, etc.) it is very probable that the number of consumer transaction accounts will continue to increase in the years ahead. Therefore, it seems that there will certainly be a reduction in the use of bank checks because of the efforts of Web bill payment companies, but at the time, there may an increase in the number of transaction accounts, on which checks can be written.

Bank Check Fraud

So how will a reduction in bank check volume affect the amount of bank check fraud?

And what effect, if any, will an increase in the number of transaction accounts have on the amount of bank check fraud?

An analysis of the available information on bank fraud indicates that there doesn't appear to be any relationship between bank check volume and the amount of bank check fraud. There is also no evidence of any check fraud in the payment of bills and so a reduction in bank check volume, due to the substitution of electronic transfers for bank checks in the payments of bills, will have no effect on the amount of bank check fraud. Fraud perpetrators target transaction accounts and any increase in the number of these accounts will mean an increase in the number of potential targets for bank check fraud.

To see how counterfeit checks can be used to defraud transaction account owners, visit Ethent Views: "Analyzing the Philadelphia Story: 1,569 Counterfeit Checks Create $4,200,000 of Losses".

However, the latest fraud concern may be the result of the increases in the amount of information that is available online to transaction account customers.

A New Fraud Concern

Today virtually all banks offer online services where consumers and businesses can access their checking accounts 24 hours a day, 7 days a week. These services, in many cases, are marketed in conjunction with Web bill payment systems. Bank customers can view online all their accounts' transaction information and, increasingly see images of their checks which have been paid. Fraud perpetrators, who steal PINs or other access codes, can also have access to this checking account information, which was rarely, if ever, available to them in the past.

If fraud perpetrators have access to this type of online information, then counterfeit checks can be created with far more information than was ever available in the past.

Ethent Views

2) There does not appear to be any relationship between bank check volume and the amount of bank check fraud. It's very possible that the amount of bank check fraud could increase while bank check volume decreases.

3) There are new fraud concerns, because fraud perpetrators may obtain online access to checking account balances and paid check numbers that can be used to create counterfeit checks. Transaction account owners should consider using Positive Pay and/or Cryptosystem Authentication to secure their check transaction information. See Ethent Views: "Positive Pay and Cryptosystem Authentication".

4) As long as transaction accounts exist, there will be the possibility of bank check fraud regardless of bank check volume. See Ethent Views: "Analyzing the Philadelphia Story:1,569 Counterfeit Checks Create $4,200,000 of Losses".