TECHNOLOGY INNOVATORS: Checkmating fraud
There was nothing strange about the woman who came into the Lopez Supermarket in Brownsville, Texas to cash a payroll check one day last year. She registered at the customer service desk, cashed the check, and left. The check was from a new "maker," a term used to describe a business that issues payroll checks.
The 12-store, family-run chain gets new makers all the time. Although the manager wasn't able to verify the maker immediately, he had all of the woman's information, including her fingerprints, on file in the new BioPay Paycheck Secure biometric check-cashing system, so the check was cashed.
When the maker got back to the store manager, however, it turned out that the woman who cashed the check was fired from the company a week earlier and stole a bundle of payroll checks before she left.
All was not lost. Chain v.p. Jaime Lopez put out an alert on the BioPay system to the rest of the chain, indicating which check numbers were stolen. Not more than 15 minutes later, a different person registered on the BioPay system at another Lopez Supermarket location and tried to cash one of the stolen checks. Seeing the alert, the customer service manager called the police. To give them time to get to the store, he engaged in the Lopez Supermarket family stalling tactic, which consists of faking the need to get coins from the safe, then dropping the coins all over the floor and slowly picking them up.
"Their party ended a half hour after it started," says Lopez. "When the cops arrived, they found more than 40 checks in the car and a load of clothing. We think that their plan was to hit as many stores as they could, then split."
Former victim
Although these criminals were caught, it wasn't always that easy. Before implementing BioPay's system, the Lopez family of supermarkets—located in the Lower Rio Grande Valley and operating under the names of Lopez Supermarkets, Inc., Lopez Food Stores, and A&V Lopez—was a victim of many varieties of check fraud. It was not from a lack of prevention efforts, however. "We always made sure we took the proper identification, made sure we verified the face of the person standing in front of us cashing the check, made sure the signature on the check and ID matched," says Lopez.
But these safeguards weren't effective against some of the more sophisticated criminals. "Sometimes they would go to an Office Depot and order some checks through them, or they would order them online, with the name and address of a prominent company here in town, a company we had already verified," he says. "The checks looked like their legitimate counterparts, but turned out to be fraudulent.
"To complicate things, we have multiple stores and multiple shifts. They could cash one check in the morning at one store, go to another store and cash another check, then when the shifts changed they could do it again. In the span of two or three weeks it could add up to thousands of dollars."
Even if the person responsible was caught, proving guilt was another matter, especially if there was a significant amount of time between the crime and the apprehension. "The police would depose the teller who cashed the check, but often the details were fuzzy or, at the very least, not provable beyond a reasonable doubt," says Lopez.
Even when a conviction is handed down, restitution is by no means immediate. One ring that had cashed more than $20,000 in bad checks—$12,000 worth in Lopez supermarkets—was required to make restitution of hundreds of dollars a month.
Lopez decided to install Herndon, Va.-based BioPay's Paycheck Secure systems in June of last year. The way it works is straightforward: On initial check presentment, the customer hands the clerk a driver's license or other ID for scanning or entry into the BioPay database. At the same time, the customer's two index fingers are scanned and an electronic photograph is taken. The entire process takes a couple of minutes, and all information is stored within the BioPay system, so a repeat customer need only use the fingerprints to complete future transactions.
Lopez registered his shoppers gradually after the system was installed, in order not interfere with efficient customer service. When he first put in the system, he enrolled every fourth or fifth customer. Over time, he increased the frequency of enrollments to every other customer. He did this until the two-month mark, after which each new customer was required to enroll.
Initially, there were some concerns among the check-cashing customers. "Some people had a 'Big Brother' complex," says Lopez. "They worried about their immigration status; they worried about unpaid parking tickets. We had to reassure them that the information was just for our use and it was for their own protection as well. Besides, they only had to present their information once; after that, their fingerprint is all that is required."
Now, it is mandatory for customers to be enrolled in the BioPay system in order to cash a check. "We have maybe one or two people a month who will not give their fingerprints," says Lopez. "If they are not going to comply, then we do not want their business. It is safer for us, and more cost-effective in the long run."
Stored data
The BioPay system stores a template of the fingerprint image, and records all check-cashing transactions associated with that person. A customer's negative check-cashing information is stored in a central database that is shared by all merchants using the BioPay system. Advanced alert mechanisms warn the clerk of a potential bad check before the transaction is completed, enabling the check to be declined before it is processed.
The business community has rallied behind the BioPay solution. "They like the fact that they feel their payroll checks are protected," says Lopez. "These scams impacted them as well as us. Now that we have the system in place, the local companies work with us to help prevent check-cashing fraud. For example, if one of the companies finds some payroll checks missing, they give us the check numbers so we can input them into the system. This way, if we come across them we can decline payment and alert the authorities."
One unintended benefit the system delivered was that it helped Lopez to better identify his customers, at least those who cash checks. "For each customer, we have a check-cashing history, so we know how much we are earning off of these customers, what they are worth to us," he says. "Now we can look into developing customer-retention and customer reward programs for these people."
Lopez was also able to examine his check-cashing customers geographically. After exporting their addresses into a Microsoft Excel spreadsheet, he uses Microsoft's MapPoint software to plot his customer locations and compare them against demographic information stored in the software, such as income, age, population, and gender. This information can be plotted onto the same map.
"This enables us to better target our marketing programs," says Lopez. "We know who these customers are and the demographics of the areas they live in. If there are any holes in the map, we can determine how to boost customer counts in those areas."
Lopez invested $10,000 per unit, plus a service fee, to install the BioPay system. He expects to recoup that in under a year.
The 12-store, family-run chain gets new makers all the time. Although the manager wasn't able to verify the maker immediately, he had all of the woman's information, including her fingerprints, on file in the new BioPay Paycheck Secure biometric check-cashing system, so the check was cashed.
When the maker got back to the store manager, however, it turned out that the woman who cashed the check was fired from the company a week earlier and stole a bundle of payroll checks before she left.
All was not lost. Chain v.p. Jaime Lopez put out an alert on the BioPay system to the rest of the chain, indicating which check numbers were stolen. Not more than 15 minutes later, a different person registered on the BioPay system at another Lopez Supermarket location and tried to cash one of the stolen checks. Seeing the alert, the customer service manager called the police. To give them time to get to the store, he engaged in the Lopez Supermarket family stalling tactic, which consists of faking the need to get coins from the safe, then dropping the coins all over the floor and slowly picking them up.
"Their party ended a half hour after it started," says Lopez. "When the cops arrived, they found more than 40 checks in the car and a load of clothing. We think that their plan was to hit as many stores as they could, then split."
Former victim
Although these criminals were caught, it wasn't always that easy. Before implementing BioPay's system, the Lopez family of supermarkets—located in the Lower Rio Grande Valley and operating under the names of Lopez Supermarkets, Inc., Lopez Food Stores, and A&V Lopez—was a victim of many varieties of check fraud. It was not from a lack of prevention efforts, however. "We always made sure we took the proper identification, made sure we verified the face of the person standing in front of us cashing the check, made sure the signature on the check and ID matched," says Lopez.
But these safeguards weren't effective against some of the more sophisticated criminals. "Sometimes they would go to an Office Depot and order some checks through them, or they would order them online, with the name and address of a prominent company here in town, a company we had already verified," he says. "The checks looked like their legitimate counterparts, but turned out to be fraudulent.
"To complicate things, we have multiple stores and multiple shifts. They could cash one check in the morning at one store, go to another store and cash another check, then when the shifts changed they could do it again. In the span of two or three weeks it could add up to thousands of dollars."
Even if the person responsible was caught, proving guilt was another matter, especially if there was a significant amount of time between the crime and the apprehension. "The police would depose the teller who cashed the check, but often the details were fuzzy or, at the very least, not provable beyond a reasonable doubt," says Lopez.
Even when a conviction is handed down, restitution is by no means immediate. One ring that had cashed more than $20,000 in bad checks—$12,000 worth in Lopez supermarkets—was required to make restitution of hundreds of dollars a month.
Lopez decided to install Herndon, Va.-based BioPay's Paycheck Secure systems in June of last year. The way it works is straightforward: On initial check presentment, the customer hands the clerk a driver's license or other ID for scanning or entry into the BioPay database. At the same time, the customer's two index fingers are scanned and an electronic photograph is taken. The entire process takes a couple of minutes, and all information is stored within the BioPay system, so a repeat customer need only use the fingerprints to complete future transactions.
Lopez registered his shoppers gradually after the system was installed, in order not interfere with efficient customer service. When he first put in the system, he enrolled every fourth or fifth customer. Over time, he increased the frequency of enrollments to every other customer. He did this until the two-month mark, after which each new customer was required to enroll.
Initially, there were some concerns among the check-cashing customers. "Some people had a 'Big Brother' complex," says Lopez. "They worried about their immigration status; they worried about unpaid parking tickets. We had to reassure them that the information was just for our use and it was for their own protection as well. Besides, they only had to present their information once; after that, their fingerprint is all that is required."
Now, it is mandatory for customers to be enrolled in the BioPay system in order to cash a check. "We have maybe one or two people a month who will not give their fingerprints," says Lopez. "If they are not going to comply, then we do not want their business. It is safer for us, and more cost-effective in the long run."
Stored data
The BioPay system stores a template of the fingerprint image, and records all check-cashing transactions associated with that person. A customer's negative check-cashing information is stored in a central database that is shared by all merchants using the BioPay system. Advanced alert mechanisms warn the clerk of a potential bad check before the transaction is completed, enabling the check to be declined before it is processed.
The business community has rallied behind the BioPay solution. "They like the fact that they feel their payroll checks are protected," says Lopez. "These scams impacted them as well as us. Now that we have the system in place, the local companies work with us to help prevent check-cashing fraud. For example, if one of the companies finds some payroll checks missing, they give us the check numbers so we can input them into the system. This way, if we come across them we can decline payment and alert the authorities."
One unintended benefit the system delivered was that it helped Lopez to better identify his customers, at least those who cash checks. "For each customer, we have a check-cashing history, so we know how much we are earning off of these customers, what they are worth to us," he says. "Now we can look into developing customer-retention and customer reward programs for these people."
Lopez was also able to examine his check-cashing customers geographically. After exporting their addresses into a Microsoft Excel spreadsheet, he uses Microsoft's MapPoint software to plot his customer locations and compare them against demographic information stored in the software, such as income, age, population, and gender. This information can be plotted onto the same map.
"This enables us to better target our marketing programs," says Lopez. "We know who these customers are and the demographics of the areas they live in. If there are any holes in the map, we can determine how to boost customer counts in those areas."
Lopez invested $10,000 per unit, plus a service fee, to install the BioPay system. He expects to recoup that in under a year.