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Infosys - Prevention of fraud in inward clearing

Infosys - Prevention of fraud in inward clearing

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Published by Infosys
Infosys Finacle thought paper on prevention of fraud in inward clearing
Infosys Finacle thought paper on prevention of fraud in inward clearing

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Categories:Types, Brochures
Published by: Infosys on Jun 03, 2013
Copyright:Attribution Non-commercial


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Prevention of fraud in inward clearing
Thought Paper 
Universal Banking Solution | Systems Integration | Consulting | Business Process Outsourcing
Prevention of fraud in inward clearing
The purpose of this paper is to provide anoverview of fraud in both paper based andelectronic banking transactions. Currently,customers are alerted after, and not before, their accounts are debited. A check truncation system
Types of financial fraud
Financial fraud can be of different types, such as:
Forgery of signature on checks
Alteration of payee names
Hacking of debit and credit card details
Hacking of Internet user id and passwords etc.
Forgery of signature to withdraw money frominoperative accountsFraudsters forge signatures of genuine accountholders and lodge a change of address, alongwith a request for new check books, debit cardand PIN etc., to be delivered to the new location.Then, it
s just a matter of forging the signatures
towipe out the accounts or using the PIN to
withdraw funds at an ATM.Sometimes, fraudsters also steal checks, forgeor alter them, to take money out of the account.(CTS) can be used to share the image or details of acheck or payment instrument with customers,before it is debited to their account, and therebyreduce the incidence of fraud.They could either withdraw the amount in cashor deposit the checks through clearing, intotheir own fraudulent accounts. At other times,fraudsters are hand in glove with bank staff, whohelp them with all they need to know. In the caseof electronic fraud, hackers employ phishing anda variety of other creative techniques to hijackcustomer accounts.Until the dawn of Internet/SMS/Mobile Banking,  customers would not know that their accountshad been attacked until they visited the branch.Today, however, they are immediately notifiedof any irregular activity through automatedalerts on mobile or email, or they come to know
of it when they log into Internet Banking, or visit the ATM to withdraw funds or make an
account enquiry.
Manual control to combat fraud in clearing
Over the years, banks have taken a number of measures to prevent frauds in clearing. Their manual controls include following the 4 eyes(maker checker) principle, introducing anadditional checker when a debit or credittransaction exceeds a particular amount,
Thought Paper 
double-checking debits to inoperative accounts,telephoning customers when in doubt, validatinginstruments under an ultra violet lamp etc. Thatbeing said, these measures, although extensive,
are not enough to check frauds in paper or 
electronic clearing.
Slow pace of automation
The progress of automation is not uniform across branches for computerization, inadequacies of geographies, owing to different reasons such technology and infrastructure etc.as lack of capital, lack of preparedness among
Why automation of clearing operations
There is a need for automation of clearingoperations, which could reduce frauds andincrease transparency. One of the goals of automation should be to transmit images of clearing debits for customer verification, beforethey are actually executed. Such a system givescustomers the opportunity to reject a falseinstrument, such as a forged check. It also helpsreduce fraud perpetrated by altering payeenames. This can be achieved by adopting the
Check Truncation System (CTS).
What is a check truncation system
 A Check Truncation System (CTS) is a processwherein scanned images of checks are sharedwith banks based on which clearing instrumentsare processed. There is no physical movementof checks, which generally remain with thepresenting bank. There are some disadvantagesassociated with physical clearing, such as thepossibility of losing checks in transit, delay inclearing and reconciliation etc. CTS overcomesthese disadvantages of physical clearing andincreases efficiency, reduces operational costand expedites the clearing process.
Where CTS has been implemented
CTS has been implemented in countries suchas India, UAE, Saudi Arabia, Hong Kong, US,Singapore and Sri Lanka etc. It is now beingimplemented in African countries, such as Kenya.
Clearing workflow: image based
Scanning of ChequesSorting of Cheques basedon images (3)Y presents theCustomer 
cheque (1)Y
s accountcredited after 
Presenting Bank
Scannedagreed period (6) images Collected bypresented with payingimage id (2) bank (4)Outward Returnwith Image Id
Cleaning House
s accountdebited (5)
Payee Bank
Customer XInward returnswith Image idviewing of scanned imageswhile processinginwardinstruments
Thought Paper 

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