Should the Industry Revisit Fingerprint Requirement for Check Deposits?
- Should the financial industry continue requiring fingerprints for check deposits?
- While effective, there are pros and cons attached to the practice
- Fingerprint technology introduces numerous hurdles
Last week, OrboGraph's own James Bi was guest speaker at Finovifi's "Beyond the Vault" Webinar series, covering the check market, check fraud data and trends, and how FIs can tackle the challenges of both on-us and deposit fraud.
During the webinar's Q&A section, one banking professional brought up a practical solution that their financial institution has been deploying for decades wherein ALL check deposits require a fingerprint scan. As noted by the attendee, their bank has been able to reduce check deposit fraud and deter fake check deposits at their FI.
Understanding the Process
This procedure dates as far back as 1994. Banks required non-customers to provide fingerprints to cash checks, citing the rise in fraud. Some consumers resisted this practice, citing invasion of privacy, and even took the matter to court.
Fast-forward to today, and there are still banks using this process. The South Dakota Bankers Association explains how the process should be deployed, noting that bank personnel obtain identification, a fingerprint via scanner, and record the information onto the check. Click here to read the full recommended procedure.
Additionally, groups like the Georgia Banker's Association are still promoting this approach:
Lower your bank’s check fraud by participating in GBA’s Thumbprint Signature Program. The Thumbprint Signature touch pad is intended to deter counterfeit and stolen check fraud by obtaining a thumbprint signature from non-customers when cashing "on-us" and "not-on-us" checks.
A key component of these programs is that they apply to non-banking customers of the depositing FI who want to cash a check, not account holders.
And, while some consumers resisted this practice while arguing invasion of privacy -- even taking banks to court -- the Georgia Banker's Association points out that it's indeed legal, noting that one bank has reported an average 71% reduction in check fraud since it began this program.
Should Banks be Deploying This Technology?
The answer is complicated. When isolated to non-account holders, it would appear to be a reasonable procedure to deter deposit fraud. In fact, this might be an ideal technology for check cashers and retail locations, as the majority of deposits they handle are from customers without bank accounts.
For FIs, it's not as common for non-account holders to cash checks at a banking location -- particularly when new accounts can be opened digitally. And, as we noted in an earlier blog post, new accounts experience the most amount of deposit fraud, particularly via ATM.
However, an FI has many hurdles to overcome when deploying this strategy, from deploying technology for mRDC and ATMs to a rise in customer dissatisfaction.
With technologies available today that can detect a majority of check fraud before full funds are made available, privacy-invasive strategies like fingerprint scanning can be avoided.
