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High-tech checks fight fraud

By Claes Bell ·
Thursday, August 11, 2011
Posted: 3 pm ET

This week ING Direct, the popular online provider of high-interest checking accounts, finally knuckled under to the reality that Americans still need checks.

The company had long refused to issue checkbooks to customers, instead offering to send paper checks on behalf of customers via the mail.

In a lot of ways, ING Direct's antipathy toward checks is understandable. They're expensive to handle and process, a key issue for an online bank that's able to offer above-market interest rates on its deposit products by reducing its overhead. Not only that, but they're much less secure than debit cards or credit cards, which can lead to high fraud losses, another major source of overhead costs for banks.

While ING might not have conquered that first problem, the bank appears to have made inroads on solving the second. Daniel Wolfe of American Banker has a story today on how ING is reinventing the check to make it more secure:

ING Direct's patent-pending process requires customers to first go online to activate each checkbook, much like they would activate credit cards by phone before their first use. Customers cannot order checks with custom images (no pictures of family members or Snoopy), because the design of each check is also part of ING Direct's security.

The checks are available only to holders of the Electric Orange account, which ING Direct introduced in late 2006. The product was conceived as a "checkless checking" account; the bank hoped customers could make all payments online.

But "there was enough demand (for paper checks) in the market, unfortunately," says Todd Sandler, ING Direct's head of product strategy. "It's not something that our customers want; it's really something they need. … Customers begrudgingly feel that they need to have paper checks until the rest of the world catches up."

I think this is a good move on ING's part. As annoying as they are, checks are still a key tool for person-to-person payments of all kind, in addition to some stubborn companies that either won't accept debit or credit cards or want to charge a fee to do so.

While the process of having to authenticate every check is ponderous and will probably lead to some checks bouncing, I think ING is right to be searching for ways to cut out check fraud. I was fortunate enough to interview con-artist-turned-security-expert and "Catch Me If You Can" author Frank Abignale a few years ago on debit card security issues, and I remember him telling me that, to this day, he avoids using checks whenever possible. He said that not only provide a wealth of actionable personal information to identity thieves, but they are nearly as straightforward to counterfeit as they were during his years as a ne'er-do-well con artist in the '60s.

What do you think? Would you like to see your bank push these kind of innovations on their checks? Would you be willing to put up with a little inconvenience to fight fraud?

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Mark K
August 12, 2011 at 6:14 pm

I just got my checks. Everything is great. The activation is really cool. You only need to activate the book, but ING Direct checks every check for the security pattern. It's really cool. Once again, they innovate on a platform that no one else has done in 20 years. Awesome job. Electric Orange checking account is the best checking account on the market. Once their Remote Deposit is launched (they've hinted at it) Americans won't need another account. GO ORANGE GO!!

August 12, 2011 at 4:59 pm

I haven't wrote a check in about 10 years. There is nothing that can't be transacted electronically.

Pasa Deena
August 11, 2011 at 11:30 pm

I do hope the banks use the innovations mentioned in the article on their checks. I would be willing to put up with some inconvenience to fight fraud. Using tamper-resistant ink, such Noodler's "bulletproof", also deters forgery.