Banknorth Uses SQN SENTRY To Fight Check And Deposit Fraud

By Mary Norton-Miller

Banknorth wanted to do business without incurring the growing problem among large banks of substantial losses due to check and deposit fraud. Thirty days after the October 2001 implementation of SQN SENTRY Monitor and Detect, Banknorth could already see a return on their investment. By the end of the first year the software paid for itself by reducing losses and saving a significant amount of money by cutting fraud dramatically.

Banknorth Group Inc., headquartered in Portland, ME, is a $26 billion banking and financial services company. Banknorth is New England´s third largest banking company, with over 350 branches and 500 ATMs throughout six Northeastern states.

A Complicated Battle

Banknorth has a prime pass item volume of 1.3 to 1.8 million items per day, all running through SENTRY. The technology finds aberrations in behavior patterns and focuses attention on the highest risk items. This is done by fine-tuning filters and then marrying the factors, such as dollar amount, account age, deposit size, and average account balance. SQN says that users report spotting up to 84% of their check fraud.

"We have to find the balance between making the best use of our available staff and establishing the risk level," explains Joseph W. Hanson, evp operations, Banknorth Group, Inc. "We constantly fine-tune the filters as staff is added, fraud trends change, etc." Joe gives the example of a sieve. If the holes are too big you won´t catch anything, but if the holes are too small nothing gets through. Thrown into the mix is the problem that the items you´re trying to catch keep changing in size and nature.

Filters Find Patterns

"Monitor" checks for unusual patterns of customer behavior to detect suspicious deposit items. "Detect" examines items on the payment side, looking at check numbers and changes in behavior pattern.

"It´s very easy to modify the filters," says Katherine Spear, vp, Banknorth. "If a fraudulent item should get through, we can change the filter to include the new criteria and the system incorporates it the next day." Katherine also says the ability to set thresholds by product level and/or account type such as commercial or retail is extremely useful.

Studying History

Both Monitor and Detect create profiles for each customer and automatically compare them with every deposit and credit, and every "on-us" check. Account histories are run each night to create a thirteen month rolling history.

Time-slicing takes account histories each month and divides them into weeks for comparison purposes. "For example, the software can compare the first week of January 2003 with the first week of January 2002," explains Rachel Ollander, marketing executive, SQN Banking Systems. "The software also develops weekly averages per month. This helps create a more accurate picture of customer transactional behavior."

Staff is Critical

"Our staff is remarkable. They take tremendous pride in their work and are absolutely critical for successful fraud detection," states Joe. Monitor and Detect point out suspected items, but you still need people to look at suspected accounts.

In the two years since implementation, Banknorth has added eleven FTEs for a total of fourteen staff members. Based on increased staff skills, the risk threshold has been able to be continually lowered.

"It´s a position where you don´t want a lot of turnover," agrees Katherine. "They continue to improve their detection skills with experience." Banknorth staff is trained both in-house and through SQN.

Katherine says the daily reports for each bank are very easy to use. They highlight specific accounts through which losses may be occurring and help analyze system effectiveness. They are broken down by criteria such as account, sequence, dollar amount, etc.

Banknorth has Monitor and Detect integrated through its all-items file to DDA (Alltel), and savings.

"It is an excellent product; we´re very happy with the system," says Joe. "We´d recommend SQN Banking Systems and SENTRY Monitor and Detect.

About SQN Banking Systems
SQN Banking Systems was founded in 1983 and is headquartered in Rancocas, NJ. SQN claims to be the largest provider of signature verification and integrated check fraud prevention software for financial institutions of all sizes in the U.S. Their customer base of over 500 installations includes eight of the top ten U.S. banks and 70% of the top thirty U.S. banks.

SENTRY Applications
o Monitor - Finds potential deposit fraud by creating customer profiles and automatically comparing them with every deposit and other credit.

o Detect - Finds potential check fraud by creating customer profiles and automatically comparing them with every "on-us" check.

o Exception - Integrates check fraud suspects, signature comparison suspects, DDA exceptions, stop payment suspects, check images, signature images, and document images in an easy-to-use workflow that uses one screen.

o SigCheck - Unique signature comparison engine that analyzes signatures and produces a
confidence factor from 0 to 100.

o Signature - Centralized database that stores and displays authorized signatures for your back office and branch operation. Online signatures can be used for a variety of applications such as signature verification and comparison, exception item processing, and batch file review.

o Safe - PC based application that manages your entire safe deposit box operation. The database includes information unique to each authorized user, such as signature, photo, and payment status.

o Batch Review - PC based application that works with leading check imaging systems to provide check images and authorized signatures for approval on one screen.

Banknorth is currently using SENTRY Monitor and Detect. Monitor, Detect, Exception, SigCheck, and Safe are each used by approximately 10% of SQN´s total customer base. Batch Review is used by 25% and Signature by 90%. Signature, with an interface into your teller system, is often installed in community banks, while Batch Review and Exception are usually installed in larger banks.

Rachel expects Monitor and Detect implementations to increase due to the increased regulations that require you to know your customers. Also, as check fraud increases, so does your need for software that enables you to find suspicious account transactions.

SigCheck and Exception implementations are also expected to increase due to the widespread availability of check imaging. Exception provides a workflow with a common platform to help your personnel make more informed pay/no pay decisions for "on-us" checks, while the SigCheck filter is used to find fraudulent signatures on checks.

"We are keeping up with the latest changes in the banking industry," says Rachel. "including the move to check electronification. We are currently developing fraud tools that take advantage of image-enabled check processing systems."

Pricing for SENTRY Monitor or Detect is from $25,000 and up, based on the number of accounts and transactions.

For more information, visit SQN's Web site at www.sqnbankingsystems.com or Contact SQN Banking Systems, 65 Indel Ave., Rancocas, NJ 08073 (609/261-5500)

Copyright 2003, Microbanker, Inc. All rights reserved. www.microbanker.com Reprinted from Microbanker Banking Technology Strategies, April 1, 2003