Vero Launches Network to Cut Risk of Cashing Checks for the Unbanked

There are 25 million people in the U.S. who have a regular income but don't have a bank account, says Vero Financial Group, Lake Oswego, Ore., and now the 2-year-old company has developed a card-based, biometric system to cash checks for this market that cuts transaction time and cost while also reducing the risk of fraud. Vero, which unveiled the product last week at the Bank Administration Institute's Electronic Delivery Systems trade show in Las Vegas, is aiming it at both retailers and banks. Its first customer, Palm Desert National Bank, will begin processing transactions next month and will serve as a demonstration center for other potential clients, says David G. Grano, president and chief executive of Vero. A veteran of both the wireless and ATM industries, Grano was chief executive of Card Capture Services Inc., a non-bank ATM network he sold to E*Trade Financial Corp. in 2000. The fledgling Vero network, dubbed the Automated Check Cashing Solution, requires a one-time enrollment of account-holders, who provide a digital fingerprint scan and photo that are permanently linked to the account. Once enrolled, account holders cash checks by touching a fingerprint reader while the clerks or teller scans and images the checks. Both the check data and the digitized fingerprint scans are compared to data stored at Vero's data centers in California and Nevada. Vero's fraud-detection engine also runs proprietary risk-management models on the physical characteristics of the check, and pulls in data from external sources such as credit agencies. Funds for the cashed check are loaded onto a magnetic-striped, Vero-branded stored-value card issued to each account holder that can be used at any ATM linked to the Star, Interlink, and Plus networks. Vero maintains two redundant data centers, which store all account data, including check images for each transaction and the electronic fingerprint template linked to each account. Vero will charge $1.00 to $1.25 per transaction if the client assumes liability for fraud. By comparison, check guarantee services, Grano says, charge from 2% to 4% of the check's face value. Clients that elect for Vero to assume fraud liability would pay Vero a fee in the same range, Grano says. “The self-managed risk model is not hard for [banks and retailers] to accept,” he says. Equipment includes, at a minimum, an enrollment computer linked to a fingerprint scanner, check scanner, card reader, and digital camera, which as a unit runs from $3,000 up to $5,000. This unit can also be used for subsequent check cashing transactions. Clients who want to install ATMs to cash checks can buy new, specially equipped machines for $35,000 or similarly equipped used ones for $12,000 to $15,000. ATMs will feature fingerprint readers and check scanners that will make images of each check. Grano says Vero's network, on which it has a patent application pending, should cut transaction time and cost, as well as the risk of fraud, in cashing checks for unbanked customers. Currently, he says, the process is cumbersome and time-consuming, in many cases involving fingerprinting of check cashers at each transaction. At bank branches, this can add 13 minutes or more of wait time for other customers standing in teller lines, according to the company's research. The crunch becomes particularly severe at lunch time and after work on paydays. With the opportunity cost of lost business figured in, each check cashed for unbanked customers is costing banks from $6 to $10, according to American Bankers Association data Vero cites. Check fraud, meanwhile, totals $15 billion annually in the U.S., losses that are expected to grow 5% to 10% per year, according to Federal Reserve data. Grano says banks and retailers can calibrate Vero's system to allow as much or as little risk as they can tolerate. Now Vero hopes to use Palm Desert as a platform to sell its check cashing system to other clients. Through its electronic banking solutions division, the bank provides vault cash for 14,500 ATMs. The company is also looking at using its network and stored-value cards to enter the markets for money transfer and cellular-phone top-up.