SIX RETAILERS TESTING REAL-TIME CHECK FRAUD DATABASE

DEENA AMATO-McCOY

SCARBOROUGH, Maine -- Hannaford Bros. here is one of six retailers testing a loss-prevention system designed to counter payroll check-cashing fraud. The software application links the retailers to a universal negative check file, and directs associates, in real time, to accept or decline checks.

Besides Hannaford, retailers reportedly testing the application include Harris Teeter, Charlotte, N.C.; Bi-Lo, Mauldin, S.C.; Bashas' Markets, Chandler, Ariz.; Haggen Inc., Bellingham, Wash.; and Lowes Food Stores, Winston-Salem, N.C.

The pilot involves a total of 24 stores, and the retailers will reportedly evaluate early results next month.

"The key to expanding this product [in the industry] is if everyone can expand together," said Steve Campbell, manager of financial services at retail for Hannaford. "With multiple retailers involved, we have access to a larger database of information. Alone, we only have access to our own bad-check records."

Though he would not give specific details, Campbell said Hannaford is pleased with its test results thus far.

"Results are positive, both from the standpoint that the application was easy to implement and that we have stopped some bad items," he explained. "This tool is strengthening the safety net regarding check losses and we are seeing it help minimize our vulnerability."

"By using the negative history files retailers are able to decipher the good checks from the bad, and are instantly alerted so they can prevent getting hit so hard with fraudulent payroll checks," said a source familiar with the situation. "We believe this product will allow retailers to reduce their payroll check losses by 30%, which will save a sizable amount of dollars for supermarkets."

"Payroll check fraud is something that easily can get out of control because it is very episodic," said Hannaford's Campbell. "Our goal is that the product will allow us to extend check-cashing services to customers. Though our focus is the grocery business, it is still critical to provide, albeit limited, banking services such as check-cashing privileges."

The application, PayrollChex, from Deluxe Payment Protection Systems, a division of Deluxe Corp., St. Paul, Minn., is designed to identify the validity of the individual cashing the check, as well as the validity of the check itself. Retailers began testing the system in November 1997.

The retailers testing the application use a stand-alone dial-up terminal installed at their courtesy booths, the area where most retailers accept payroll checks. Most retailers require some form of identification, usually a valid driver's license.

The application taps into the negative check file to monitor the number of checks the person has cashed within a specified time period as well as returned-check history, according to Campbell.

For example, a retailer can establish that each customer may only cash a $400 check every five days, or cash two $500 checks within five days. "Each retailer can set up their own activity parameters and evaluate results for future transactions," he said.

The terminal is equipped with a magnetic ink character reader that scans the printed check number. Once the associate inputs the customer's driver's license number into the terminal, the data is electronically transmitted to the negative check file for validation.

"If the file cross-references a driver's license with a check that is unpaid, or an account number that is reported closed or stolen, associates are alerted within 10 seconds to a discrepancy and told not to accept the check," explained the source.

Deluxe Corp. is also the provider of Scan, the Shared Check Authorization Network.