Article

Image Data curbs credit card, check fraud

Personal loss leads to novel idea, innovative technology that prevents fraud

April 11, 2002 by

When RobertHouvener says he understands the pain of credit card fraud, it's not just talk. He's speaking from experience.

In 1995, a thief stole a credit card from Houvener's car and went on a spending spree, charging hundreds of dollars in merchandise on the card. The ordeal of resolving the situation motivated Houvener, a computer engineer, to start a business aimed at protecting others from similar crimes.

Houvener launched Image Data LLC in 1996, and two years later tested True ID, a patented image verification system designed to stop identity fraud.

How True ID works

When a consumer makes a credit card or check purchase, the merchant asks for a driver's license or I.D. card. The information on the card is recorded in a palm-sized device that resembles a flatbed picture scanner. The data on the card is encrypted and sent back to Image Data where it is linked to the consumer's account information and securely stored. Consumers aren't charged to enroll in the service.

When the cardholder makes a purchase at another store using the True ID system, Image Data sends the digital image of the customer back to the store's True ID scanner for identity verification. The image is returned to the point of sale in less than two seconds.

Image Data currently processes up to 20,000 True ID transactions per week. So far there have been no consumer complaints, according to the company.

"I think it will have a major positive impact on the industry," Houvener said. "A 16-year-old clerk now has the tool in their hand that lets them securely do a transaction. Today, what do they do? They might look at the signature on the back, but everybody knows that can be forged very easily. I think what you're going to see is much more efficient."

Image Data, based in Nashua, N.H., is a private firm with 33 employees. The company's True ID product first generated revenue in 2000, though the company won't disclose income. Its product is in place in grocery stores and car rental outlets nationally.

Merchants pay about $600 for the True ID system, which the company claims is offset in as little as one month by reducing fraudulent transactions.

Houvener said the technology that enabled Image Data to offer True ID at such a reasonable price just became available in 2000. The current version of True ID, a third generation model, is the first ready for production. The system has been tested in retail environments since 1998.

You have been warned

Businesses using True ID display a disclosure notice at the point of service, explaining the True ID process. The signage alerts customers that if someone attempts to use their identity fraudulently, the customer will be notified by Image Data.

"It acts as an incredible deterrent to fraud," Houvener said. "The criminal who stands in line and reads this disclosure notice, if they've got bad paper in their hand, they're going to take their business elsewhere to avoid having their image associated with a fraudulent transaction."

If a criminal tests the system, Image Data provides the driver's license number used in the transaction and other relevant information to a company's authorized loss prevention officer.

"We've been told by some loss prevention guys that this kind of data they need to actually present a case takes them two or three or four weeks to collect," Houvener said. "They still don't have something this clean and something this usable to turn over to the authorities. We can get to this in minutes."

Image Data's first client was WinCo Foods, a $1.4 billion corporation based in Boise, Idaho. WinCo signed a contract with Image Data last year to install True ID systems in six of its stores. The company owns 35 24-hour warehouse grocery stores in Idaho, Oregon, Washington, California and Nevada.

For seven years, WinCo fought the cashing of counterfeit and forged checks at one of its Portland, Ore. stores, said Shannon Poe, security director for WinCo. The company took preventive measures, using 50 of the counterfeit and forged checks collected over the years to develop an employee-training manual on identifying fraudulent checks.

"That helped curb the problem, but it didn't stop the problem," Poe said. "You still have that people element - people making decisions about whether a check is good or bad."

It was at this location that WinCo first put True ID to the test.

During a six-month pilot program, the passing of counterfeit checks was cut by 100 percent. The results were instantaneous.

"We had people that were in line that obviously had fraudulent checks that would see the system, turn around and walk out," Poe said.

Five more installations of True ID at WinCo stores in California and Oregon followed, dropping the number of counterfeit checks received by 80 percent in four months. WinCo now plans to deploy True ID in just over 90 percent of its stores, Poe said, raising the number of installations to 11 outlets by February.

Poe could not estimate how much money the company has saved with True ID, nor would he offer exact numbers on how much the stores were losing by cashing counterfeit checks. He did, however, make it clear how important the system was to WinCo.

"That money that we lose in forgeries and counterfeit checks comes directly off the bottom line. We're an employee-owned company, so it comes directly out of all our employees pockets - mine included."

Where other methods have failed

Printing pictures on credit cards doesn't work because criminals can replace the image of the card owner with their own, Houvener said. Criminals don't want to enroll in the True ID system because their picture would remain on file with Image Data. The average consumer, however, welcomes the idea as account protection, he added.

Lorna Christie, vice president of public affairs and communications for Image Data, said True ID is a "totally different approach" to existing loss prevention methods. Most focus on verifying the instrument used for purchase, not the person.

"You really don't need to write somebody's driver's license information on a check. That doesn't tell you anything," Christie said. "What you need to know is that the image, that person standing in front of you, is the person that's authorized to use this account. We have the ability to provide that to the user."

At Image Data's Web site, visitors are asked to share their own experiences with identity fraud. The result is a database that includes most of the common criminal techniques. The information, a list of questions with brief but informative answers, is posted anonymously on the site's True Life Stories page.

A recent case study described a consumer's fight against auto insurance fraud. The victim endured no financial losses, but spent six months resolving the matter with the help of police and an insurance agent. It all began with the illegal use of the victim's license plate number.

Another consumer was not so lucky.

Sharing an unsolved credit fraud experience, the victim professes to losing money and gaining bad credit when a thief used their Social Security number and ATM card.

When asked to provide a personal response to the crime, the victim wrote, "Frightened, Misled," and also described a "Loss of Dignity."

Future applications

Image Data plans to integrate the next generation of True ID scanners into existing POS systems. The company is considering the True ID technology has other applications, such as preventing fraudulent loan and mortgage applications.

"Any type of financial transaction where face to face verification is necessary, True ID can be used effectively," Christie said.

Image Data is also researching applications in high value markets such as jewelry and electronics stores.

"That's a situation where somebody puts up very little money and they walk out with something of very high value," Houvener said. "That's where a lot of fraud happens. With any new product, you always go where the pain is the greatest."