Check Fraud Accounts for 60% of Attempted Bank Account Theft

Banking customers’ expectations of their financial institutions (FIs) are changing as more transactions and activity go digital — at warp speed.

“Staying on top of these evolving product trends … is something the FIs will really need to cater to,” Paramita Bhattacharjee, vice president, product line leader, risk insights at Early Warning, told PYMNTS.

And just as banking is evolving, she said, so too is financial fraud, with bad actors becoming increasingly sophisticated and pivoting quickly to new targets. As much as banks improve their technology and launch (or enhance) new digital banking options, she said it also serves as a motivator for fraudsters to evolve their own tactics — so much so that banks are being attacked from all angles.

“We have heard for some time now that check use is on the decline – but realistically, it’s not going out of circulation anytime soon,” Bhattacharjee said, pointing to the American Bankers Association’s 2019 Deposit Account Fraud Survey report, which shows that check fraud represents 60% of attempted theft aimed at deposit accounts.

Exploiting the Digital Channels 

Along the way, fraudsters are exploiting the digital age’s hallmarks of speed, anonymity and availability — inherent in activities such as when consumers deposit checks using remote deposit capture.

Clearly, FIs need to protect themselves and their customers at every decision touchpoint, verifying identities and assessing risk in real time by ascertaining that the individual being onboarded is real and not some sort of fabricated persona or synthetic ID. As banks receive payments via check or ACH, Bhattacharjee said they need to identify high-risk transactions, authenticate account ownership and assess risk — all in real time.

FIs also need to enhance the customer experience by making funds available as quickly as possible — no matter what channel they are using.

Walking the tightrope between fraud prevention and a streamlined customer experience is no easy task, said Bhattacharjee, but advanced technologies can help banks effectively navigate the balancing act. She pointed to Early Warning’s own Real-Time Deposit Chek Service, which helps FIs verify deposits and expedite funds availability, and the Real-Time Payment Chek Service, which validates the status of an account in real time, while predicting the likelihood that a check will be returned.

Enlisting the aid of high-tech solutions can help banks sidestep the tangible and intangible costs that come with fraud and data breaches. As Bhattacharjee explained to PYMNTS, in the wake of a fraud event, call centers experience higher volumes. And typically, banks have to put manual controls into place as an additional line of defense, which also boosts manpower and operations-related costs. Then there are the intangible costs — sometimes incalculable — that come with damage to a firm’s or bank’s reputation.

Bhattacharjee also noted that banks can protect themselves — and their consumer and commercial clients — by being proactive with simple efforts like monitoring accounts for heightened activity, especially if they have been dormant for some time and then show bursts of transactions.

That same vigilance should be in place at the individual business level apart from the bank, she told PYMNTS. A deep dive into the buying patterns of the end consumer, and a focus on chargebacks and even what type of merchandise they are buying, can all illuminate whether attempted fraud is in the mix.

The urgency is there for businesses – especially smaller firms – to understand the nuances of these new, digitally oriented fraud approaches. “All of us as a community — banks, small businesses — should get involved and promote education about frauds and scams, and the responsibilities of the consumers versus the small businesses in avoiding getting into an unwanted situation,” Bhattacharjee told PYMNTS. Larger FIs should invest proactively in fraud and risk solutions and educational programs as well.

Along the way, with advanced technologies and education working in tandem to safeguard FIs, businesses and consumers, the entire ecosystem benefits, according to Bhattacharjee. As she told PYMNTS, “FIs need to think about protecting the reputation of their institutions and their brand reputations, and be more upfront and proactive instead of being reactive.”