The digital age of banking is well established. Banking customers can open accounts online, make digital payments to nearly anyone, and even sign mortgage documents from their phones. To stay competitive, banks must offer digital solutions and online/app-based access to accounts and other services, but they can’t let the digital revolution distract them from the dangers of low-tech fraud such as check fraud.
Check fraud continues to be a significant threat to banks, and in fact, it has become increasingly prevalent over the last few years. To protect themselves and their customers from check fraud losses, banks cannot rely on legacy solutions. Although the fraud may start on paper, financial institutions must take a digital approach to the issue. They must also be aware of the overlap between digital actions and paper check fraud.
Check Fraud in the Digital Age
Many thieves are still focused on traditional types of check fraud. They steal checks from the mail, wash them, and enter new names and amounts before cashing the check. Others steal checkbooks and draft bad checks at stores or check cashing facilities, or they simply try to cash them over the counter at a branch. However, other scammers leverage digital technology in their scams.
Some thieves take over accounts, order checks to a different address, and then, commence with the above types of activities. Generally, they take over the account by using a phishing attack to get the account holder’s sign-in details, but in some cases, they may phish for the account number with other details and then create fake checks.
In still other cases, fraudsters steal account information through phishing scams, malware, mail theft, or other approaches. Then, they sell the information online. Buyers, in turn, write bad checks to themselves or cash them through mule accounts or newly opened fraudulent accounts.
The Importance of Cyber Threat Intelligence
You must leverage cyber threat intelligence to stay on top of the latest threats. Remember the scams are always changing. Thieves use a blend of approaches to bypass detection, and they improve their strategies over time. They also work together. As indicated above, people buy and sell customer data online, but they also offer training and guidance on how to commit scams successfully. Banks must be aware of the latest threats and position themselves accordingly.
To make this happen, they should work with a fraud detection partner who collects cyber threat intelligence. They should monitor the dark web, hackers forums, and other sources to collect intel on the newest and emerging threats. Then, they should ensure that they incorporate this data into their fraud detection efforts.
A Multi-Pronged Approach to Fraud Detection
To protect themselves from check fraud, financial institutions need to look beyond the check. They cannot just focus on the part of the transaction where money comes into or leaves the bank. Instead, they must monitor all of their customer’s interactions with the bank to look for precursors of fraud such as signs of account takeover, mule recruitment, and/or new account fraud.
Fighting check fraud in the digital age requires a multi-pronged approach that combines check image scanning, behavioral analysis, and machine learning to look at transactions in real-time. Consider the following:
Check Image Analysis
Digital tools analyze the fixed images on checks. They look for alterations and compare details on the check to customer profiles. Technology that can distinguish issues too small for the human eye to detect, evaluates the payor name and address, placement of memo and signature lines, standard text, fonts, layout, serial numbers, and check size. Then, if the system detects issues, it flags the check for manual review by your team.
Check Content Analysis
Accepting counterfeit or incomplete checks can create unsustainable losses for a bank, and to prevent that from happening, content analysis tools digitally examine checks to ensure they are complete. They look at the dates, legal and courtesy amounts, MICR codes, payee line, and payor’s signature.
The system flags presented checks for manual review if they have issues such as missing signatures, post-dates, stale dates, and/or mismatched courtesy and written amounts. This technology also evaluates the MICR data and compares it with the account number, check number, routing number, and barcode info.
ACH Filters
Check fraud detection software allows you to set filters that prevent suspicious transactions from going through. You can set your ACH filters to detect checks over a certain value, out-of-order checks, checks from dormant accounts, or other potential anomalies. You can easily adjust the sensitivity of the filters depending on the volume of checks being processed or the availability of your manual review team.
AI-Powered Behavioral Analysis
Rule sets and filters can help you spot a lot of potential fraud, but this approach can also create an undesirable amount of false positives. Rather than simply looking for checks over a certain value or out-of-order checks, the AI-based fraud detection software looks for anomalies in your customer’s behavior.
Some customers may often write out-of-order checks – say, for example, a business owner keeps one checkbook in their home office for their business’s bills and another one in their retail location for paying vendors. They are regularly going to present out-of-order checks on their account. Or perhaps you have an accountholder who routinely writes checks over the value set in your ACH filters.
If you use filters or rule sets on their own, these customers’ checks will always get flagged for manual review. At this point, two things can happen. Your team must manually review the check and allow it to go through, or your customer will get contacted about potential fraud and asked to verify the check. The first scenario unnecessarily consumes labor hours, while the second scenario puts roadblocks into the customer experience. Both scenarios slow down check processing time and increase costs for your bank.
AI-powered behavioral analysis limits the false positives by looking at the behavior of each individual account holder and searching for anomalies. These systems lean on machine learning to improve their processes over time. With new account holders or accounts with scant behavioral information, these tools can apply their knowledge about legitimate transactions vs. fraudulent transactions, and again, tools improve over time as they interact with your team. For example, if the fraud solution flags a check as potentially fraudulent but your team approves it, the software learns from that correction.
Enhanced Customer Verification
In addition to looking at the checks themselves, effective fraud prevention tools also verify the customer. Whether the customer is depositing a check in an ATM or cashing the check over the counter, you want to ensure that they are a legitimate account holder. Dual factor authentification, biometric data such as fingerprints or facial recognition, and signature verification tools can all help your bank avoid falling prey to scams.
Real-Time Monitoring
Digital check verification tools work in real-time. they scan your checks as they’re presented to tellers, deposited into ATMs, or received electronically from other banks. Real-time monitoring spots potential problems the moment they occur, helping to protect your bank from losses regardless of how/when the checks are presented.
If desired, you can also partner with a fraud detection team that can provide real-time manual review. Some financial institutions outsource all of these needs, while others bring in back-up on evenings, weekends, holidays, and times of staff shortages.
Protect Your Bank From the Rising Threat of Check Fraud
When you’re focusing on growing your digital offerings, it can be easy to overlook the risks associated with check fraud, but if you do, your bank stands to suffer significant losses. The threat is particularly prevalent in small communities, with older clientele, on business accounts, and at any bank that has high rates of check usage for any other reasons.
To protect yourself, you need a fraud partner who can provide you with check fraud solutions as well as guidance for other aspects of your fraud detection and prevention strategy. At SQN Banking Systems, we offer tools that provide check image/content analysis, signature verification, and transaction analysis in real time powered by artificial intelligence and machine learning. We also offer Positive Pay and Payee Name Extraction.
Ready to reduce losses at your bank? Then, you must focus on fraud prevention rather than detection. If you discover fraud after it occurs, you will lose money. Ready to take the leap into the digital age of check fraud detection? Then, contact us today. We can start with a review of your current fraud processes and then help you customize the tools and solutions you need for your bank’s unique threats and concerns.