Banks face many different types of fraud. Surviving and thriving in this environment requires financial institutions to take a multi-pronged approach to fraud detection and prevention. To help you out, this guide looks at five of the most common types of bank fraud and the best strategies for mitigating each of these threats.
1. The problem: Check fraud
Checks don’t play as important of a role as they did a generation ago but check fraud still accounts for 60% of all fraud attempted on deposit accounts. Fraud artists regularly exploit the simplicity of this payment method to commit fraud. In some ways, it’s easier than ever to commit check fraud because you don’t need to steal paper checks.
Instead, thieves can buy fake checks online or trick account holders into giving them account details. Then, they can print and cash countless checks before they get caught. Even unsophisticated check fraud schemes can get into the tens of thousands of dollars before someone notices an issue.
The solution: Check image analysis and signature verification
When someone deposits a check, check image analysis compares the presented check with stock check images. It looks for minute discrepancies that distinguish counterfeit checks from real checks, and it flags potentially fraudulent checks for manual review. At the same time, signature verification tools analyze dozens of static and dynamic elements in the check’s signature to look for signs of forgery.
This high-tech solution is much more effective than using rule sets such as check amounts, account age, or similar factors to identify potential cases of check fraud. It’s also more effective than relying on human fraud prevention teams on their own.
2. The problem: Wire transfer and mobile payment fraud
With this type of fraud, a scam artist convinces your customer to send them a wire transfer or a mobile payment. Both of these payments are credited to the thief’s account immediately, and they generally aren’t refundable. Financial institutions typically don’t bear financial liability for these types of fraud, but they can end up bearing the burden if their customers overdraw their accounts and can’t get back in the black.
Scam artists use different techniques to get people to send them money. Sometimes, they build fake websites and convince the victim that they’re making a purchase. In other cases, they tell the victim that they’re from a tech company, take remote control of their computer, steal their passwords, and initiate the transfer on their own. In yet other cases, they convince the victim that they need to send a payment to a stranded relative or a stranger that needs help.
The solution: Customer education and fraud warnings
Wire transfer fraud and mobile payment fraud aren’t possible if your customers don’t participate. To reduce the risk of this type of bank fraud, be proactive about educating your customers about the signs of fraud. Before allowing someone to initiate a wire transfer or a mobile payment, have a pop-up remind them of the risk of fraud and to only send money to people they know. Prompt them to call you if they’re worried about fraud.
Also, make sure to train your employees. Your tellers and phone bankers should pay attention to verbal cues that indicate someone may be the victim of this type of fraud. For instance, if a customer calls the bank and asks about wiring money to a foreign country, your employee should ask follow-up questions to see if fraud might be involved.
3. The problem: Bank account fraud
This broad term refers to any type of fraud committed with the intention of stealing money from someone’s bank account. It can include using debit cards or checks to make fraudulent purchases, taking over an account, or opening a new account with someone’s credentials.
The Solution: Artificial intelligence and real-time fraud analysis
Legacy fraud detection tools detect fraud after it occurs. This creates significant losses for financial institutions as they are often liable for most debit and credit card fraud. To reduce losses due to bank account fraud, you need real-time fraud analysis tools that can analyze bank transactions as they occur and spot fraud before it happens.
At the same time, you also need tools that leverage artificial intelligence to spot the signs of fraud. AI can scan millions of data points and extract useful intelligence. By reviewing thousands of transactions, AI gets to know the elements of a legitimate transaction compared to a fraudulent transaction, and it gives transactions a fraud score. If the score is high enough, it flags the transaction for review.
4. The problem: Money laundering
If criminals print counterfeit bills or earn money from crime, they need to put it somewhere, and ultimately, they want it in a bank account. The process of laundering money can vary in complexity. Sometimes criminals just launder money by putting relatively small amounts into different accounts. In other cases, they invent fake businesses so they appear to have a reason to have so much cash.
The solution: Anti-money-laundering activities
Banks are legally required to engage in anti-money laundering efforts. Anti-money laundering activities include know-your-customer, customer due diligence, transaction screening, and suspicious activity reporting. Know-your-customer (KYC) and customer due diligence (CDD) processes verify customer identities before someone opens an account.
Transaction screening uses real-time analysis to analyze transactions for signs of fraud and money laundering. Finally, banks must report these activities. This allows other financial institutions to learn about different trends and patterns in money laundering.
5. The problem: Safe deposit box theft
Thieves still target safe deposit boxes. Banks also incur losses when they mismanage a box’s contents and lose assets for their customers. Depending on the agreement they have with their customers, banks may be liable for the losses, and even if they aren’t completely liable, they risk reputational damage when their customer’s safety deposit boxes aren’t secure.
The solution: Safe deposit box management solutions
Safe deposit management tools can help streamline every aspect of managing your bank’s safe deposit boxes. This includes rental agreements, billing information, and customer signatures. But at the same time, this solution can also help you detect fraud and attempt thefts.
At SQN Banking Systems, we understand the complexity of the fraud landscape, and we know that banks need to use different approaches to fight different types of fraud. Are you using the right tools to protect your financial institution from fraud? We can help you answer this question.
When you contact us, we’ll start with a free fraud process review. Then, we’ll help you customize a solution that’s right for your bank.