Home / Banking Strategies / Deposit accounts in the fraud crosshairs

Deposit accounts in the fraud crosshairs

The rapidly growing trend, driven by powerful technology, combines new (P2P payments) and old (check washing) into a vexing mix.

Mar 17, 2023 / Fraud Prevention

The COVID-19 lockdowns ushered in a golden era for digital activity: We all worked, socialized and banked from behind a keyboard. Criminals got in on the action, increasing the work for banks and financial institutions already battling a multitude of fraud issues.

“There are continued fraud threats that we do not see abating in 2023,” says Jen Martin, head of enterprise fraud services for KeyBank. “Scams, identity theft, new-account fraud and checking account fraud all have been elevated throughout the year and will continue for the foreseeable future.”

A hot area for fraudsters is peer-to-peer (P2P) fraud, which has surged in popularity as consumers increasingly send money almost instantly using tools that include Zelle and Venmo. In the second quarter of 2022 alone, year-over-year payment values increased by 29%, while payment volume increased by 27%. While the vast majority of that usage is secure and scam-free, the systems are like candy to scammers.

And even in a digital-first age, check fraud continues. “Criminals continue to look to exploit the weakest link, checks being one of these channels,” says Glenn Fratangelo, head of strategy and marketing for fraud and authentication management at NICE Actimize.

Fratangelo says his company’s internal data shows a 106% year-over-year increase in check fraud from 2020 to 2021 and an additional 30% increase in the first nine months of 2022. When you consider that there’s been an overall decline in check usage, the calculation becomes more dramatic.

Check washing may be one of the oldest tricks in the book, but it is making a comeback as fraudsters obtain a paper check and alter the payee, the dollar amount or both. To the untrained eye, the check looks valid. One issue feeding this rise is that municipal governments and small businesses are being hit more frequently by ransomware or encryption events, says Howard Globus, CEO of IT On Demand.

“As systems are compromised or unusable, these organizations have switched over to paper checks to pay vendors and recipients of program funds,” Globus says. “Sometimes it’s because there is a belief that paper checks are safer. Other times the systems are so damaged that accounting software will not run or banking partners will not accept electronic fund transfers until their systems are certified safe”

For financial institutions, fighting all fraud requires the right balance between consumer demand for speed, younger users’ growing disdain for passwords and communication fatigue. Banks are working to catch fraud instantly, but that can involve communication with a customer—and most consumers juggle hundreds of email messages, texts and social media notifications, making it harder for critical messages to cut through the clutter.

“It is a ‘Catch-22’ for financial institutions: 98% of all text messages are read by the recipient versus 20% for emails,” says Richard Dedor, vice president of digital marketing for Chatsworth, California-based Premier America Credit Union. “With the rampant expansion of text fraud, financial institutions must be extra careful about their marketing and message strategies to ensure they are educating their users on how to distinguish authentic communications from

KeyBank, for one, is breaking down the industry’s traditional silos to create a solution. “We are collaborating across the bank—fraud, risk, product and technology partners are all coming together against a common enemy,” Martin says. “A positive outcome of the past year is a greater understanding that there is not just one department or tool that can stop fraud. Real fraud prevention and mitigation requires subject matter expertise and understanding across many functional areas to ensure there are not opportunities for fraud.”

Globus says customers can also play a role. For example, they can pick up mail as soon as it is delivered, use a lockbox instead of an easily accessible mailbox, check bank accounts daily to spot fraud, use sophisticated biometrics to unlock phones and employ multifactor authentication. “The more steps you can put in place to block access to apps on your phone, the safer your data is and the more likely you are to be able to protect yourself,” he says.

To be sure, no single player can do this alone. “The global financial crimes and fraud problem,” Martin says, “is well beyond any one financial institution to solve by ourselves or as an industry.”

Dawn Wotapka is a BAI contributing writer.

Find out where things stand with fraud protection and how it can be done more efficiently and effectively in the BAI Executive Report, “Finding an edge in fraud’s cat-and-mouse game”.