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Staying one step ahead of fraud

Amid increasingly sophisticated scammers, banks and credit unions need to understand their risks and how to reduce them.

Apr 29, 2022 / Fraud Prevention

The banking industry works hard to stay one step ahead of fraud. Unfortunately, fraud is increasing in both cases and complexity, making it more important than ever for financial institutions to protect themselves and consumers.

The growing influence of social media and popularity of mobile banking at a time of rising financial challenges are a dangerous mix for consumers when it comes to protecting their money. Aggressive, highly synchronized schemes become more intricate and creative by the day, and those perpetrating the criminal activity are getting bolder, too.

Here are just a few ways fraudsters con people out of their hard-earned money:

Targeting the weak and vulnerable

The “felony lane gang” is an industry catch-all term for a scheme in which counterfeiters pay people who are vulnerable, unemployed and desperate to cash fraudulent, large-sum checks at a branch. The check cashers are frequently put in high-visibility work uniforms, like construction gear, to add credibility to the transaction. The ringleaders often drive their pawns to branches in rental cars, using the most remote drive-up lane for their transactions.

These gangs are transient and move on when local law enforcement discovers them. While check cashers are occasionally arrested, the gangs’ ringleaders usually evade capture by keeping a safe distance.

Exploiting mobile banking

Temporary branch closures have increased the popularity of remote banking tools, such as mobile deposit. This fast, faceless technology quickly caught the eye of scammers, who viewed remote access as a perfect opportunity to commit account takeovers.

Account takeover (ATO) attacks rose some 300% between 2019 and 2020, and they continued to climb last year as well. In an ATO, a scammer gains a victim’s trust—and account information—via a phishing email, social media ploy or other social engineering method. The scam could involve romance fraud, a work-from-home opportunity or simply the promise of free money, but one thing remains constant: The scammer gains the victim’s confidence to gain control of the victim’s account.

The fraud frequently culminates with the deposit of a fraudulent check, followed quickly by a withdrawal or transfer of the deposited funds. By the time the fraudulent check is returned to the financial institution, the scammer has disappeared and the victim is left holding the bag.

One way to prevent check fraud is to implement strong restrictions. Unfortunately, too many financial institutions fail to apply protocols and restrictions on mobile check deposits and electronic payments during the first 30 days after account opening. This is a serious oversight, and fraudsters take advantage of it by specifically targeting more lax financial institutions. Smart institutions discourage and redirect potential fraud by making it harder to commit.

Opening new accounts for fraud

It’s much easier to prevent the opening of a fraudulent account than to detect and restrict one that’s already open. But because fraudsters specialize in deception and adjustments that exploit weaknesses, new account fraud is emerging as one of banking’s biggest concerns and becoming exceedingly difficult to detect. Institutions must look beyond standard, credit report-based identity verification to ensure they are not opening fraudulent new accounts.

To expose and stop financial fraud, we need to increase our vigilance and leverage technology.

But it’s not as simple as just adopting the right tools. Advanced technology, such as mobile deposit, often lulls institutions into a set-it-and-forget-it mentality. When that happens, there is a greater risk of fraudsters swooping in.

To optimize their effectiveness, mobile platforms need frequent review and adjustment. As fraudsters adapt their schemes, institutions must also adapt their screening mechanisms. Most consumers says security is their most important concern when they engage in online banking.

Your best strategy is to gain a clear understanding of current trends, learn best practices in stopping fraud and know what’s available in fraud protection technology so that you’re always one step ahead of the bad guys.

Bob Madrid is vice president of payment and e-commerce products at Vericast|Harland Clarke.

Explore ways to stem the growth of banking-related fraud in the BAI Executive Report, “Banks are pushing back against the surge in fraud”.