Are Community Banks and Credit Unions Prime Targets for Check Fraud?
Community banks and credit unions are often portrayed as integral to a community or region. Typically, they differentiate themselves from the larger financial institutions by servicing their communities and building a strong relationships and ties within their region.
However, could this also be perceived as a weakness that can be exploited by fraudsters?
According to a new article from NICE Actimize, there are several reasons these financial institutions are more vulnerable, including:
- Perceived Weaker Defenses: Smaller institutions may not have the same level of resources to dedicate to advanced fraud detection systems, making them attractive targets for fraudsters
- Customer Trust and Community Ties: Community banks and credit unions often have strong relationships with their members, sometimes leading to more lenient account opening procedures that fraudsters can exploit
- Limited Use of AI in Fraud Detection: Due to budget constraints, smaller FIs might lack the sophisticated, multi-layered fraud detection systems necessary to combat these highly organized attacks effectively
But, is it true that smaller budgets and internal resources at community banks and credit unions prevents them from deploying the necessary tools to combat check fraud effectively?
Are New Accounts Fueling Check Fraud?
Before we can answer the previous questions, we must understand check fraud and the data.
According to a new report from NICE Actimize:
- 31% increase in check deposit fraud value
- New accounts are seeing 17X higher fraud rates
- Average fraud cost per check deposit at ATMs increased by 16%
- Mobile deposits experienced a 21% increase in average losses
Fraudster will use a variety of tools and methods to exploit weaknesses at financial institutions, including:
- Mule Ready: Fraudsters use synthetic identities and stolen information to open new accounts, establishing an extensive network of mule and drop accounts to facilitate the rapid movement of funds
- Testing: Where bad actors systematically probe banking systems for weaknesses to exploit
- Action: Fraudsters exploit FI defenses by depositing fake checks through channels such as ATMs and mobile apps, then withdraw or transfer the funds before the fraudulent checks can be detected
- Crimefluencing: Amplification of the FIs fraud defense weaknesses through social media to generate "flash fraud" -- creating chaos to enable them to both maximize their theft and obscure their actions due to the overwhelming volume of investigations, SARs, and referrals to law enforcement
Perception vs. Reality
The perception that community banks and credit unions have weaker defenses against check fraud -- along with limited budget and resources to deploy the latest innovative technologies -- is far from reality. As noted by NICE Actimize, community banks and credit unions need to perform the following to combat check fraud:
- Strengthen their new account monitoring
- Deploy AI-powered fraud detection
- Implement advanced check fraud detection
- Educate their customer base on what to watch for
Many community banks and credit unions are partnering with their core processors or other fraud vendors to deploy the latest check fraud detection technologies like image forensic AI.
The reality is that these technologies are NOT cost prohibitive, and are available through a variety of vendors that can enable them, such as Jack Henry & Associates and FIS, or fraud vendors like NICE Actimize, ThreatAdvice, and Featurespace. These tech vendors deploy the latest check fraud detection technologies like image forensic AI and do not require heavy burdens on FIs' internal resources.
Community banks and credit unions have the tools available and need to take the necessary steps to secure their customers accounts from check fraud.