BAI Podcast: Combating Check Fraud with a Strategic Mindset
- Even as check usage declines, check fraud continues to rise
- There is a sizable demographic that still prefers checks
- Proactive customer communication and linking fraud/AML systems help banks reduce check fraud losses and turn fraud prevention into a competitive advantage
The complexity of check fraud creates difficult challenges for banks. From the methods to the schemes, banks are at a major disadvantage -- seemingly always being reactive.
However, as discussed during a recent BAI Banking Strategies podcast, Greg Kanevski, Global Head of Banking for ServiceNow, shares his views on the current landscape of check fraud with Editor Rachel Koning Beals, as well as how a strategic mindset is needed for fraud leaders.
Paper Checks Continue Its Relevancy
There are a variety of reasons that paper checks continue to stay relevant, even with a variety of digital options available. Mr. Kanevski focuses on the usage via personal accounts:
There’s still a customer demographic out there that feels better with checks. It tends to be the folks that are a little bit older. Get their payments in every month from the government when they cut checks. They’re not particularly digital, and it’s an avenue to support them. Those folks hold the demographic of a lot of deposits, and deposits are meaningful to banks so they can issue loans. They don’t want those customers to leave and go to another bank if they are not supporting checks. So as long as that demographic is still utilizing checks, the bank can continue to support them.
While many in the industry share this sentiment, it's not entirely accurate. As we noted on our OrboNation Check blog, personal checks are used to pay for a variety of goods and services. This includes paying contractors, monthly rent, healthcare payments, etc. Additionally, individuals are more comfortable paying for larger amounts via check vs. cash or credit/debit card.
And, we cannot forget about commercial accounts, and that 70% of business are choosing to continue to use check payments.
Broadening Fraud Strategy
During the discussion, Ms. Beal proposes an interesting question to Mr. Kanevski about how check fraud, and in the bigger picture, other fraud are siloed.
A lot of institutions today say, “Oh, we want to focus on our debit card because that’s where our volume is, that’s where our fraud is.” And statistically as far as the number of incidents, they’re absolutely correct. But what I’ve said to them is, unless you have a broad strategy that handles fraud as an overall classification for the bank, not focusing on only one channel or any one type of transaction. Have a fraud system and a fraud plan that mitigates all of your exposure.
Mr. Kanevski goes on to suggest bringing these all together under one leader.
So what we’ve said to some of the institutions are, stop having your groups broken out and handling different areas. Bring them together. At least bring them under the same leader, so that you’re focusing on all of your exposure points. And that’s what the regulators are pushing too. They’re testing on it. The assurance teams and auditing teams are testing on this as well. That’s why it’s really important for them to look at your entire landscape in total, and then having a program that covers all of them as best as possible.
One major point of conflict is the merging of AML/Compliance and Fraud departments. Mr. Kanevski notes that he expects this to be a top priority for banks. On the flip side, Marketing Manager and Fraud Detection Specialist James Bi and Fraud Implementation Engineer Peter Shortino recently attend the ABA AML and Fraud School, where instructors were against the idea.
"The instructors were very clear - Fraud and AML/Compliances need to work together and communicate. They should be under a single leader. But, they should NOT be combined. A fraud analyst and a BSA/AML analyst are trained differently, specialize in different areas, and are looking for different clues. You cannot ask one or the other to perform tasks they are not trained for," noted Mr. Bi.
Mr. Shortino adds that "fraud analysts are good at what they do, but not necessarily educated in all the rules and regulations for AML. Banks can certainly bring the two under the same umbrella, but functionally, they need to work separately as fraud is naturally reactive and time sensitive, while AML investigations take time."
Centralized Technology for Fraud and AML
Even though we may differ in opinions and viewpoints, one thing agreed upon is that technologies & data need to be available to all departments. This means that check fraud detection technologies and systems such as image forensic AI and transactional analytics must be able to connect with AML/BSA case management systems.
In a perfect world, the fraud and AML/BSA departments would work in a singular platform, with the results of both departments easily accessible. This would enable AML/BSA to see what fraud trends are occurring, and gather more data for their investigations -- while not being responsible for performing the fraud review.
And, as Mr. Kanevski notes:
But, when you share data, when you share functional process, you’re better off with that efficiency. But now you’re improving your capabilities internally because more people understand the different processes themselves so it’s a more resilient process.