Check Consortiums: The Advantages of Open Models for Fraud Detection
- Consortiums have been seen as a good tool against fraud
- However, consortiums create challenges of their own
- Check consortiums are unique and are less affected than other fraud consortiums
Consortiums have been a major resource in the fight against check fraud. Many financial institutions are leveraging consortiums like Advanced Fraud Solutions TrueChecks and Early Warning Systems as part of their deposit fraud detection.
An article from Global Fintech Insights notes that, while Fintechs are increasingly turning to fraud consortiums to bolster their defenses against more and more sophisticated fraud attacks, these consortiums come with their own set of challenges.
The key issues highlighted and expanded upon are data relevance, overwhelming data volumes, and high costs. For instance, not all consortium data is relevant to a fintech's specific use cases, says Kevin McWey, Chief Revenue Officer at DataVisor and author of the article. This leads to false positives. The sheer volume of data can also inundate fintechs that lack the resources to properly analyze it.
Additionally, the cost of subscribing to multiple consortiums adds up quickly, straining budgets.
It’s impossible to find a single consortium that addresses every type of fraud, but the cost of subscribing to many different consortiums can add up quickly. And that’s before factoring in the additional time and resources required to analyze and test the data if the fintech is not properly equipped with robust data orchestration solutions.
Closed vs. Open Consortiums
Before analyzing the pros and cons of consortiums, it's important to understand the difference between a closed consortium and open consortium -- particularly as it pertains to checks.
Closed consortiums are open only to financial institutions. This means that only the FIs that have signed up and are contributing to the consortium have access to leverage the data. This limits the transactions and data available.
Open consortiums are open to FIs and other check processors including service bureaus. This enables FIs to leverage check transactions and data from not just other participating FIs, but also through other processors, including service bureaus like Jack Henry & Associates, FIS, and Fiserv. This is the strategy utilized by OrboGraph for our upcoming Anywhere Deposit Fraud module.
OrboGraph's Open Consortium Strategy helps address these challenges. By ensuring data relevance through pre-configured fraud signals, OrboGraph provides fintechs with the right type of data for their needs.
Our robust data orchestration capabilities also enable fintechs to process and analyze large data volumes in real-time, extracting actionable insights. This holistic approach helps control costs while maximizing the value of consortium data.
Furthermore, OrboGraph's integration with the AFS negative database consortium, which targets 40-50% fraud detection, combined with advanced image forensics, delivers a powerful "one-two punch" against fraud. This multi-pronged strategy empowers fintechs to navigate the double-edged sword of fraud consortiums and emerge victorious in the fight against financial crime.
Addressing Challenges of Leveraging Consortium
The article proposes three challenges for consortiums — but check consortiums are unique and are less affected than other fraud consortiums.
- Data Relevance: The transactional and account data is specific for check fraud. This helps identified issues which deposited checks like insufficient funds, duplicates, and close accounts.
- Overwhelming Data Volumes: While data volumes are considerable, the ability of technology has vastly improved – enabling FIs to access and query data real-time, with results returned in less than a second to the FI.
- High Costs: Check consortiums run off a per-item model, where each item/call is charged a set amount. Many FIs are mitigating this by using a multi-layered technology strategy. If a deposited check has been flagged for review by transactional analytics, behavioral analytics, or image forensic AI, the FI can choose not send the item for validation at the consortium — effectively lowering costs.
Consortiums remain a critical tool in the fight against fraud, offering financial institutions and fintechs access to valuable shared data that can significantly enhance fraud detection efforts. However, not all consortiums are created equal, and the challenges of data relevance, overwhelming volumes, and high costs must be addressed to maximize their effectiveness.
As fraud tactics grow more sophisticated, the ability to leverage the right type of consortium data at the right time will be paramount. By deploying innovative solutions that address the unique challenges of consortiums, organizations can confidently strengthen their fraud defenses and protect their customers against evolving threats.