BAI Executive Report Shines Light on Fraud Trends Going Into 2024

The new BAI Executive Report, entitled Safeguarding Against Fraud, offers a look at the current state of fraud and the ways financial institutions can protect themselves and their clients.

One thing is for sure: It's not getting any easier.

Ever faster and smarter technology -- like nearly instantaneous money transfers and the popularization of artificial intelligence -- mean that bad actors are more stealthy with their financial crimes. Phishing emails have given way to voice cloning and more complex deep fake identities that can take over accounts.

At the same time, it's also technology -- including AI -- that allows financial institutions to outpace and outthink the fraudsters.

Evolving -- and Rebounding -- Fraud Techniques

Of particular interest is their look forward, entitled Fraud Trends Spilling Into 2024. The article gathers input from experts in the world of fraud detection and prevention to attempt to anticipate what's ahead.

“During the COVID pandemic, organized crime rings really gave banks a break, as they were very heavily focused on defrauding all the stimulus programs that were so poorly protected,” says Julie Conroy, chief insights officer at Datos Insights in Boston. “But as the stimulus program dried up, 2022 and 2023 have seen a strong resurgence of all the traditional types of fraud.

And, while the some in the industry thought we'd finally put a lid on check fraud, in actual fact we saw a resurgence in 2023.

As noted in the report:

In the U.S., there was a 33% increase in deposit fraud—fraudsters depositing checks into accounts that are later returned for fraudulent reasons, according to the report. In addition, fraudsters are securing mailbox keys by robbing letter carriers and then stealing checks out of the corresponding mailboxes.

“Fraudsters alter the checks and then deposit them into accounts under fictitious names, depleting the funds when available,” he says. “The Postal Service has announced they will slowly be converting from old locks to electronic locks to curb this issue.”

Brandon Koeser, director and financial services industry senior analyst with RSM US LLP, notes that check alterations have been a real challenge for financial institutions. A major factor is the adoption of mRDC as a deposit channel for fraudsters. As we previously covered, when a check is deposited via mRDC, most banks are only able to review the bi-tonal image which masks most, if not all, of the effects caused by washing the check. This makes it extremely difficult for financial institutions to detect an alteration, unless they are using sophisticated image forensic AI technology.