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Check Fraud Impact: Operational and Financial Costs

Alogent reports on the ways check processing and fraud prevention impacts financial institutions operationally and financially.

In the age of technology, financial institutions are often looking for ways to automate processes and make them more cost-efficient. However, when it comes to check processing, many banks and credit unions who are still using the same solutions implemented at the time of Check 21 may be unaware of the underlying financial and operational impact.

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Financial institutions will cite expense as the primary reason they have not yet invested in the latest fraud detection technologies. At the very same time, check fraud losses resultant from outdated processing and detection systems are capable of doing considerable damage to a bank's bottom line.

Layers of Expense

Remaining vigilant in an era of increased check fraud attempts is indeed becoming a formidable expense:

Added expenses associated with deposit acquisition and image processing revolve around the negotiability of items and the probability that the check will flow through the processing system without any flagged issues that cause it to be routed through additional solutions, and image quality (IQA) or usability (IUA) analysis. Fraud, duplicates, and returns, contribute to hard costs in the following ways:


Check fraud, a continued and ever-changing obstacle for banks and credit unions, not only risks account holder loyalty and the reputation of the financial institution, but can lead to monetary losses, which impact the bottom line.

Loss of Customers

However, balanced against that formidable fraud prevention expense is the fact that financial institutions that do not demonstrate effective fraud detection and protection are losing business and private customers -- which is a much more expensive proposition across the board. Alogent notes that "financial institutions have relied on their image-based platforms without considering a change – 'they’re doing their job so why switch?' is often the response."

As we recently noted, "Loss of customers" is a significant concern for financial institutions:

Fraud and financial crime solution providers must work with prospective customers to show how their investments in new technologies to combat fraud or financial crime can benefit bottom lines. They will also benefit from showcasing how their solutions address complex regulatory problems and reduce the costs that prospective business customers may incur due to reimbursing fraud-related losses. Businesses looking to mitigate those same issues will benefit from learning about such solutions and considering additional investments or upgrades to strengthen fraud detection and management. The latest solutions are not just about fighting fraud, however. They help vendors deliver intelligence to FIs, benefit fraud management and provide insights into consumer habits, economic stability, targeted solutions and services and more.

Check fraud is complex. So, how should FIs approach it?

By taking a multi-layered approach, combining different technologies like image forensic AI, behavioral analytics, consortium data, positive pay, and dark web monitoring to create a full-scope check fraud detection solution. These technologies are typically available to integrate into fraud review platforms or can be leveraged through core processing vendors via their fraud platforms.

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This can mitigate the hidden costs of check fraud, while also providing needed assurance to their current and prospect customers that their money is in safe hands.

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