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Credit Unions Must Leverage Advanced Tools to Curb Fraud

  • The pandemic has made digital solutions more vital than ever
  • Credit unions faced a disadvantage in getting aboard the "digital services train"
  • AI and ML solutions are giving CUs the leverage they need takes a look at how the pandemic has forced consumers to "rush to digital channels to tackle daily tasks including grocery shopping, handling healthcare appointments and meeting banking needs." Consequently, businesses and organizations have been forced to keep up with this tech shift -- or watch their consumers switch to digitally savvy competitors.

Banks and, specifically, credit unions have had to adjust to this shift incredibly quickly:

Businessman using mobile online banking and payment, Digital marketing. Finance and banking networking. Online shopping and icon customer network connection, cyber security. Business technology.

Kelly Albiston, senior vice president and chief technology officer of digital product development at Mountain America Credit Union (MACU), explained that the volume of Paycheck Protection Program (PPP) loans and stimulus payments that passed through his company intensified its needs for infrastructural innovations.

“We have experienced a much greater need to enhance self-service experiences as face-to-face interactions became challenging during the pandemic,” he said. “This includes continued investment in services like account opening and consumer lending applications, as well as [continuing to enhance] card-related services.”

This has, of course, placed substantial pressure on individual credit unions who may or may not have access to the resources they need to step up their digital game. Simply offering a digital solution is not enough -- there is also the consequential fraud threat with which to deal.

Facing Down Fraud

The adoption of more and more digital consumer interaction comes with, of course, greater opportunities for data theft.

“With all the data breaches in recent years leaking a lot of personal information into the wild, the know-your-customer (KYC) process continues to be challenging as [MACU] enhance[s] more self-service capabilities,” Mr. Albiston continued.

This creates a formidable challenge for credit unions, as noted previously in an article by John Mateker, Vice President and practice manager for the Clear Point practice at Ceto and Associates.

Community banks and credit unions often feel overwhelmed by the technology capabilities of large banks who invest billions of dollars in technology every year. Fortunately, there are technology partners ready to assistJack Henry & Associates (JHA) and Finicity are teaming up to ease the adoption of open banking functionality for the non-giants who need to stay in the game. Additionally, Alogent recently introduced a modernized payments infrastructure called APG.

 There are a plethora of Fintech technologies currently available or being developed to automate payments processing.

AI and Machine Learning Technology to the Rescue

Fortunately, the powerful combination of Machine Learning (ML) and Artificial Intelligence (AI) is a formidable shield against fraud.

Advanced technology now incorporates artificial intelligence (AI) and machine learning (ML) to weed out fraudsters while creating minimal friction for genuine users. Part of this approach entails allowing the technology to better establish what constitutes legitimate member behavior based on members’ histories and device usage.


“Like all security, it takes a very layered approach to be successful,” Albiston explained. “We use … identity services to establish our KYC processes, which have been very effective at minimizing account-opening fraud. We enhanced authentication services that profile member devices and prompt for step-up authentication from unknown devices.”

The applications of AI and ML technology spans across all payments for fraud detection and prevention, including checks. Covering all payment channels is critical for credit unions, where Mr. Mateker notes that "while the banking giants can write off losses, community banks and credit unions suffer more as the losses become a burden to the bottom line and hurt customer relationships."

This is why community banks and credit unions are partnering with fintechs to deploy AI and ML into all of their payment channels, including image forensics AI that is able to detect counterfeits, alterations, and forgeries from the image of checks.

With the ability to detect and prevent fraudulent checks before loss of funds, community banks and credit unions can most definitely compete with the big banks.

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