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New Deposits: Check Fraud a Major Threat for Banks

  • Check fraud is rising
  • Banking consumers demand "money mobility"
  • Adding "money mobility" means increasing the risk of fraud

As we've noted here frequently, check fraud is on the rise. In fact, notes that you can enter the search term “check washing” into any search engine and see a substantial number of headlines that have accumulated just over the past several days and weeks describing all manner of scams impacting businesses and banks.

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In September, the United States Postal Inspection Service noted the rise of “washing” --- where fraudsters take those checks, alter the details (payee names), and deposit them. In other cases, they use basic tech including copiers and scanners to make copies of the checks. Stealing checks from the mailbox (aka “mailbox fishing”) is also in favor.

And as noted recently via Bank Info Security, Frank McKenna, chief fraud strategist at Point Predictive, estimated that check fraud will reach at least $24 billion or more this year, up 50% from 2018’s levels.

Physical and Digital Fraud

Check fraud can occur via paper ("washed" checks and copies as described above) and digital channels:

In the latter case, as detailed by PYMNTS, Ingo Money President and Chief Operating Officer Rusty Pickering and Chief Risk Officer Bill Roese discussed that there’s been a rising misuse of the digital account origination and remote check deposit features.

“Everybody is originating accounts digitally,” Pickering said. “It used to be you would have to walk into a bank lobby with your driver’s license and your ID and other identity verification documentation. Now it’s all done online, and everybody’s identity is available to be stolen and used to open accounts. You’ve just got a massive amount of fraud.” In many cases, “duplicate deposits” are proving to be a favored method of thieves – where the check is deposited digitally and in person somewhere else.

Mobile Banking New reduced

"Money mobility" has become crucial to banking consumers, and the climbing fraud rate spotlights the vulnerabilities arising from the ease and seamlessness with which account holders move money in and out of accounts. Checks remain a vital component of money mobility.

In the case of the banks, joint research between PYMNTS and Featurespace shows that 50% of banks with assets of $25 billion to $100 billion have seen rising rates of check-related fraud. Across all banks, more than one-third have seen check fraud increase, as measured in 2022 over 2021’s levels.

The FinTechs have proven to be targets and will continue to be in the cross-hairs.

In the “FinTech Fraud Ripple Effect, a collaborative effort between PYMNTS and Ingo Money, 50% of FinTechs already offer, or plan to offer, mobile check cashing; more than a third offer or will offer check deposit on location and/or check deposits at ATMs. But at the same time, these FinTechs lose about 1.7% of their annual top lines to fraud. The cost of battling that fraud is a significant challenge, and 19% of the FinTechs that find fraud-fighting a challenge say that their inability to guarantee deposits is the foremost factor limiting their money-in mobility.

“Technical constraints, a category that includes both organizational constraints and regulatory requirements, are FinTechs’ second-most pressing issue, and 32% of firms cite technical constraints as their primary challenge,” our study found.

Keeping Checks Safe & Banking Convenient

Money mobility is the foundation of check fraud -- as money needs to be moved from account-to-account or withdrawn quickly. Banks are pushing for new accounts and increased deposits, but are in the unenviable position of having to determinet which accounts are legitimate and which are opened for fraudulent activity -- made even more difficult by the ease of opening accounts digitally.

To combat deposit check fraud, it is crucial to deploy multiple technologies to detect the fraud before losses. This is why many banks have deployed several of OrboGraph OrboAnywhere Modules: Anywhere Fraud, Anywhere Validate, and Anywhere Payee for deposit check fraud detection. These technologies complement each other by analyzing the check images for forgeries, counterfeits, and alterations, while also automatically validating the negotiability of checks, and extracting payee names to compare with previously cleared checks.

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These solutions -- powered by OrbNet AI and OrbNet Forensic AI, combined with transactional analysis -- provide a powerful approach to curbing deposit check fraud, mitigating risks and reducing fraud losses.

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