PaymentsJournal Podcast: Investment Focus Vital for Check Fraud Detection
- As payments in mobile channels become more popular, check security is less of a priority
- The COVID-19 pandemic response resulted in huge amounts of paper checks entering the ecosystem
- AI and machine learning advances are making checks more and more secure
The latest PaymentsJournal Podcast features a webinar with contributions from Brian Riley, Director of Credit at Javelin Strategy and Research; Jeff Burton, VP of Deposit Solutions at Fiserv; and Rodney Drake, Chief Strategy Officer at Valid Systems.
The panel noted that, in light of the increased risk of check fraud and the migration of transactions to mobile channels, institutions are charged with providing efficient and secure services to customers while at the same time managing risk -- a tough balancing act, to say the least.
“Clients are looking for less friction and faster availability of funds once they deposit a check,” Rodney Drake said. “Yet in providing that, the bank is obviously leaving itself exposed to more risk, particularly in mobile.”
Meeting the Check Fraud Challenge
Because there is an expectation of near-instant availability of funds, providing security while keeping up with other payments channels is anything but easy. Compounding the challenge: The government met the COVID-19 pandemic crisis by injecting an unprecedented amount of stimulus money into the economy -- much of which was distributed through checks.
“Those checks became easy targets for fraudsters, who took advantage of the lack of investment in fraud prevention in the check business,” [Jeff] Burton said. “Additionally, with more people working from home, more checks were sitting in the mail, which led to an increase in check fraud.”
Investment Focus is Vital
At the same time, the panel noted that declining check usage and growing popularity of digital payments has taken attention away from investments into securing still-robust check usage.
“Organizations have historically invested more money on other payment types like Zelle, ACH, and P2P payments,” [Rodney] Drake said. “Check payments have been neglected due to the perception that it’s a declining business. This makes check payments an easy target for fraudsters since they know where the spending has historically been focused.”
Meanwhile, PaymentsJournal notes how machine learning advances are creating the means by which banks and credit unions can secure check transactions:
Here are a few ways artificial intelligence and machine learning can be applied:
AI and machine learning algorithms can be trained to recognize the features of a genuine check, including the font, the layout, and the presence of security features. Any deviation from these patterns can be flagged as potentially fraudulent.
Because fraudsters are getting more and more savvy, it's vital to take a comprehensive approach to protecting transactions -- not just at specific points in the "transaction journey," but across the board:
“Fraudsters are experts in understanding bank policies, so it is important to be proactive in managing risk across all transactions, not just at the point of presentment,” Burton said.
Financial institutions are in the process of reevaluating -- and in many cases enacting changes to -- their check fraud strategies. As noted in previous blogs, it is important that these strategies include integrations that leverage AI and machine learning, including image forensic AI for analyzing the check images, data analytics to understand the trends, and behavioral analytics to detect anomalous behavior in accounts.
With fraudsters taking a comprehensive approach to commit financial crimes, financials institutions need develop comprehensive strategies to meet the challenge.