Like many others, I assumed that fake check scams were the scourge of the over-70s demographic. I thought the millennial generation rarely – if ever – used a paper check and if they did, they were too savvy to be scammed.
Imagine my surprise when I learned from the FTC that the #1 age range for victims of check fraud are those between 20 and 29 years old (the Millennials). By contrast, less than 10 percent of the victims were over 70.
In the age of smartphone digital payments, one would suppose that hardly anyone under “a certain age” uses the venerable paper check anymore. Checks, the epitome of low-tech payment, have been around since at least 300 BC. The Internet and mobile banking were supposed to kill the check long ago.
Surprisingly, checks remain a huge piece of the payments landscape for banks and credit unions even for younger generations. In 2018, there were 14.5 billion check payments made in the USA, according to the Federal Reserve. Yes, check usage is forecast to decline annually by 7%. But even so, there will be billions of checks to process for years to come.
The 2019 ABA Deposit Account Fraud Survey estimates check fraud losses at $1.3 billion. There are numerous ways these losses can occur: forgery, counterfeiting, alterations, kiting, and embezzlement. Every time an exciting innovation is applied to an existing method of payment, or a new payment option is introduced, it leads to new fraudulent methods and schemes by clever criminals.
Anyone can be scammed
The Better Business Bureau explains how easily a check scam can succeed. Under U.S. federal banking laws, when someone deposits a check, the bank typically must make funds available in a day or two. In practice however, banks will usually credit the account right away if the amount is under the limit. Scammers know these limits.
Crediting the deposit account does not mean that the check is valid. Most fake checks are written on an account from another bank. The check image must travel digitally from the bank where it is deposited through an automated clearinghouse (ACH), then transmitted to the bank of origin. Only then can the banking system establish whether the check is legitimate. While this is often resolved in a matter of days, it can still take two weeks or more before check fraud is detected.
In the vast majority of check scam cases, by the time the fraud is revealed, the scammer has disappeared without a trace. The poor person who deposited the check is now responsible to replace the funds at the bank. There is no FDIC coverage for check fraud.
Clearly check fraud is not going away, so financial institutions need to continually improve their check fraud detection methods. With the help of AI and cognitive capture, a fraud prevention team today can detect more fraud and review fraud items faster than ever before – all leading to less financial exposure and happier customers.
Leading-edge check fraud prevention technology
There are a variety of efficient fraud prevention solutions that are cost effective for both large banks and smaller organizations. Because of the widespread use of check images through the ACH system, with the right software tools we can automate fraud detection processes at speeds, accuracy levels and volumes that could never be achieved by human investigators.
Let’s review some of the state-of-the-art software components that are now available.
- Automated Signature Verification. The most advanced systems use AI and machine learning to reveal all types of signature fraud, including random and skilled forgery, with accuracy rates that far surpass visual verification. Biometric signature verification systems benefit from combining multiple engines that analyze temporal biometric characteristics such as speed, acceleration, deceleration, stroke sequencing and length, pen pressure and timing information received directly during the act of signing, together with a proven innovative technology that scrutinizes signature shape. Taken together, this enables biometric signature verification to be accurate, intuitive, and fast.
- Check Stock Verification. This protects financial institutions against counterfeit checks, the fastest-growing source of fraudulent check activity. Image-based check stock verification software examines the check’s format and features using advanced machine learning and AI. Multiple methods of verification – including multiple forgery detection algorithms, quantitative analysis, pattern recognition, analytical and geometrical analysis, and neural networks – ensure accuracy.
- Courtesy Amount / Legal Amount Mismatch Detection. Sophisticated algorithms not only read numeric and text amounts and catch the potential discrepancy between CAR and LAR, they also analyze behavioral characteristics from the typical check writer’s errors and abbreviations in writing checks and distinguish mismatches that may result from fraudulent activity. This helps to eliminate the number of false alarms and reduces unnecessary human intervention.
- Automated Payee Match Positive Pay. This is an enhancement to automate the traditional positive pay application. Image analysis and pattern recognition technology offer an automated solution for reading both machine printed and handwritten payee data from the check. It provides an extra layer of protection by comparing payee information from checks to the payee information provided in the customer-issued file. Previously this was either not accomplished or was accomplished using a laborious and time-consuming manual process in the back-office operation of the financial institution.
You can learn more about advanced fraud prevention software at https://www.parascript.com/products-technology-solutions/fraud-prevention/.
Check 21 legislation and advancements in check imaging pose challenges in the fraud prevention and fraud detection area. Cognitive capture technology provides an effective means for financial institutions to fight fraud both in the back office and at the teller window. They can deploy an arsenal of reliable and cost-effective automated tools from companies such as Parascript. The benefits include timely fraud prevention, the mitigation of fraud losses, protection of the bank’s assets and improved customer loyalty.
About the Author
Dan Lucarini is an AIIM Fellow with over 25 years’ experience in capture and content management technologies. Learn more about Dan on LinkedIn.