2023 proved to be a challenging year for the banking industry as it witnessed a surge in fraudulent activities. New schemes emerged, while older and enduring challenges continued. Let’s delve into the impacts of check fraud and forgery schemes.
In their 2023 Fraud and Financial Crimes Report, Kroll, an advisory firm focused on risk, governance, and transactions, revealed that “69% of executives and risk professionals surveyed expect financial crime risks to increase over the next 12 months.”
Bank executives have valid reasons to hold this belief. The Federal Reserve Bank of Boston reported an 84% increase in suspicious activity reports (SARs) made by depository institutions, rising from 249,812 reports in 2021 to 459,891 reports in 2022. Although statistics for 2023 are not available, the anticipation of continued challenges remains.
The December 2023 New York Times headline perfectly summarizes the root of the problem—“We Can’t Stop Writing Paper Checks. Thieves Love That.” Despite the decline of paper checks with the advent of digital payments, they remain a necessity and thus will continue to be a target for abuse and losses.
Fraudulent checks persist as a challenge, especially with the expectation of near-instant deposit becoming the standard. ATM and other remote deposit capture tools provide convenience to customers but also create opportunities for fraudsters.
New tactics arose this year. Mail theft rose dramatically as the federal programs such as Payment Protection Program and unemployment benefits often deliver funds via mail. The United States Postal Service responded by replacing 42,500 outdated locks with new electronic locks and enhancing security features on standalone drop-off boxes, commonly known as ‘blue boxes’.
Additionally, thieves are capitalizing on the delay between cashing checks and funds depositing into the account. Often referred to as ‘check floating’, it has evolved into ‘check kiting’—a system that moves undeposited funds between multiple accounts with the goal of withdrawing before the first transaction is finalized. The first check then bounces, and the depositing account is abandoned.
Where does this leave the banking customer? They become nervous and frustrated, especially when their bank does not employ the best available technology to mitigate these risks.
One bank experienced significant losses related to two check cashing schemes. Two quarterly earnings presentations featured discussion and follow-up questions from stock owners. The stock saw a 50% drop in price simultaneously with these headlines. Even though it wasn’t explicitly tied to these events, it’s hard not to imagine the impacts they had.
Ensuring seamless check processing for banks and credit unions demands the establishment of efficient systems. Efficient systems must seamlessly evaluate every check element, cross-reference with the institution’s customer database, and complete all necessary verification steps in straight-through processing. The design and implementation of these systems must prioritize providing a secure customer experience. This strategic focus enables banks and credit unions to gain their clients’ trust, enhance overall services, and reduce potential losses.
Whether its signature verification software using advanced AI-based analysis or utilizing check data extraction software capable of capturing all relevant information, even within a mixed stream of documents, the optimal approach to counter fraud involves the implementation of automation with high accuracy. Staying proactive is the key in the fight against fraud, and automated solutions stand as the cornerstone of this proactive stance.
As long as there is money to be made, thieves will innovate. It is crucial for service providers to remain vigilant. This means utilizing best practices, including the best fraud detection software, to meet these evolving challenges.
Parascript is an industry leader in financial fraud prevention technologies with millions of financial documents processed annually. For more information, contact our fraud prevention experts today.