Check fraud stages a comeback
By Bluepoint Solutions
Published on CU Insight on July 19, 2016
In the dozen or more years since check volumes began to decline as the preferred payment method for consumers, they never lost their rank as the preferred method for fraudsters. There are half as many checks now, but nowhere near a proportionate decline in check fraud.
In our annual Bluepoint review of check fraud last year, we hinted that it might be making a comeback. Only a few months have passed, but the signs are already strengthening. The most recent data (American Bankers Association Deposit Account Fraud Survey) shows that one out of three dollars of losses due to fraud involved checks, primarily counterfeits and returned deposits.
In addition, a study by the Association for Financial Professionals reports that 19% of the institutions they surveyed have witnessed an increase in attempted fraud over the most recent two years. Most of the rest did not see a decline—which means that the risk per check is increasing almost across the board. Just when you thought you could worry about something else for a change…
New Findings from AFS
A white paper just out from the experts at Advanced Fraud Solutions, “Check Fraud is Back,” attributes much of the new threat level to the rise of mobile deposit capture—now used by almost 75% of all consumers—and the still-in-progress transition to pin-and-chip EMV cards.
As fraud using stolen and counterfeit cards becomes more difficult, checks regain some of their attractiveness as targets, abetted by the fact that mobile deposits eliminate the need to present the physical check at all. And there remains a huge untapped market for growth in all mobile services.
The idea isn’t new. But AFS also offers confirming evidence. For example, Canadian banks—which are farther along deploying EMV cards than the U.S.—are now reporting a huge 300% boom in fraudulent credit and checking account applications. You know that trend’s not going anywhere good.
Further rounding out the picture, AFS points to the significant increase in global money laundering, and the threat of terrorist groups using banks to fund their activities. These shifts have spawned increased regulatory demands via OFAC (the Office of Foreign Assets Control), which in turn trigger the need for a similar level of vigilance that we have started giving ordinary fraud prevention.
Here’s the rub: institutions have lately been redirecting their technology resources away from fraud detection and prevention—believing that fraud, like checks, were quietly going away. But this loss of attention has further exacerbated the problem. Ironically, most of these reallocations have been in favor of mobile and other advanced services—the very ones that now look like feeding a resurgence of check crimes.
The Perennial Billion-Dollar Peril
We encourage financial institutions to initiate services that speak to the high demand for consumer convenience, such as offering more mobile functionality and other self-services. At the same time, we concur with AFS and others who affirm that check fraud is a serious ongoing concern for all stakeholder groups.
At best, there’s still about a billion dollars a year in actual losses at stake, to say nothing of the indirect costs of prevention, and potential loss of consumer trust.
Fortunately, tools to curb fraud of all types are evolving quickly, making use of shared data and technologies that allow consolidation of multiple vendors and systems. When these are configured into a single, integrated workflow that can detect fraud in real time, then the stage can be set for finally reversing the direction of check fraud.
J.P. Morgan, “2015 AFP Payments Fraud and Control Survey Report of Survey Results,” March 2015.
Lott, David. “Take On Payments: Squeezing the Fraud Balloon,” Take On Payments – Federal Reserve Bank of Atlanta. March 16, 2015.
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