While paper checks use continues to decline due to mobile and online banking, a new report finds that checks are still the payment method most susceptible to fraud, and that check fraud accounts for the largest dollar amount of financial loss annually.
Among reasons for the check fraud uptick is the industry's adoption of EMV security standards, which have increased firewalls on mobile and online transactions, explained Lawrence Reaves CEO for the Kernersville, NC-based Advanced Fraud Solutions (AFS). As a result, thieves are reverting back to check scams.
"Credit unions should utilize a check-fraud solution that leverages an external database that has industry-contributed data concerning fraudulent checks," said Reaves. "Almost without exception, the same bad checks are showing up at the credit union's peers' locations."
The study, "2015 AFP Payments Fraud and Control Survey," was sponsored by J.P. Morgan in conjunction with Association for Financial Professionals, found that the most targeted methods of fraud were checks (77%), credit/debit cards (34%) and wire transfers (27%).
The Solution
Among AFS's 500-plus financial institution clients is the Waterloo, Iowa-based Veridian Credit Union, which supports more than 200,000 members at 28 branch locations. Veridian utilizes AFS's TrueChecks, a database comprised of data from financial institutions, processors and third-party sources.
Trina Becker, manager of loss prevention for the $3 billion institution, explained that the credit union has partnered with AFS for more than 10 years, and for good reason. She provided a snapshot of check fraud activity for April 2016.
"We had $149,971worth of recommended check denies, and that is impressive," said Becker. "Also, the recommended holds – anywhere from 10 to 30 days – was $427,124. Together that is a possible $577,000 savings for that month."
While not all checks were denied, "extended holds" were placed on suspect checks. "I want to get that check off the street," said Becker. "If we deny that check and give it back to the member, they could potentially cash that fraudulent check elsewhere. We want protect someone else from that loss."
These dubious checks come from various sources. Becker explained that many members fall prey to cheats. They may receive a check in the mail from an unknown source or get unwittingly tangled in a Craigslist scam. If a member does cash a check that is deemed fraudulent, they are charged $10, but there are no fees for check holds.
Veridian supports checking accounts for more than 140,000 members and recently upgraded its AFS teller capture solution. To date, the credit union flags one to two checks per day for possible fraud. If it is a mobile deposit, members receive a text message notification regarding the hold. Other means of communication include postal mail and phone calls, depending on how the check was deposited.
Reaves further explained that TrueChecks delivers real-time responses on counterfeit, NSF, closed account, duplicate and "other fraudulent items," and is available via a web portal or integrated with APIs as part of an existing teller capture system. Installation takes roughly two weeks, accompanied by minimal direct teller training or video training.
"There is no dedicated staff required for our solution," said Reaves. "Once up and running, all updates are done over the web without need for CU staff intervention."
AFS has one "major solution release" per year and several minor releases during the year.
"The database is updated on a daily basis," said Reaves. "Because our software is hosted by AFS, updates happen over the web without CU staff having to do updates/or upgrades.
ROI is 'Noticeable'
For Veridian CU, the ROI is noticeable. AFS's solution allows Becker and her team to track checking activity each month. The report includes the number of checks scanned, the number of checks that came back with an alert and the dollar amount for those flagged checks.
"We look at how many checks came through that are denied—and that dollar amount represents quite a savings," she said.
