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Enhancing check fraud detection: A client-centric approach for financial institutions

Terri Luttrell, CAMS-Audit, CFCS
April 29, 2024
Read Time: 0 min

Why check fraud detection is a key factor in customer retention

Banks and credit unions should understand the serious consequences of check fraud on their customers and follow best practices to detect fraud before it can impact their client base.

You might also like this upcoming webinar on understanding and preventing check fraud.

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Maintain trust

What check fraud prevention means to customers

Within the financial services industry, one persistent threat continues to loom large: check fraud. While technological advancements have revolutionized banking, offering convenience and security, the age-old problem of fraudulent checks persists. For financial institutions, understanding how clients perceive and experience fraud is crucial to developing effective strategies for check fraud prevention and mitigation.  

In the eyes of customers and members, check fraud represents a breach of trust—a violation of the implicit contract between financial institutions and account holders. Whether individuals or businesses, clients entrust their economic well-being to banks and credit unions, expecting robust safeguards against fraudulent activities. When this trust is compromised, the repercussions to financial institutions extend beyond monetary losses; there is a tangible loss of confidence. Financial institutions must recognize the magnitude of check fraud from the client's standpoint and proactively address their concerns.

Common misconceptions

Observations on the importance of check fraud detection

According to a March 2024 survey conducted by Abrigo, over half of Americans (53%) believe credit card theft is the most common form of fraud. However, statistics show that check fraud is the most significant liability for banks, with annual losses of over $18 billion. In fact, the Financial Crimes Enforcement Network (FinCEN) issued an alert in 2023, highlighting the check fraud crisis and describing red flags for detection. 

Many consumers believe that checks are a thing of the past and give little thought to the loss of funds due to check fraud. As the Abrigo survey shows, the reality is that: 

  • Approximately 61% of Americans still write checks. 
  • Over half of respondents (51%) have fallen victim to check fraud once or twice.

Despite this high prevalence, a vast majority (79.8%) have not participated in educational sessions or workshops offered by their financial institution to raise awareness about check fraud prevention. Surprisingly, young people (ages 18-24) are more likely to have participated in such educational sessions (40%) than other demographics. As a result, younger demographics may be more savvy when it comes to check fraud. Additional findings from the survey reveal the following insights:

  • Small businesses are disproportionately targeted, with 56% being victims of check fraud. 
  • Small businesses are more proactive about participating in educational sessions about check fraud prevention (50%) compared to the general population (13%). 
  • Approximately 75% of people stated they were in danger of losing between $1000-$5000 to check fraud. 
  • 30.5% of Americans were unable to recoup all their money after falling victim to check fraud. 
  • Actions taken after check fraud attempts include working with financial institutions to resolve the issue (54.6%), freezing credit (33.9%), signing up for credit and identity monitoring services (28%), and switching financial institutions (16.1%). 
  • Gel pens for check writing are often suggested to deter check fraud. Despite 52% of Americans having gel pens in their homes, 73% are not aware that using gel pens is a top way to prevent fraud. 
  • 67.8% of Americans are concerned about financial fraud attempts increasing with the advancement of AI (artificial intelligence), and 74.3% believe AI will contribute to more successful financial frauds. 

A main takeaway for banks and credit unions is that 57.8% of Americans would be more likely to minimize their banking relationship with a financial institution if they were the victim of fraud. With so many fintech options available, traditional financial institutions will need to step up their check fraud detection game to ensure customer retention isn't threatened by a breach of trust. 

Fraud impacts your reputation, your customers, and your bottom line. Learn more about its snowball effect with this infographic: "Beyond immediate fraud losses."

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Unique challenges

Clients' expectations for check fraud detection

The Abrigo study revealed that 18% of Americans hold the belief that all fraudulent transactions are recoverable, which is not the case. If an individual or business unknowingly deposits a fraudulent check, they could be responsible for the funds. Banks must give customers access to funds within 1-5 days by federal law. Depending on state laws, banks and credit unions may ask for repayment and charge fees for the fraudulent check. This can result in financial losses, harm to credit scores, and legal issues. Resolving check fraud situations can be slow and frustrating, causing clients to lose trust in their financial institutions. 

These statistics paint a picture of the challenges posed by check fraud and underscore the importance of financial institutions adopting a client-centric approach to address this issue. Clients expect their financial institutions not only to enhance check fraud detection security measures but also to prioritize transparency and responsiveness in their interactions. 

By adopting an approach that includes education and responsiveness, financial institutions can effectively address the challenges posed by check fraud and reinforce trust and confidence among clients. These things, coupled with the use of robust fraud detection software, will enable financial institutions to manage risks associated with check fraud. With evolving fraud threats and heightened client expectations, prioritizing the needs and concerns of their clients will be instrumental in safeguarding the integrity of the U.S. financial system. 

About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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