The uptick in check fraud at financial institutions across the country has been well-publicized and emphasized by regulatory agencies. Yet despite warnings about the high prevalence and high costs of check fraud, many banks and credit unions operate without systematic fraud prevention programs or lack the technology to combat check fraud. Here are a few important reasons why check fraud prevention is worth the effort:
Why boosting your check fraud prevention is worth the effort
February 6, 2024
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4 Reasons better check fraud prevention is a good investment
Check fraud is on the rise. Learn how you can save time and money in the long run by updating check fraud prevention capabilities today.
You might also like this on-demand webinar explaining how fraudsters use checks to their advantage.
Takeaway 1
Check fraud prevention is critical, especially as this costly fraud typology continues to trend upward in financial institutions.
Takeaway 2
Community banks may face challenges seeking reimbursement for breach of warranty claims filed with other FIs.
Takeaway 3
Banks and credit unions should leverage new tools to improve check fraud prevention that can ease the burden on their staff and safeguard customers.
4 reasons to invest
Why invest in check fraud prevention?
Check fraud is increasingly common
Despite the increasing popularity of digital payment channels, checks are still the most common form of B2B payment — with 81% of businesses still paying other firms with paper checks. At the same time, check fraud is increasing dramatically. According to fraud strategists, check fraud is projected to soar to $24 billion in 2024. And FinCEN reported that Suspicious Activity Report (SAR) filings for check fraud in 2022 exceeded 680,000, nearly doubling the number of filings the previous year.
Check fraud can cause catastrophic losses
The increase in check fraud has taken a heavy toll on banks such as Regions Financial Corp., which lost $135 million to check fraud in 2023 through September 30. Not all financial institutions share the impact check fraud has had on their bottom line, but the costs are very real. Check fraud cost banks approximately $6 per check processed in 2022, according to an estimate from SouthState Bank’s correspondent division. Smaller regional banks especially cannot afford check fraud losses, and they may face challenges seeking reimbursement for breach of warranty claims filed with other financial institutions.
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Fraud prevention increases confidence in your organization
As fraud operations become more sophisticated, banks need to invest in the proper technology for check fraud detection. Your customers, partners, and auditors will all have more confidence in your bank or credit union’s ability to control its fate if you have a strong fraud prevention program.
“The battle against check fraud is a race against evolving criminal tactics,” said Datos Insights strategic advisor Becki LaPorte. “Fraudsters use this to their advantage and wield sophisticated tools. It is imperative for community financial institutions to adopt innovative technology solutions that protect customer funds without impacting the customer experience.”
Enterprise risk management is a complex process that pays for itself through cost reduction, brand and reputation enhancement, and bottom-line success. Controlling fraud risks should be an important part of it.
Check fraud prevention technology is improving
Much of the technology banks rely on for check fraud prevention dates back to the 1990s, so it’s no surprise that newer check fraud schemes can slip through the cracks. Emerging AI and machine learning capabilities are a game changer for check fraud prevention when it comes to detecting patterns and anomalies that help detect fraud. Tech advancements such as the ability to text customers to confirm unusual transactions can also make fraud teams’ lives easier. Comprehensive platforms like Abrigo Fraud Detection can both improve workflows and leverage AI, which saves time, increases efficiency, and helps staff prioritize higher-risk activities.
“Our approach blends AI and rules-based detection, ensuring our customers are equipped with transparency and a robust and adaptable fraud prevention system,” said Abrigo CTO Ravi Nemalikanti. “The two-pronged approach helps banks and credit unions safeguard their assets and maintain customer trust."
Banks and credit unions should seek out software that uses the best technology available to detect suspicious activity and can be customized for the most efficient check fraud prevention possible.
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