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Bank Fraud from A-Z

To defend your financial institution from fraud, you need to understand the threats. The following explores the most common types of bank fraud, how to reduce your risk of exposure, and more.

Bank Fraud Defined

Bank fraud refers to any illegal attempts to obtain money from a financial institution or its customers. That can include stealing checks, opening fraudulent accounts, hacking ATMs, and a host of other illegal activities. To protect your financial assets, your customers, and your reputation, you need fraud protection tools in place.

Types of Bank Fraud

Unfortunately, scammers have tricks up their sleeves to target every single type of banking transaction. To protect themselves, banks and credit unions need custom security measures in place for every type of transaction. That includes the following:

Check Fraud

Check fraud refers to any fraud related to paper checks. This includes stolen or forged checks, but it also takes into account fake or counterfeit checks. Ideally, you need tools in place that can help you check for incorrect signatures and other signs of forged checks. On top of that, you need to educate your clients about popular scams involving counterfeit checks.

Additional Resources

Check Fraud 101

Credit and Debit Card Fraud

When someone steals your client’s card and makes purchases on it, that is credit card fraud. Additionally, if someone fraudulently opens an account in your client’s name and uses the debit or credit card attached to that account, that type of fraud also falls into this category.

To detect card fraud, you need fraud prevention tools that can spot unusual purchases or changes in the customer’s’ usual patterns. At the same time, it’s important to have machine learning capabilities in place so that if your system mistakenly flags a card for fraud, it can learn from and avoid that mistake in the future. 

Card-Not-Present Fraud

With the advent of the EMV chip, card present fraud has declined, but card-not-present fraud has dramatically increased. Often this happens when someone “skims” or “shims” the details from your customer’s card and then uses that information to make online purchases. Again, the right fraud detection software along with customer education are the keys to prevention.

Additional Resources

Essential Safeguards Against Card-Not-Present Fraud

Credit and Debit Card Fraud

Safe Deposit Box Fraud

Safe deposit fraud generally happens when someone comes to the bank and pretends to be the owner of the safe deposit box, but it can also include employee errors that lead to losses related to safe deposit boxes. To protect your customers, you need identity confirmation tools in place so you can truly verify each customer’s identity before allowing access. Beyond that, you need a solution such as SQN: Safe Deposit. That tracks when customers access their boxes so that it’s easier to spot aberrations from the norm.

Additional Resources 

How to Protect Against Safe Deposit Box Fraud

ACH Fraud

Short for Automated Clearing House, ACH fraud is when scammers try to pass fraudulent checks and debit transactions through the ACH system. The ACH system deals with direct deposits, electronic checks, bill payments, and cash transfers, and hackers are always looking for ways to steal money from this environment. To keep pace with the ever-changing antics of these scam artists, you need a nimble fraud protection strategy.

However, ACH fraud often starts with phishing expeditions to get ACH information from small business owners or accountants. Once the scammers have those details, they can issue checks and do all kinds of electronic transfers. To protect your bank and your customers from ACH fraud, you need to focus on both security tools and education about phishing.

Additional Resources 

Essential Controls to Minimize ACH Fraud

More Types of Bank Fraud

Many more types of bank fraud exist. Here’s information on loan fraud, accounting fraud, phishing, and more:

Types of Bank Fraud

How Fraud Can Harm Your Bank

Bank fraud doesn’t just affect your bottom line once. Each and every time you fall prey to fraud, you lose money, but you also stand to suffer damages to your reputation. Remember, customers want to trust their financial institutions and when they feel like that trust has been breached, they often take their business elsewhere.

That creates a cascading effect, and ultimately, you may lose more money from the hit to your reputation than you do from the fraud itself. If you want to understand the importance of fraud protection, you need to know how fraud can harm your bank.

Additional Resources 

How Check Fraud Can Harm You Bank

Reporting Fraud

When customers notice fraud on their accounts, they need to alert you. Ideally, to make the process easier for them, you should have established channels that are simple and intuitive to use. For instance, the first option on your customer service line should be to report fraud.

You may also want to report fraud when it occurs. The Financial Fraud Enforcement Task Force collects information on fraud, and you may want to submit reports to them. Additionally, you may want to report fraud to industry groups so you can share information about current threats and how to respond to them

Legally, your customers have to report fraud within a certain time frame, and if they report it outside of that timeframe, they may be liable for the losses. That saves you from having to cover the losses, but it can make the situation frustrating for your customers and potentially even lose their business. When deciding how long to give your customers to report fraud, you need to take into account numerous factors including the law and your approach to customer service.

Additional Resources 

How Long Should You Give Your Customers to Report Fraud? 

Fraud Prevention

Fraud prevention consists of internal controls to detect fraud. That includes software to detect fraudulent transactions, automated workflows that flag unusual transactions for manual review, and training to help employees detect fraud. However, fraud prevention isn’t a one-time effort. Financial institutions, in particular, need to constantly monitor and refine their fraud prevention efforts to ensure they are providing the necessary level of protection for both themselves and their clients.

Additional Resources 

How Your Financial Institution Can Prevent Fraud

Fraud Prevention vs. Loss Recovery

Loss recovery is the process of putting everything back together after a data breach. In a best-case scenario, this means absorbing the cost of a single fraudulent check or a transaction from a stolen debit card, but more often than not, it involves dealing with multiple fraudulent transactions or compromised records.

When dealing with loss recovery, your financial institution may end up spending copious amounts of time and money finding the source of the breach, offering credit monitoring to clients who were affected, and dealing with the damage to your reputation. In most cases, it’s cheaper, easier, and less time consuming to focus on fraud prevention so you can avoid loss recovery as much as possible.

How to Choose a Fraud Protection Partner

When choosing a fraud prevention partner, you need a company with a track record of keeping its clients safe from fraud. You also want a partner who can offer the range of services and products you need. Ideally, you don’t want to have to work with multiple companies for different threats. You want a fraud protection partner who can do it all. You also need a partner that is constantly improving and updating their systems to address the latest threats.

Additional Resources

Working Together to Fight Bank Fraud

How to Choose a Fraud Protection Partner

To learn more about fraud prevention solutions for your financial institution, contact us today. At SQN Banking Systems, we strive to make fraud prevention easy for our clients. Our automated solutions replace manual processes, saving you time and money while also keeping your bank or credit union and your clients safer than ever before.