New Insights on Fighting Check Fraud

Why Behavioral Analytics Plays Key Role in Mitigating Risk
New Insights on Fighting Check Fraud
Wesley Wilhelm
Check fraud remains the No. 3 source of losses for financial institutions, Information Security Media Group's soon-to-be-released Faces of Fraud survey shows. But fraud expert Wesley Wilhelm says behavioral analytics can help mitigate the risks.

"One of the fastest ways to detect fraud is by detecting suspicious behavior," says Wilhelm, lead fraud expert at NICE Actimize, which provides compliance and anti-money-laundering services to banks and credit unions.

Regardless of the fraud method used or the banking channel that's exploited, financial institutions need to invest more resources and time into knowing their customers' behavior and patterns, he says during this interview with Information Security Media Group.

Check imaging, made possible by the October 2004 passage of the Check Clearing for the 21st Century Act, has helped to reduce some types of check fraud, but has fuelled new ones, he says (see New 'Sweetheart' Schemes Exploit Mobile).

"Check 21, because we started using images, reduced float times," which did cut down on deposit fraud, Wilhem says. But by using images, it also became easier for fraudsters to create copies of legitimate checks, he adds.

Role of Analytics

Data analytics and behavioral analytics can help institutions detect some of these new types of fraud schemes sooner, Wilhelm says.

By recognizing anomalies - either through manual reviews or system alerts - in check deposits, check withdrawals and the frequency at which new checks are written, banks and credit unions dramatically improve their chances of curbing losses associated with check fraud, he explains.

"The most common check fraud scheme we see now is the depositing of duplicate items," Wilhelm says. "It's the same item, but you take a picture of it and deposit it into bank A and bank B at the same time. It also doesn't preclude you from taking that image and changing the check number by one digit, for instance."

Electronically altering checks is easier with check images, he says. But check fraud itself remains a relatively low-tech crime.

"Check fraud is a very straight-forward and technically unsophisticated way to commit fraud," Wilhem says. "With desktop printers to print checks and mobile phones to send check images, it's still pretty basic."

Banks and credit unions need to realize that technology, alone, cannot stop check fraud, he adds. "Knowing what is normal and customary for the account is the best way to detect these schemes."

During this interview, Wilhelm also discusses:

  • The role social engineering plays in check fraud;
  • Why institutions need to move away from legacy batch interfaces to real-time interfaces; and
  • How losses linked to check fraud are declining, in spite of an uptick in check-fraud schemes.

Information Security Media Group's 2014 Faces of Fraud survey results will soon be available. Results of the 2013 Faces of Fraud survey are available online.

Wilhelm is recognized for pioneering research on the fraud management lifecycle theory. He has more than 30 years of experience in banking and consulting, with a focus on fraud management, payments and retail banking technology and operations. Wilhelm has held numerous management positions in risk and fraud management, card issuing, ATM driving, merchant acquiring, and branch and call center operations. Before joining NICE Actimize, he was a senior analyst at Aite Group.

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