How agile business rules enhance check fraud detection and prevention

In recent years, the landscape of financial transactions has shifted dramatically. Despite a decline in check usage over the past several decades, the issue of check fraud has only intensified, particularly since the onset of the COVID-19 pandemic. During this period, millions of government-issued relief checks were distributed through the United States Postal Service (USPS), creating a prime opportunity for check fraud criminals. This surge in check fraud, coupled with increasing sophistication among fraudsters, has posed significant challenges for anti-fraud agencies and further illustrates the positive impact of fraud detection consortiums.

The evolution of check fraud

The reality of today's check fraud landscape is far more complex than in the past. Criminal organizations and sophisticated gangs have taken center stage, moving beyond the actions of individual fraudsters. These criminal enterprises have infiltrated post office distribution centers, established fake businesses, and created counterfeit identities to deposit stolen checks. The rise of dark web channels, including platforms like Telegram, has facilitated real-time communication among fraudsters, allowing them to share and refine their techniques swiftly. This rapid evolution in fraud tactics means financial institutions (FIs) are often left scrambling to keep up.

Brandon Koeser, director and senior analyst at RSM US LLP, highlights this escalating problem: "Fraudsters are increasingly more adept at adjusting processes to maximize their success and ultimately their financial gain. Check fraud, card-related fraud, and phishing attempts aren't going away; they are only growing more pronounced." This evolution in fraud tactics underscores the urgent need for financial institutions to enhance their defenses and adapt quickly.

The challenge of traditional check fraud detection

Check fraud can take many forms, including forged signatures, altered amounts, and counterfeit checks. Historically, when financial institutions faced significant amounts of check fraud, the process of detection and adjustment was cumbersome and slow. It often took months to accurately identify fraudulent patterns and make necessary changes to business rules. By the time these adjustments were implemented, fraudsters had already adapted their methods or shifted their focus to other institutions. This lag in response allowed fraud to persist and evolve, underscoring the need for more agile solutions.

The importance of effective fraud detection cannot be overstated. Traditional methods of fraud detection, while valuable, often fall short in terms of speed and flexibility. As fraud tactics become more sophisticated, relying solely on outdated processes and inflexible business rules can lead to significant financial losses and operational inefficiencies.

The role of advanced fraud detection technologies

Advancements in fraud detection technologies offer a glimmer of hope. The integration of artificial intelligence (AI) and computer vision into fraud detection systems has revolutionized the way banks identify and mitigate check fraud. These technologies enable banks to automate the detection process, significantly reducing the manual effort involved and minimizing false-positive rates. As a result, financial institutions can lower their losses relative to fraudulent checks and enhance operational efficiency.

However, even with these advanced technologies, the ability to implement changes to business rules swiftly is crucial. The key to staying ahead of fraudsters lies in the capacity to adjust institutional rules in hours or days, rather than months. This agility allows financial institutions to respond proactively to emerging fraud tactics and mitigate their impact effectively.

Why agility in business rules matters

Agility in business rules is essential for several reasons. First, it enables financial institutions to customize their check fraud prevention strategies to address specific threats. By quickly adjusting a wide range of business rules, banks can implement targeted controls that align with their unique risk profiles. This flexibility is critical in combating the diverse and evolving nature of check fraud schemes.

For example, a cloud-based consortium can provide a powerful platform for banks to share information about known fraud schemes. Imagine a scenario where Bank "A" is alerted to a fraudulent scheme identified at Bank "B." With agile business rules, Bank "A" can promptly update its systems to block deposits from accounts linked to that scheme. This proactive approach not only helps Bank "A" prevent losses but also disrupts the operations of the criminal network.

Some examples of business rules that are quickly implemented include:

• Checks coming from a specific account
• Checks made out to a specific payee
• Checks over a certain amount
• Checks with a specific account number
• Checks coming from a new account with a high dollar value

The power of a fraud detection consortium

Participating in a check fraud consortium that operates through a shared intelligence database offers significant advantages for financial institutions, allowing them to collaborate and strengthen their collective defenses against fraud. This collaborative approach mirrors how fraudsters leverage social channels to enhance their schemes.

Julie Conroy, Chief Insights Officer at Datos Insights in Boston, emphasizes the importance of collaboration: "We all need to figure out how to invest in technologies that help us get faster, nimbler, and more collaborative in fighting fraud. All these attack vectors are only going to continue to escalate." By working together in a consortium, financial institutions can pool their resources and knowledge to create a more robust defense system.

Implementing agile solutions: the Check Fraud Defender approach

In the face of escalating fraud threats, financial institutions must adopt agile solutions to stay ahead. One such solution is Check Fraud Defender (CFD) from Mitek. CFD is a secure cloud-hosted check fraud consortium designed to help financial institutions improve operational efficiencies and reduce overall losses. This solution enables institutions to leverage computer vision, machine learning and AI, as well as quickly implement and adjust bank-specific business rules, to proactively defend against "migrating" fraud scams in real-time, before they are victimized.

The Check Fraud Defender platform provides banks with the tools to stay agile, adapt to new threats, and collaborate with other institutions to strengthen their defenses. By joining a cloud-based consortium, banks can leverage collective intelligence and resources to better protect themselves against check fraud.

Conclusion: embracing agility in the fight against check fraud

As check fraud continues to evolve and grow in complexity, financial institutions must embrace agility in their approach to fraud prevention. By leveraging advanced technologies, participating in fraud detection consortia, and implementing agile business rules, banks can enhance their ability to detect and mitigate fraud effectively. It's time for financial institutions to move at the speed of fraud, ensuring they are well-equipped to combat the ever-changing landscape of financial crime. Joining a cloud-based consortium and adopting solutions like the Check Fraud Defender from Mitek can provide the necessary tools and collaboration to stay ahead of fraudsters and protect institutional assets.

Learn more about combatting check fraud