NEW YORK -- “The financial cost of fraud to a company may be three or more times the value of the fraud loss amount,” observes Steve Solberg of Fortent, a company specializing in anti-money laundering, Know Your Customer, anti-terrorist financing, and anti-fraud technology. In a white paper released today at the “BAI Combating Payments and Check Fraud Conference” in Baltimore, Mr. Solberg, Fraud product manager at Fortent, states, “Fraud is not static. It continues to evolve with criminals, typically following the path of least resistance. Once new anti-fraud measures are implemented, criminals move to another scheme until they figure out how to beat those measures.”
“Winning the War Against Financial Fraud” outlines current fraud challenges and how banks are protecting themselves and their customers. Trends from Steve Solberg’s paper include:
Check fraud isn’t going away – Despite the fact that electronic payments are rising at 12.9% per year, the total amount of attempted check fraud is more than $5.5 billion annually, according to a 2004 ABA Fraud Survey. The U.S. writes two-thirds of the world’s paper checks – more than 35 billion each year.
New opportunities for employee fraud are emerging – The threat of information theft is causing as much concern as the theft of funds. In today’s automated bank environment, customer account information is readily accessible in branches, offices, and call centers throughout the world.
Criminals thwart rules-based systems – Intelligent systems can learn criminals’ behavior and guard against risk in real time. Banks are required to use these advanced systems to stay ahead of fraudsters, who are keenly aware of reporting requirements that raise alerts.
“Silo” mentality weakens fraud detection – Because many banks’ Check Fraud Detection and Credit Card Detection departments often do not share systems, the same criminals can prey on customers in different divisions without raising a bank-wide red flag.
C-suites are moving toward an enterprise focus on anti-fraud systems – Fraud carries significant reputational risk, reduces customer confidence, and can damage an institution’s market capitalization and profitability. A more powerful fraud detection infrastructure “can contribute to cost reductions and total operations efficiency . . . [including] reduced investigative staff and premises expenses, as well as lower systems costs in the long run,” writes Mr. Solberg.
Regulatory expectations are increasing – Bank regulatory agencies may soon mandate that financial institutions implement stronger programs for identity-theft prevention.
“Fraud is fixable – if you use the right tools,” says Mr. Solberg. “The solutions to what may be considered an unacceptable fraud environment are not mysterious, but simply require commitment, investment, and talent.”