Banking Institution Fraud Prevention Solutions

Operating a financial institution is fraught with fraud risk as the industry grows increasingly complex.

Bank clients demand the convenience of transacting through any of a multitude of transactional channels. At the same time, organized crime groups and hackers seek to constantly exploit these channels to their advantage.

In a given day, a single client may:

• login to a bank’s mobile app to make a payment,
• enter the branch to initiate a home equity loan,
• withdraw cash at an ATM,
• use a web-browser to transfer funds, and
• speak with a call center to inquire about a transaction they don’t recognize.

How can any institution know with certainty that this person is, in fact, the person who owns the accounts that are being accessed through such diverse interactions?

It is a challenge, to say the least.

The banking industry is further obliged to design a financial risk management operation that complies with mounting state and federal regulatory requirements.

Research conducted by Javelin in 2024 revealed that identity fraud losses amounted to nearly $23 billion in 2023 - a 13% increase in overall losses for U.S. adult victims. This one data point, alone, provides clear proof that criminals have adapted their attack methods to find ways to circumvent the defenses put in place by banks.

Fraudsters use fake identification documents to open deposit accounts in order to launder illicit funds. They also access funds in other people’s accounts.  Existing account fraud (also called Account Takeover Fraud, or “ATO”) in 2023 totaled nearly $13 billion in losses - a 354% increase year-over-year. Such losses make it hard for banks to increase their profits and have contributed to a number of bank closings.

In addition to identity theft, banks are exposed to fraud from counterfeit money, fake money orders & cashiers checks, forged treasury checks and fraudulent or stolen credit cards - all of which affect the bottom line.

Issue Credit with Confidence by Validating Identification

The majority of bank revenues are generated by issuing credit. Many branch employees receive bonus compensation for meeting or exceeding quotas for the sale of new credit accounts. Credit cards, home loans, equity lines of credit, business loans, auto loans - this aspect of the retail banking operation is vital. It is also the leading area of fraud within the banking industry. Identity fraud and the rise of loan/mortgage fraud very strongly affects the profitability of the industry as a whole.

Banks are the largest issuers of credit; consequently, they must comply with an array of regulatory requirements designed to help validate who they conduct such credit transactions with. Examples include the Fair Credit Act, the “Red Flag Rule” mandates associated with the Free and Accurate Credit Trade Act, and the requirements under the Bank Secrecy Act (BSA) to create a Customer Identification Program. These combined legislative directives dictate that issuers of credit must proactively involve themselves in the fight against identity theft by creating and implementing procedures, documented with step–by–step instructions, for how to validate ID documents of any individual applying for and being issued credit, and to maintain records of such applications for as long as 5 years. The BSA and the FTC also require that such records be maintained securely.