Fighting Check Fraud in Real Time

Case Study

As credit unions expand their remote deposit channels, deploying effective, real-time fraud prevention tools is essential to minimizing losses and protecting members

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OVERVIEW:

Banks and credit unions are expanding their check deposit channels. As check fraud remains an issue for all banks and credit unions, even at the teller line, an omnichannel approach to check fraud is needed.

CHALLENGE:

With the expansion of check deposit channels, such as remote deposit (ATM and mobile), fraudsters are finding new ways to commit check fraud.

SOLUTION:

AFS and Alogent, two software companies catering to financial institutions, joined together to provide customers with a joint solution for omnichannel check fraud protection.


Losses related to check fraud remain widespread. Despite a move towards electronic methods of payment, fake check is one of the most common forms of fraud, placing it within the top five riskiest scam tactics according to the Better Business Bureau’s (2017 BBB Scam Tracker Annual Risk Report: New Trends in Scam Risk). Losses from check fraud remain a huge problem for financial institutions and consumers. In fact, check fraud losses account for 35% of all industry fraud losses (American Bankers Association, “ABA Benchmarking and Survey Research: 2017 Deposit Account Fraud Survey Report”). For consumers, losses from check fraud are on the rise to a median loss of $1,488 per incident (Better Business Bureau).

Industry Fraud Losses

Check fraud losses account for 35% of all industry fraud losses (American Bankers Association)

As new deposit channels have gained widespread adoption – particularly ATM/ITM and mobile deposit – fraudulent actors search for new opportunities to exploit fraud prevention systems that have not kept pace with technological innovation.

Recognizing the persistent threat that check fraud poses to financial institutions, Advanced Fraud Solutions (AFS) entered into a strategic partnership with Alogent to provide banks and credit unions with an integrated, real-time solution capable of preventing check fraud across all in-branch and remote deposit capture points.

This case study explores the experience of two credit unions who deployed AFS’s TrueChecks® in partnership with Alogent’s ImagePoint Hub, featuring teller capture and item processing solutions. 

Fraud Prevention that Covers All Points of Capture

You’re not going to stop fraud 100 percent. But significant reduction in fraud can be achieved by adding additional fraud protection tools across all capture points, effectively limiting the potential for fraud to occur.
— Carol Nault, EVP & COO, Summit Credit Union

For Summit Credit Union (Greensboro, NC) and its members, deploying the same fraud prevention tools across deposit channels was critical to the successful growth of mobile deposit. Between 2014 and 2018, Summit achieved a 43% YOY increase in mobile deposit users, but with this increase in users came an increase in check fraud. After launching TrueChecks® in December 2017, the rate of checks returned due to NSF decreased nearly 50%. In May 2018, for instance, there were only 2 returned checks from the mobile channel.

“You’re not going to stop fraud 100 percent,” said Carol Nault, EVP & COO, Summit CU. “But significant reduction in fraud can be achieved by adding additional fraud protection tools across all capture points, effectively limiting the potential for fraud to occur.”

CLIENT PROFILES:

Summit Credit Union is a not-for-profit full service financial cooperative established in 1935. Based in North Carolina, Summit Credit Union services roughly 2,400 members in the region. Summit CU controls assets totaling over $235M.

Penn East Federal Credit Union is one of the largest credit unions in the Scranton/Wilkes- Barre area, serving over 22,000 members in northeastern Pennsylvania. Penn East FCU controls assets totaling over $170M.

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At the teller line, a similar reduction in fraud was achieved through improved decisioning and teller training. At Summit, a majority of losses incurred on teller deposits came from altered, fictitious checks under $200. Additional, hidden costs were also incurred on

these returned items in the form of employee hours spent processing the returned items and subsequent case management. “Perpetrators would hit different tellers at different branches with small dollar checks – small enough that we wouldn’t normally apply a hold,” said Nault. “With TrueChecks®, when a counterfeit check is presented at the teller line, the system returns a message instructing the teller exactly how to proceed. It’s a real benefit to our members, who get better service at both the teller line and through our mobile deposit application.”

Penn East Federal Credit Union (Scranton, PA) also experienced losses on altered and fictitious checks. At Penn East, where Alogent had already been implemented to reduce fraud at the teller line, fraud posed less of a risk in that channel that in the credit union’s rapidly expanding mobile deposit service. “We had significant fraud losses when we went live with mobile deposit,” said Brad Gebert, IT Manager, Penn East FCU. “When we added TrueChecks® to the equation, our fraud losses dropped to near zero. It paid for itself within minutes.” 

Simplified Decisioning Aids Teller Productivity

With TrueChecks, when a counterfeit check is presented at the teller line, the system returns a message instructing the teller exactly how to proceed. It’s a real benefit to our members, who get better service at both the teller line and through our mobile deposit application.
— Brad Gebert, IT Manager, Penn East Federal Credit Union

While different institutions make different assessments of risk, each with their own hold policies and procedures, the combination of the powerful TrueChecks® database with Alogent’s ImagePoint Hub fraud module enables a financial institution to customize risk decisions as well as recommended actions when an exception occurs. As part of the integrated solution, Penn East FCU applied the same real-time fraud prevention at both teller and mobile capture points resulting in better decisioning across both channels. “With the integrated solution, we’ve eliminated the need for manual data entry – all checks are processed automatically, and, subsequently, we are looking at more items. We no longer have to rely on the teller to make the right decision,” said Gebert. “The additional layer of protection has been very helpful, with the result being a significant increase in the efficacy of our fraud prevention.”

Allowing financial institutions to add custom messages to tellers enables them to communicate quickly and clearly with customers should an issue arise. “At the front line, the integration was smooth. Tellers get a message telling them exactly what to do when a deposited item is flagged,” said Nault. “It’s a powerful benefit for our members in that we are able to provide a step-by-step process enabling our tellers to better serve and protect our members from fraud.” 

Reducing Check Fraud Directly Benefits Member Service

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The joint AFS and Alogent solution, which draws on the collaborative power of the TrueChecks® database, allows banks and credit unions to mitigate fraud in real-time, leveraging:

  • A vast fraud database comprised of data from a large network of financial institutions, item processors and optional third-party sources for account status data.

  • Real-time responses on counterfeit, NSF, Closed Account, Duplicate and other fraudulent items.

  • Easy API-based integration into existing and familiar workflows.

  • Decisioning with Reg CC-recommended action and associated risk.

 

About

Advanced Fraud Solutions was founded in 2007 with the simple mission to help financial institutions and businesses prevent fraud by utilizing their comprehensive private cloud-based software solutions at the front line and in the back office. Every day, their innovative fraud prevention tools help banks, credit unions, and merchants of all sizes eliminate losses and safeguard their financial assets, providing the level of protection that today’s customers demand.

Alogent provides advanced technologies that digitize and automate the financial services world. Alogent is the market leader in providing banks and credit unions with deposit automation, item processing, enterprise information management, and mobile and online banking solutions.