Preventing Fraud Acquiring Knowledge through Shared Information

Those who commit fraud are indiscriminate when it comes to which bank, credit union or even industry to target. Wherever an opportunity presents itself a determined fraudster will strike, and then simply move on to the next opportunity. This behavior demonstrates why it is of such importance that all financial institutions and various industries work together to share their experiences and knowledge of fraud.

 

By My Credit Union

 

Those who commit fraud are indiscriminate when it comes to which bank, credit union or even industry to target. Wherever an opportunity presents itself a determined fraudster will strike, and then simply move on to the next opportunity. This behavior demonstrates why it is of such importance that all financial institutions and various industries work together to share their experiences and knowledge of fraud.

One organization, which has long promoted early adoption of this concept, is the Banking Industry Technology Secretariat or BITS. Acting as a steering committee advising the financial services industry, it concluded years ago that competitive concerns are immaterial when it comes to fraud, and have advocated the sharing of fraud data.

The financial services industry benchmarked this concept through two initiatives that are currently in place today --- one geared towards preventing deposit fraud, the other towards preventing new account fraud.

Deposit Fraud
Overall losses have abated in recent years thanks in large part to a community of extraordinary financial institutions that understood years ago that by working together, they could achieve far more than they could have ever hoped to achieve individually. By collaborating and not regarding fraud as a competitive issue, their exposure to losses has been and continues to be far less than for those not participating.
According to the 2002 ABA Deposit Account Fraud Survey, regional and super-regional banks prevented over 80% of check-fraud attempts. At the same time, a dramatic increase in attempted fraud was seen especially among small to mid-sized financial institutions with growth rates ranging from 35%-51%.

How it works - On a daily basis, financial institutions contribute and share information on accounts and transactions, creating a national knowledge repository of account and transaction related data. Used exclusively for the prevention of fraud, it contains:

  • Account status information;
  • Stop-payment records;
  • Final return-item decisions; and
  • Negative account & counterfeit item data

Today, nearly all of the largest financial institutions, and many credit unions participate in this initiative giving them access to valuable status information from over 200 million draftable accounts. In 2002, there were in excess of one billion inquiries to this national repository, resulting in approximately ten million warnings, valued at nearly $70 billion dollars.

New Account Fraud
Preempting deposit fraud is the issue of identity fraud at the new account's desk. Although account-opening procedures and front-end screening tools provide a solid level of protection, the most determined fraudsters still find ways to circumvent these efforts.

The expression, ''Fool me once - shame on you, fool me twice - shame on me'' aptly describes the challenge. We may not be able to avert an initial loss due to a new method or scheme, but we can certainly develop systems to prevent offenses that are many times repeated or even copied.

If you are not yet aware, there exists a solution known as the Anti-Fraud Exchange that has been highly successful at facilitating the sharing of fraud data. Rather than being restricted to a single industry, this system involves sharing incidents of known fraud across industries. In just the past 12 months, there have been nearly 4,000 exact matches to these incident records ---each match representing avoidance of a potential loss.

There have been several contributing factors to the overall success of the Anti-Fraud Exchange including:

  • Rules: To maintain the highest data integrity, participants agree and adhere to a common set of operating rules governing data submission and usage policy.
  • Historical File Search: To detect fraudulent individuals that have already compromised an institution's defenses, the system retroactively compares any new fraud incidents to an existing customer base.
  • Dispute Resolution: Having this process in place gives consumers an opportunity to resolve any mistakes and establish that they are the victim, not the perpetrator.
  • Victim Protections: Proactively protects individuals from further misuse of their identity by providing a way to denote their victim status.

Fraudsters will always seek the path of least resistance. If your institution is not participating in a shared fraud initiative, that path could very well lead to your front door.

Primary Payment Systems, Inc. (PPS) offers solutions to detect high-risk identities, deposits, and payments.

  • IDENTITY CHEK is a robust 'CIP' solution integrating identity validation, logical verification, OFAC screening, and fraud detection -- including participation in the Anti-Fraud Exchange.
  • DEPOSIT CHEK, PRIME CHEK, and DECISION CHEK represent the largest collaborative effort among financial institutions to prevent deposit and payment fraud losses. On a daily basis, financial institutions contribute and share status information on over 200 million draftable accounts, 16 million stop payment records, and 'return' decisions on nearly half of all U.S. checks returned annually.

For additional information on PPS, visit the company web site at www.primarypayments.com or call us toll free at 877-275-7774.

 

This sponsored content article is provided to the credit union community for shared insights and knowledge from a recognized solutions provider in the industry. Please note that the views and opinions offered here do not reflect those of Callahan & Associates, and Callahan does not endorse vendors or the solutions they offer.

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June 30, 2003


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