The Evolving Nature of Financial Fraud: Emerging Trends Create New Challenges

The Evolving Nature of Financial Fraud: Emerging Trends Create New Challenges

Fraudsters are constantly on the lookout for new ways to steal from financial institutions (FIs). As the banking industry evolves, financial criminals watch for emerging trends that present lucrative opportunities for theft—and then move quickly to adjust their targets and evolve their tactics.

Advances in banking technology also motivate criminals to evolve their tactics. When a new or improved security technology succeeds at making a particular type of fraud more difficult, fraudsters will often shift their efforts to focus on a more promising target.

Back in 2015, for example, when EMV (chip card security) technology emerged across the United States, it was very effective at mitigating card fraud. Faced with this new challenge, fraudsters shifted their attention away from their point-of-sale (POS) payment fraud tactics—and began focusing on new methods for exploiting digital card technologies. In particular, they devised sophisticated tactics for obtaining consumers’ personally identifiable information (PII)—which they could then use to commit other types of fraud. According to Aite Group research, more than 23 billion data records have been compromised since 20171. 

Now, to meet consumer expectations for speed and convenience, the banking industry has begun moving to digital transactions in real time. But while faster payments and immediate access to funds keep customers happy (which is, of course, vital to an FI’s success), that same element of speed can increase the risk for unauthorized transactions. Because once financial criminals gain access to funds, there’s only a small window of time available to prevent the theft. 

As the banking landscape moves toward real-time payment and deposit channels, fraudsters are once again adjusting their targets to exploit common vulnerabilities in fraud control systems. In 2020, 74% of organizations were targets of attempted or actual payments fraud. 

Check fraud remains a growing trend. 

Check fraud (e.g. counterfeit checks, alterations to payee or amount, forging signatures) continues to be a growing trend. According to the American Bankers Association’s 2019 Deposit Account Fraud Survey, total attempted check fraud increased to $15.1B (up from $8.6B in 2016) and accounted for 60% of attempted fraud against deposit accounts at U.S. banks. 

This may come as a surprise considering that people are writing fewer checks these days—as digital payment channels (e.g. mobile, remote-deposit capture, and same-day ACH) continue to emerge and gain in popularity. What’s not surprising, however, is that fraudsters are seizing on the opportunity to exploit the evolving payments landscape.

Duplicate check presentment is one example of a growing check fraud trend. Leveraging digital channels, fraudsters can quickly deposit (and quickly cash out) a single check multiple times. After depositing the check via one FI’s mobile app, they can deposit it again via another bank’s mobile app (because they still have the check in hand). They can even deposit the physical check one final time via an ATM or even in a branch. Without proper fraud controls in place, the FIs may not be alerted to the fraud until after the criminal has moved out the funds.

Counterfeit check fraud is another evolving check fraud trend. Criminals create counterfeit checks using either fake routing and account numbers or by stealing the information from a good-paying account. Then, as with duplicate check presentment, they use digital banking channels to quickly cash out the funds before the fraud is detected.

How can we combat quickly evolving fraud tactics?  

As banking technologies continue to advance, fraudsters always seem to stay one step ahead—innovating increasingly sophisticated tactics that exploit the latest industry trends. 

It’s important for FIs to understand the evolving nature of fraud. Because with this understanding, it becomes clear that the only way to mitigate fraud in a sustainable way is to get out in front of it. That requires a proactive approach.

At Early Warning®, we are continuously innovating to stay ahead of both evolving fraud trends and emerging banking technologies. Our Real-time Deposit Chek® and Payment Chek® Services with Account Owner Authentication (AOA), for example, monitor, detect and provide immediate notification of high-risk transactions. These solutions run in the background, enabling FIs to reduce operational and recovery costs associated with payment and deposit fraud, while providing a fast and seamless customer experience.

Learn more about our real-time payment and deposit verification solutions

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