Deposit fraud is an ever-present threat, every year draining billions from unsuspecting account holders—and financial institutions. Your financial institution stands on the frontline of banking fraud detection, potentially next in line to bear the brunt of these losses. But it doesn’t have to be this way. In this guide, we’ve broken down the key insights you need to protect your assets—and those of your account holders’.
Read to learn more about the best fraud detection software and the best deposit fraud prevention solutions available today for financial institutions like yours. In the battle against fraud, every minute counts.
Understanding the Threat
What is Deposit Fraud Detection Software
When considering fraud detection tools in banking, your search should start at deposit fraud detection software. This is a crucial type of banking fraud detection software, specifically honed for deposit fraud detection like check fraud, mobile deposit fraud, ACH fraud, and wire fraud.
This type of fraud investigation software can monitor transactions, often across multiple deposit channels—ranging from traditional check deposits to mobile deposits and electronic transactions like ACH and wire transfers.
Its primary objective? Analyzing deposit information, ideally in real-time, to promptly flag any irregularities, suspicious activities, or bad actors and prevent fraud.
For instance, an anti-fraud platform might flag an unusually large check deposit into an account that typically displays modest activity.
Or, an ACH origination request in which the account holder information does not match up. This would then prevent an ACH transaction from a scammer from being initiated.
The best deposit fraud detection software will proactively see fraudulent behavior in real time and raise alerts, offering frontline staff and back office team members the opportunity to investigate potentially fraudulent activities.
The Reality of Fraud in Numbers
The High Cost of Fraud Losses for Financial Institutions
Recovering lost funds post-fraud incidents remains a problem for FIs. Despite efforts to reclaim stolen funds, the aftermath of payments fraud in 2022 revealed a concerning trend. Statistically, a substantial portion of victimized organizations struggled in fund recovery. Surprisingly, only a minority (27%) managed to recover 75% or more of the pilfered funds, leaving a staggering 44% unable to retrieve any portion of the lost assets [1]. The arduous journey of fund recovery not only demands considerable time and resources but also poses a risk to an institution’s reputation, potentially causing lasting damage.
Exploring the Landscape
Emerging Trends in Deposit Fraud
The prevalence of fraudulent transactions, also known as transaction fraud, has significantly risen in the digital world, necessitating advanced fraud detection systems to combat these threats. There are various recent developments in this type of fraud including deceptive payments, business email compromise schemes, invoice scams and investment scams. Fraudsters continually develop new fraud patterns and tactics to exploit vulnerabilities in online banking technology by using methods like phishing attacks, malware infections and social engineering techniques.
As more individuals turn towards online banking services due to their convenience factor, it’s not surprising that different types of fraudulent techniques have emerged too. These include fake accounts being set up for illegitimate purposes or account takeovers where scammers gain unauthorized access to personal information through nefarious means such as using social media, engineering tactics or by tricking users into divulging sensitive data unknowingly.
Fraud detection software can also prevent identity theft by validating identities, employing two-step authentications, identifying malicious logins, and employing behavioral biometric analysis to detect deviations from a user’s normal behavior.
To combat these emerging trends, strong measures need to be implemented when it comes to detecting possible instances of fraud along with taking preventative actions beforehand if deemed necessary. Effective strategies to fight fraud also must continuously adapt alongside advancements made on part from those involved in engaging criminal behaviour involving large sums of money illicitly gained through unauthorized transactions so they can keep pace.
Anatomy of a Deposit Fraud Incident
So what exactly is deposit fraud? As an FI stakeholder, you’re likely aware, but here’s our baseline definition.
Deposit fraud in the context of a bank or credit union refers to fraudulent activities involving the deposit of funds. This type of fraud typically occurs when someone deposits counterfeit checks, manipulates electronic transfers like ACH (Automated Clearing House) transactions, or conducts unauthorized wire transfers. In each case, the fraudster aims to either illegitimately gain funds or transfer money through deceptive means.
To effectively combat these threats, financial institutions must invest in robust fraud detection systems that can adapt to evolving fraud tactics.
Check Fraud
This involves depositing fake checks or using stolen checks to illegally access funds. The fraudster may alter a genuine check or completely fabricate one, attempting to withdraw the money before the financial institution determines the check is fraudulent.
ACH Fraud
In this case, a scammer unauthorizedly initiates ACH transfers from an unknowing account holder’s account. They might do this by obtaining someone’s bank account information and routing number, then setting up illegitimate transactions.
Wire Fraud
This involves unauthorized or deceptive wire transfers. Fraudsters often trick individuals or employees in a company into wiring money to an account under false pretenses, or they might hack into banking systems to initiate unauthorized transfers.
In all these scenarios, the common goal is to illicitly access or move money, creating financial loss and security issues for the bank, credit union, and their customers.
Fraudsters utilize various techniques to carry out deposit scams such as synthetic identity fraud fabricating emergencies or stealing personal data for their advantage. Additionally, fraudulent activities may also involve imposter schemes with authorized push payment systems.
To combat this fraudulent activity, the financial institutions have implemented measures like setting limits on deposits, integrating AI tools for early detection anti fraud at the customer sign-up stage, and strengthening security layers. In doing so, banks aim to protect customers and themselves from being victimized by cases involving fake identities, suspicious transactions such as unauthorized use of credit cards, and other types of illicit activities that result in substantial losses due to breaches within their system.
The Fraud Detection Solution Lineup
List of Fraud Management Solutions in the Banking Industry
These core providers have developed systems designed to identify and detect fraudulent activities and, effectively preventing their occurrence. The top core banking processors all offer some form of deposit fraud detection software. Every core processor has their own approach and set of strengths. The top cores all emphasize reliable security within banking operations.
Advanced Fraud Solutions
Best for: Check, ACH, Wire, and business fraud prevention. The leader in consortium-based fraud prevention.
Fiserv: Driving Innovation in Financial Services
Fiserv stands for innovation in the financial services sector, delivering technology solutions that address the evolving needs of the industry. With a focus on streamlining operations, enhancing customer engagement, and facilitating secure transactions, Fiserv is committed to helping FIs navigate the complexities of the digital age. Their comprehensive portfolio includes payment and banking solutions that integrate seamlessly with existing systems, ensuring businesses and financial institutions can offer their customers a more efficient, secure, and satisfying experience.
Who They Serve: Fiserv serves a wide array of FIs and entities, including banks, credit unions, corporations, and government agencies. Their solutions are designed to support these organizations in their quest to deliver exceptional financial services, making them a pivotal partner in the industry’s ongoing transformation.🛡
IMM
IMM delivers solutions that enable financial institutions to electronically streamline their business operations and processing environments. The company is a longtime advocate of eSignature adoption and education, active in ESRA to advance the public’s understanding of issues surrounding the use of electronic signatures and records.
Who they serve: IMM has a secure legacy of serving banks and credit unions.🛡
FIS Global: Pioneering Financial Technology for Growth
FIS Global stands at the forefront of financial technology services, offering a suite of solutions designed to propel businesses and financial institutions forward. By simplifying complex processes such as payment processing, banking software, and risk management, FIS Global enables its financial institutions to enhance operational efficiency and embrace digital innovation.
The company is dedicated to advancing the digital payment landscape, ensuring financial services are accessible and inclusive worldwide.
Who They Serve: FIS Global caters to a broad spectrum of FIs, including both retail and commercial banks, credit unions, government entities, and businesses across various sectors, ensuring they stay ahead in the fintech arena. 🛡
Vertifi: Custom Digital Banking Solutions
Vertifi stands out by providing digital banking solutions specifically tailored to the unique needs of credit unions and financial institutions. Specializing in mobile deposit technology and electronic document management, Vertifi is committed to revolutionizing the digital banking experience. Their focus on security, efficiency, and user-friendliness ensures that FIs can confidently navigate the digital transformation, enhancing their operational efficiency and customer service.
Who They Serve: Vertifi’s offerings are particularly suited for credit unions and financial institutions aiming to elevate their digital banking services and operational effectiveness.🛡
NCR Voyix Corporation: Transforming Consumer Transactions
NCR Voyix Corporation is a global leader in consumer transaction technology, facilitating over 550 million transactions daily. By integrating software, hardware, and services, NCR empowers businesses to engage with their customers in innovative ways. Their expertise spans self-service kiosks, point-of-sale systems, and digital banking solutions, aiming to enhance customer experiences across retail, hospitality, and banking sectors.
Who They Serve: NCR’s solutions are designed for a diverse range of FIs, including retail outlets, restaurants, financial institutions, and public sector organizations, helping them modernize customer interactions and transactions. 🛡
Jack Henry: Empowering Financial Institutions with Tech
Jack Henry is synonymous with cutting-edge technology solutions and payment processing services tailored for the financial industry, especially focusing on community and regional banks and credit unions. Their commitment to reliability, service, and innovation enables financial institutions to stay competitive. Jack Henry advocates for strategic technology adoption to improve financial services, offering comprehensive solutions in core banking, electronic payments, information security, and compliance.
Who They Serve: Primarily serving community and regional banks and credit unions, Jack Henry is dedicated to equipping these institutions with advanced technology, leveling the playing field in the financial industry. 🛡
COCC
COCC, a recognized leader in delivering innovated comprehensive technology and partnerships, offers feature-rich, modern standards-based core and digital banking solutions, combining intuitive user experiences and APIs to streamline advanced fintech integrations. COCC FIs leverage a complete suite of modern financial technology solutions.
Who they serve: COCC has been client-owned for over 50 years with focus on servicing community banks and credit unions.
🛡 Note: Integrates with AFS TrueChecks
Human and Technological Synergy
The Frontline of Fraud Defense: Detection Techniques
The fight against deposit fraud relies on both human and technological interventions. While tech will always evolve, the human element in banking fraud prevention remains irreplaceable and invaluable.
Frontline staff members in banks and credit unions play a pivotal role in this battle. They are often the first line of defense, equipped with the unique ability to observe and interpret cues that a fraud platform may overlook.
Picture this: a teller detecting a jittery account holder depositing a check—a possible unwitting participant in a fraudulent plot. This human touch offers context and insights tech can’t match.
Meanwhile, in the back office, staff members contribute significantly, especially in monitoring and preventing ACH fraud. Their eagle-eyed scrutiny, paired with sophisticated analytics, pinpoints irregular patterns overlooked by automated systems. Think unusual transaction volumes or timing that raises red flags.
Incorporating human intuition and understanding with cutting-edge technology not only enhances the effectiveness of fraud prevention strategies but also ensures a more comprehensive approach. It’s a synergy that empowers swift and informed decision-making, fostering a secure and trustworthy banking environment.
Leveraging Real-Time Consortium Data in Fraud Prevention
Real-Time Consortium Data is a valuable resource in the fight against banking fraud. Consortium-based intelligence based on this contributed data has emerged as the gold standard in fighting deposit frauds, offering a unique edge for FIs.
Because contribution databases are rooted in historical data from financial institutions, fraud prevention platforms developed on consortium intelligence deliver real-time and highly accurate insights.
And while AI/ML models are valuable, they’ve been reported to have error-prone processes. They also have constraints—relying heavily on the accuracy and relevance of input data. Here’s where contribution databases step in, bridging the gap.
This technique scrutinizes stored data to both identify fraud and thwart fraudulent activities. Transactional databases, housing deposit histories nationwide, hold key details like check, ACH, and wire info. The analysis enables rapid fraud identification using real-time processing and analytics.
Consortium contributions elevate fraud prevention efforts significantly. This collaborative data sharing among FIs can unveil unseen patterns and anomalies, that AI and ML could never generate.
The use of Real-Time Consortium Data strengthens efforts towards preventing fraud through several key benefits.
- Improved detection abilities
- Access to up-to-date insights
- Thorough assessment of risks
Furthermore, this method allows for better scalability as it eliminates individualized silos within an organization’s datasets.
By bringing together collective intelligence from various sources regarding fraudulent activities, it revolutionizes how FI stakeholders can tackle issues related to identification and prevention of financial scams.
Making the Right Choice
Selecting the Right Fraud Protection Software
The decision to select a suitable payment fraud protection software is of utmost importance. Features such as real-time identity verification, device and IP intelligence, utilization of artificial intelligence and machine learning for analyzing transactions in real time should be considered while choosing the right fraud detection solution that meets specific business needs.
Detection capabilities
Check that the software offers the right features based on your account protection and deposit fraud needs.
Payment model
It’s crucial to zero in on a deposit fraud platform that offers fair pricing and contract terms. Ensure that you have the opportunity to view a demonstration of the platform’s functionality before making a commitment.
Established provider vs newcomer
The strategic experience of a provider is worth weighing up. Factors such as the ease of merging with modern platforms, the ability to demonstrate return on investment (ROI) based on past performance, the duration and cost of the contract, among others, should be considered.
Static vs customizable transaction monitoring
Monitoring transactions is critical, but the ability to adjust this system to align with a financial institution’s risk profile is equally vital. At Advanced Fraud Solutions, we believe that each financial institution should have the power to customize their fraud platform to suit their unique risk profile. This is only achievable with fully flexible settings.
Balancing Act
Balancing User Experience and Fraud Protection
It’s a delicate dance for financial institutions, which always aim to provide an easy and personable account holder experience. One of the key challenges is minimizing false positives to ensure a smooth customer experience while maintaining robust fraud protection. Choosing the right fraud detection capabilities and systems for your tech stack can help minimize false positives while ensuring robust protection.
The challenge lies in bolstering fraud protection without introducing excessive friction that frustrates account holders. It’s an aspect that FI leaders should pay close attention to during software demos, ensuring the balance between security and experience is maintained.
Standalone vs integrated
Your FI’s core banking processor may already include a deposit fraud detection platform. You need to evaluate your core banking processor, understand the deposit fraud measures they have implemented, and decide whether you need an additional tool.
Alternatively, you may find that a full fraud prevention solution like Advanced Fraud Solutions is already integrated into your core system. Fraud detection systems that offer integration can offer a more seamless and efficient approach to fraud prevention.
Most fintech companies can work with your FI on an integration solution or make recommendations for the best approach for efficiency between systems.
Implementation and Compliance
Timely Deployment and Ongoing Support
In order to maximize the efficiency of a purchasing fraud detection software solution, it is crucial to prioritize certain tasks such as timely deployment and continuous support. It is also important for the system itself to be well-designed in order for it to effectively identify fraudulent activities and prevent payment fraud.
To overcome challenges during implementation, FIs can take measures such as staying updated on current and emerging fraud patterns and utilizing techniques like machine learning and AI. Selecting flexible solutions that can adapt to changing needs would prove beneficial in detecting potential cases of fraud through methods like IP address risk assessments and scoring.
Compliance
You want a deposit fraud platform that is compliant not only with Nacha’s rules, but also with other key regulations in the banking industry. Nacha has regulations around identity verification
Takeaways for Financial Institution Leaders Looking to Fight Fraud
As we wrap up this guide on deposit fraud detection solutions for financial institutions, it’s important to reiterate some key points. Deposit fraud detection software is an indispensable tool in the modern banking landscape. By analyzing deposit information in real-time, it can swiftly flag any irregularities or suspicious activities, thereby protecting both the institution and its account holders from potential fraud.
The fight against deposit fraud is a continuous one, requiring constant vigilance and adaptation to new scams and tactics employed by fraudsters. It’s a challenge that requires a combination of human intuition, technological advancements, and collaborative data sharing among financial institutions.
In this era of banking technology, it is crucial for FIs to have strong and effective strategies in place for detecting deposit fraud. By utilizing advanced technologies to detect fraud, sharing information among institutions, and staying vigilant about new patterns or methods used by fraudsters, banks can protect their operations and customers from fraudulent activities.
Although the fight against fraud is an ongoing one, with the right tools, strategies, and mindset at hand, success can be achieved. Looking ahead, financial institutions must continue to innovate and adapt their fraud detection and prevention strategies to stay ahead of the curve.
In conclusion, the importance of choosing the right fraud detection software cannot be overstated. It is a decision that can have far-reaching implications for a financial institution’s ability to protect itself and its customers from fraud. Therefore, it’s crucial to carefully consider the features, payment model, provider experience, customizability, user experience, integration, deployment, support, and compliance of potential fraud software and solutions.
Fraud Mitigation Solutions FAQs
What are the top fraud management solutions in the banking industry?
Some of the most highly regarded fraud management solutions used in the banking sector include Fiserv, FIS, NCR, Jack Henry and Advanced Fraud Solutions.
These companies offer effective measures for handling instances of fraud within financial institutions. It may be beneficial to research these options. When seeking reliable methods for managing fraudulent activities.
References
[1] Association for Financial Professionals. (2022). 2022 AFP Payments Fraud and Control Survey Report.
