In 2023 and 2024, payments fraud continues to surge across the financial services industry, with 80% of organizations reporting fraud attempts or successful breaches, a sharp rise from 65% in 2022 (AFP Fraud Survey). Check fraud remains the dominant form, with 65% of respondents experiencing fraud involving checks. Despite the risks, checks remain essential to many businesses, with 70% of business owners planning to continue using checks for the next two years.
For community banks, credit unions, and other smaller financial institutions, combating mobile check deposit fraud is especially challenging. While larger banks may have the resources to invest in advanced fraud detection systems, smaller institutions often rely on practical, hands-on strategies to protect their customers and themselves.
The good news is, with the right blend of actionable fraud prevention techniques and employee training, even the smallest institution can effectively fight back against fraudsters. Below, we’ll explore fraud detection and prevention strategies specifically tailored to smaller banks and credit unions.
Recognizing Fraud: Key Red Flags for Mobile Check Deposits
One of the key differentiators for community banks and credit unions is their personalized relationships with customers. This relationship creates an opportunity to spot fraud that larger institutions may miss. When it comes to mobile check deposits, FIs need to dig deep into patterns of behavior and customer activity. Here’s what to look for:
1. Account Activity: Know Your Customer (KYC) and Transaction Monitoring
Many small banks and credit unions take pride in knowing their members personally. This gives you an edge when identifying fraud, as you’ll likely recognize when a customer’s behavior deviates from their normal activity. Here’s what to focus on:
- Deposit History: Review deposit consistency. A trusted customer will typically have a pattern—similar payroll deposits on a regular schedule, transactions with local businesses, and check deposits in predictable ranges.
- New Accounts: Fraudsters often target new accounts. For example, if a customer opens a new account and within weeks begins depositing large checks or multiple smaller checks through mobile deposit, it could signal fraudulent activity. Always flag accounts with sudden spikes in deposit activity for further review.
- Returning Check Patterns: Pay close attention to accounts with a history of returned items—particularly if those returns occurred shortly after mobile deposits.
This approach to KYC allows small banks and credit unions to spot anomalies faster. Your local knowledge of customer behavior is your best defense.
2. Transaction Types: Monitoring for Unusual or Sparse Activity
For credit unions and small banks, where customers tend to be loyal and have consistent financial behaviors, unusual account activity is easier to identify. If an account shows:
- Minimal day-to-day transactions (such as buying groceries, gas, or paying bills) and only has large deposits followed by quick withdrawals, it’s likely cause for concern.
- Cross-channel fraud: Accounts engaged in fraudulent mobile deposits may also be tied to other suspicious activities like wire transfers or ACH transactions. Keep an eye on whether deposits are followed by transfers to other accounts or sent through other channels.
For smaller institutions, these transaction patterns are often easier to recognize because of your intimate knowledge of your customer base. By developing simple processes for reviewing these behaviors, you can quickly flag fraudulent accounts and take action.
3. Balancing Convenience with Security: Delaying Fund Availability
One unique challenge for smaller banks and credit unions is balancing customer convenience with fraud prevention. Customers increasingly expect quick fund availability for mobile deposits, but rushing deposits can leave your institution vulnerable to fraud.
- Implementing delayed fund availability for certain types of deposits (especially from new accounts or unusually large deposits) is a critical safeguard.
- For example, two-tiered fund availability policies could be applied, where long-term members with good standing receive quicker availability, while new or high-risk accounts have longer wait times for checks to clear.
- Be transparent with your members about these policies. Frame it as a way to protect them and their funds, which can help manage expectations and reduce customer dissatisfaction.
For smaller institutions, maintaining that personal relationship with your customers while implementing these safeguards is key. Explain to your members why delays are necessary and how it protects them against fraud.
Practical Fraud Prevention Measures for Small Banks and Credit Unions
Smaller financial institutions often face constraints that larger banks don’t. While you may not have the resources to build a dedicated fraud team or implement costly automated systems, there are still practical steps you can take to minimize the risk of fraud.
A. Leverage Consortium-Based Solutions Like TrueChecks®
One of the most effective tools available for community banks and credit unions is TrueChecks® from Advanced Fraud Solutions. TrueChecks® integrates seamlessly with existing systems and provides real-time verification of checks, allowing FIs to screen deposits against a vast database of known fraud markers. AFS is the leader in Consortium Intelligence™️, using real historical data to fight back against fraudsters using their own tactics.
Even smaller institutions can leverage TrueChecks® to help detect fraud by:
- Identifying high-risk deposits before they clear.
- Providing immediate alerts for checks flagged as potentially fraudulent.
- Reducing the reliance on manual review processes, giving your team more time to focus on serving customers.
For many credit unions and community banks, the affordability and ease of use of TrueChecks® make it a valuable addition to your fraud prevention toolkit.
B. Enhanced Employee Training: Building Expertise from the Ground Up
When fraud does occur, it’s often your front-line staff that will first spot the warning signs. Ensuring your team is well-trained to recognize fraud patterns is essential for small institutions. Training should focus on:
- Recognizing out-of-pattern transactions: Make sure employees understand what normal account behavior looks like for long-term customers vs. new accounts.
- Asking the right questions: When a deposit seems suspicious, encourage staff to engage with the customer. A simple conversation about the source of funds can help determine whether something feels “off.”
- Using available tools: Ensure that staff is familiar with the tools you have in place, like TrueChecks®, and how to respond when something is flagged.
For community banks and credit unions, employees often know customers personally. Training them to use these relationships to their advantage is key—fraudsters are far less likely to succeed when they encounter knowledgeable, engaged staff.
C. Implement Layered Review Processes for High-Risk Transactions
While automation can be expensive, small banks and credit unions can still implement layered review processes for high-risk transactions. This means that deposits flagged as suspicious go through multiple checks before funds are cleared. For instance:
- Require manager approval for large mobile check deposits.
- Implement a dual-verification process for checks that raise red flags, ensuring that both the teller and a fraud specialist review the transaction.
This layered approach slows down fraudsters and gives your institution time to fully investigate questionable deposits before funds are released. While it requires staff buy-in and additional time, it can significantly reduce your exposure to fraudulent activity.
D. Turn Fraud Prevention into a Collaborative Effort with Your Members
Smaller institutions thrive on member relationships. Leverage this connection by encouraging your customers to take an active role in preventing fraud. Many fraudsters attempt to trick well-meaning members into depositing fake checks, which is why it’s essential to educate your customer base. Here’s how:
- Regularly inform members about the dangers of check fraud and suspicious deposit schemes through newsletters, email campaigns, and in-branch materials.
- Provide practical advice on how to spot fraudulent checks—for example, encouraging customers to verify unexpected large payments or checks from unknown sources before depositing them.
Additionally, offer members secure, convenient alternatives to paper checks when appropriate, such as wire transfers or online bill payments. By steering members toward safer payment methods, you reduce your institution’s risk of being targeted by fraudsters.
Moving Forward: Staying Proactive in the Fight Against Fraud
In the face of increasing fraud risks, credit unions and community banks must adopt a proactive stance. By focusing on personalized customer relationships, diligent transaction monitoring, and practical fraud detection tools like TrueChecks®, even smaller financial institutions can successfully combat mobile check deposit fraud.
Remember, fraud prevention doesn’t always require large investments or sophisticated technology. Often, it’s about putting the right procedures in place, training your staff, and using the inherent strengths of your institution’s close relationships with customers. Fraudsters might adapt, but with vigilance and a commitment to protecting your members, your institution can stay one step ahead.
Mobile Deposit Fraud Frequently Asked Questions (FAQs)
- What’s the biggest payments fraud risk for credit unions and community banks in 2023?
- Check fraud remains the largest payments fraud risk, with 65% of financial institutions reporting it as a top concern. (AFP)
- How can small banks and credit unions detect mobile check deposit fraud?
- By carefully monitoring transaction histories, flagging unusual deposit activity (especially in new accounts), and using real-time verification tools like TrueChecks®, smaller institutions can spot potential fraud early.
- What role does customer education play in preventing fraud?
- Educating customers about the dangers of check fraud and encouraging them to verify checks before depositing them helps reduce the risk of fraudulent transactions entering the system.
- How can smaller financial institutions manage fund availability while preventing fraud?
- Implementing delayed fund availability for high-risk accounts or larger deposits is a critical way to give your team time to investigate potential fraud before releasing funds.
- What should front-line staff focus on when spotting fraud?
- Staff should look for out-of-pattern deposits, sudden spikes
