Editorial content organized by topic
Sponsored content from industry partners
PRODUCT/CONTRACT ANNOUNCEMENTS
Latest offerings by category
Latest offerings by category
Articles submitted by industry partners
| Fraudsters bilk banks through customers (May 2010) |
|
|
Fraud taps the middleman ABA survey finds criminals now bilk banks through their customers DEPOSIT ACCOUNT SURVEY Bankers are increasingly concerned about customer victimization scams, signature debit card fraud, and fraudulent check deposits, the biennial ABA Deposit Account Fraud Survey found. Attackers’ sophistication and the potential for big dollar losses in these areas should have bankers on red alert. “Generally, frauds committed in recent years are more complex,” says Jane Yao, vice-president and director, Benchmarking and Survey Research Group with the ABA. “Some schemes involve account takeovers—malware placed on bank technology to lift customer data. Some make use of skimming technology that compromises ATMs. Many involve outreach to bank customers. The attacks vary,” says Yao, “yet in general, they are being done by organized gangs in other countries and can be difficult to pursue.” Yao also indicated that even the smallest community banks needed to think proactively about their response to fraud. Hit the weakest link Online exposure is certainly a factor, but another way to view the problem in 2010, is to think of the unwitting customer as a possible vector of attack. Traditionally, fraud perpetrators aimed at banks directly, trying to establish relationships before bilking them by check kiting or other means, according to Tom Haller, vice-president, fraud detection, M&I Bank, Milwaukee. Now, bad guys with slick ideas are often working indirectly, targeting legitimate small businesses and individuals with “opportunities” that hide a financial sting. “The economy is definitely a contributing factor,” adds Haller, who recently gave a presentation on the research findings. “Someone who is desperate for employment—even part-time income—might respond to an online ad for a mystery shopper or work-at-home plan and not realize they, as the legitimate customer, will become the barrier between the fraud perpetrator and the bank. So the victim deposits a fraudulent check and then wires a portion of those funds back to the criminal in response to instructions. The bank, meanwhile, has been dealing with activity on a legitimate customer account.” While the scripts and methods vary, Haller explains, the psychology is the same: trick the individual or small business into sending out small amounts of money based on a legitimate-seeming deposit or promise of future funds. But these aren’t the only methods prevailing in recent times. Based on an extensive questionnaire sent out to a mix of community, mid-sized, regional, and money center banks about fraud activity, the ABA survey findings presented a trend toward greater debit-related fraud as well as a perceived vulnerability surrounding ACH transactions, where a compromised business account could send out payments without funds to pay. (For the purposes of the survey, “transaction accounts” are those which allow customers to deposit and withdraw funds upon demand, including NOW-, sweep-, and money market accounts.) Of the 170 institutions that participated, 29% were community (median deposits, $226 million) and 48% were mid-sized banks. No single geography dominated the results. Debit card fraud, which includes POS, PIN, and ATM transactions, touched nearly all respondants and cost the industry an estimated $788 million in 2008. Ninety two percent of community and mid-sized banks and all of the large institutions reported having loses from debit card fraud in 2008. Debit card fraud now causes financial loss to a higher number of banks than check fraud does. The leading debit card fraud categories included counterfeit cards for signature debit (37% of 2008 losses) and stolen cards for PIN debit (45% of POS PIN debit losses; 42% of ATM losses.) Community banks reported a median of 24 POS signature debit fraud cases and losses of $6,178 in the survey period. Checks, cards & multichannel Card-related fears occur at a time when eight in ten banks reported having check fraud losses in 2008, a level basically unchanged from 2006. A look into check-related losses shows them to be mainly a big-bank concern, with 100% of money center banks reporting check fraud losses. Community banks that experienced check fraud dropped slightly from 77% to 75%. Drilling down, 41% of all check-related fraud losses experienced by community banks were from counterfeit checks, the highest percentage of the three asset-size categories, suggesting smaller banks are a particular target for this type of fraud. In 2008, more than half of the banks surveyed experienced ACH origination fraud, which typically involved unauthorized debits from customer accounts. Two in ten community banks, four in ten mid-sized banks, six in ten regional banks, and nine in ten money-center banks reported having data breach-related losses, often resulting from breaches at merchants or processors. In the past, search-engine friendly big banks with an obvious online presence attracted multichannel fraud, notes Yao, but these days, when nearly all banks have transactional websites, it is easier for remotely situated criminals to target a smaller bank’s clients. Survey findings showed, for instance, that 28% of respondents reported having losses from online banking, compared with 19% in 2006. About 15% of the respondents (including 82% of the larger banks) reported having losses from keystroke logging or spyware. What’s to be done? As a first step, M&I’s Haller advises a bank of any size to understand the fraud pattern it faces as measured by its write-offs. Combat those frauds first. From there, engage in customer and employee education efforts to explore the universe of possibilities and any new trends. “Smaller banks may need to lean on technology or third-party transaction monitoring systems to detect odd patterns of commerce that are, in fact, fraudulent,” adds Yao. “We’re urging banks to work with third-party processors, taking an active role in helping the experts help them.” • To obtain a copy of the Deposit Account Fraud Survey, go to aba.com and click on “Surveys” in the “Products” pulldown menu. The electronic version of this article available at: http://www.nxtbook.com/nxtbooks/sb/ababj0510/index.php?startid=20 
|
