Tomasz Zajda – stock.adobe.com
Preventing fraud and scams can be a case of whack-a-mole for banks and payments companies as bad actors deploy new technologies to fool consumers and employees. But there are steps financial institutions can take in their payments business to help safeguard against new threats.
Fraud and scams
Still, fraud prevention remains a
Fraud was also the second largest hurdle to growth facing the payments industry, according to a
Financial services companies have already taken steps this year to curb fraud and scams. JPMorgan Chase later this month will begin asking for additional information on
Visa last week unveiled its new
There’s still more that financial institutions can take to combat ransomware attacks, business email compromise and new threats such as AI-generated impersonations and imposter scams.
“Ransomware gets a lot of headlines, but business email compromise is still the number one fraud attack vector that we see across the industry,” Jeff Taylor, senior vice president, commercial fraud forensics at Regions Bank, said at the recent Payments Forum conference.
“They typically target accounts payable, payroll, vendor management… all industries are at risk,” Taylor said.
Here are five best practices banks can implement with their clients and internally to help fight fraud.
1. Have clients reconcile daily
Banks should strongly encourage their commercial banking clients to reconcile their accounts regularly – daily, even.
“The speed of reporting is really important in the commercial space,” Taylor said. “It’s not like in consumer [banking] where you may have 30 days or more to be able to report a fraudulent check. In the business world, you’ve got 24 hours, and so you’ve got to be able to recognize that an item is fraudulent and report it back to your financial institution so that they can return it to the bank.”
By reconciling accounts on a daily basis, clients will be able to see items posted to their account before it’s too late to reverse the transaction.
In an authorized transaction, “there’s less data to really tell… that I’m being scammed on the front end,” Mike Timoney, vice president of secure payments for payments system improvement at Federal Reserve Financial Services, said at the conference. “Once that payment goes out the door, it’s much harder [to get back].” Federal Reserve Financial Services is an organization within the Federal Reserve that is responsible for managing critical payment and securities services.
2. Urge customers to adopt digital banking channels
Banks and payments companies should also push clients to limit the use of paper checks where they can and convert their payments flows to digital channels.
“There are so many options using ACH, real-time payments, or even wire [transfers] to convert those vendor payments to a digital modality, as opposed to leveraging checks,” Taylor said.
Banks can also push their consumer customers to use electronic bill pay, he said. “There are great options that allow the bill payment company to then determine, ‘How is this going to be processed? Is it going to go through ACH, real time, payment card or wire?'”
3. Get clients to be more careful with checks
Businesses aren’t going to throw away their paper checks, so helping to establish sound practices for storing those checks is critical as check fraud
“You’d be amazed at the number of cases I investigate where the principal check signer of the business was going on vacation in Europe for a couple of weeks and he signs 10 or 15 blank checks and leaves them with somebody in the office just in case they need to make a payment,” Taylor said.
4. Institute positive pay with payee name verification
Banks should encourage their clients to turn on positive pay with payee name verification to help mitigate payment fraud when payments are made with checks. Positive pay with payee name verification is a fraud tool that allows the bank to compare the payee name on a check against the payee name in the issued check file.
“That is going to be the number one way that you’re going to be able to recognize these fraudulent items as they are attempting to post to your account,” Taylor said.
5. Come together to fight scams
Most importantly, banks and payments companies need to mobilize to better fight scams, Trace Fooshee, a strategic advisor at Datos Insights, said during the Payments Forum conference.
Fraud and scams are “threatening the trust relationship upon which the whole payments ecosystem sits,” Fooshee said. “It is the core of the value proposition of banking. And to the extent that that is called into question, that should be a wake up call to everyone in the room that this is something that we need to mobilize on.”
Fraud rings operate like multinational corporations do, and will shift their focus to operating in areas where it’s less costly to do business, Fooshee said.
Financial institutions in regions such as the United Kingdom, Australia, Singapore and Canada have effectively mobilized against fraud and scam rings, and have shown real results in pushing those scam operations out of the region.
“That’s not happening [in the U.S.],” Fooshee said. “And given the global nature of this problem, that means to me that we’re likely to see this problem get worse before it gets better, unless and until we begin to come together and mobilize in a meaningful way to address the crisis.
“One of the most important jobs to be done in mobilizing to address the problem is coming together to overcome resistance and constraints to sharing information, because scams are a little bit unlike a lot of other fraud… by the time the bank actually sees the payment request comes in, that is the last five minutes of a very long journey,” he said.