Eric Tran-Le
Eric Tran-Le, vice president, head of Actimize Premier at Nice Actimize.

The check is (not) in the mail

Identifying check fraud and combating its impact on credit unions.

March 27, 2023



If you're reading this, chances are you're probably worried about the rise of check fraud impacting your credit union. And with good reasoncheck fraud is a serious threat that can result in significant financial losses and damage your reputation. Fortunately, there are ways to stay ahead of the curve and protect yourself and members from this type of fraud. So, grab a cup of coffee and let's dive in.

What is check fraud and why is it a concern for small financial institutions?

Check fraud can take many different forms, including forged or counterfeit checks, altered checks, and fraudulent check deposits. Current check fraud trends you should be aware of include:

  • Counterfeit checks: This is one of the most common types of check fraud. Fraudsters use sophisticated printing techniques to create fake checks that appear legitimate. These counterfeit checks are then deposited into the victim's account or cashed, resulting in financial losses for both the member and credit union.
  • Check washing: Check washing involves erasing or altering the details on a legitimate check, such as the payee's name or the amount, and then cashing the check for the fraudster's benefit. This type of fraud can be difficult to detect because the altered check may still look genuine.
  • Remote deposit capture fraud: With remote deposit capture, customers can deposit checks by taking a picture of them with a mobile device and uploading the image to their financial institution’s app. Fraudsters can take advantage of this technology by submitting altered or counterfeit checks through remote deposit capture. This can be particularly difficult to detect because there is no physical check to examine.
  • Business email compromise (BEC): This type of fraud involves fraudsters hacking into a company's email system and using it to send fraudulent payment instructions to employees. These instructions may request that an employee issue a check to a fraudulent account, resulting in financial losses for the company and the credit union.
  • Synthetic identity fraud: In this type of fraud, a criminal creates a new identity using a combination of real and fake information. The criminal then opens an account using this synthetic identity and deposits fraudulent checks into the account.

The barriers of traditional fraud prevention strategies

Traditional fraud prevention strategies for check fraud, such as manual check verification and signature verification, are time-consuming, expensive, and unreliable. Fraudsters can easily circumvent these methodsmore now than ever with the rising use of artificial intelligence (AI) image tools like Midjourney. As a result, credit unions need to employ real-time fraud prevention strategies to stay ahead of these schemes.

Benefits of real-time fraud prevention

Real-time fraud prevention uses AI and machine learning to detect and prevent fraudulent transactions as they occur by analyzing massive volumes of data in real-time to identify patterns and anomalies that may indicate fraudulent activity. Real-time fraud prevention can also incorporate risk scoring and decision-making tools to evaluate the risk of individual transactions and automatically approve or decline transactions based on predetermined risk thresholds.

Real-time fraud prevention offers many benefits for credit unions, including:

  1. Improved accuracy: Quickly and accurately identify potential fraudulent transactions, reducing the risk of false positives and missed fraud attempts.
  2. Faster response times: Intervene as fraud occurs, reducing the risk of financial losses and minimizing the impact on members.
  3. Reduced costs: Eliminate the need for manual intervention and help small financial institutions avoid costly fraud losses.
  4. Enhanced member experience: Provide a better member experience by reducing the risk of fraud and protecting their assets.

To close, yes, check fraud is still here—and still prominent. By reinventing their fraud detection strategies with AI and machine learning, credit unions can check all their boxes and stay ahead of the curve to better protect their members.

ERIC TRAN-LE is vice president, head of Actimize Premier at NICE Actimize.