Check fraud, an old-fashioned crime, is yet again roiling banks – and they should battle it with better, AI-powered know-your-customer technology.
While some say that the best way to stamp out check fraud is to eliminate physical checks, banks also need to step up their know-your-customer protections for depositors by taking advantage of the latest fraud-busting technology.
Check fraud has spiked dramatically in the past 18 months, harming both consumers and banks, according to a recent Wall Street Journal report.
For years, check fraud declined in the US, but this old-fashioned crime started spiking again during the pandemic. US banks filed 680,000 check-fraud reports in 2022, which is almost double the number filed in 2021, according to the Financial Crimes Enforcement Network. And the WSJ reports that it can currently take weeks or even months for banks to investigate check fraud claims, indicating they need to better coordinate and automate their investigations.
To get to the root of the problem, some experts say that phasing out physical checks is the best path forward. But perhaps more importantly, banks can also do a better job preventing bad actors from ever being able to open “mule” accounts, where stolen and altered checks are often deposited.
A trade group for community banks called out a handful of big FinServs earlier this year, insisting that they needed to do a better job resolving check fraud claims by beefing up their know-your-customer (KYC) practices. “The largest banks are enabling a weak link in this crime chain by permitting fraudulent accounts to be opened in the first place,” a leader of the trade group said at the time.
Customer onboarding and KYC checks have long required manual processes, paperwork, and legacy systems, but Insights Distilled has previously reported how new, improved technology is now available. In short, banks need to upgrade their practices.
For example, perpetual KYC uses AI-powered data crunching to transform it from “an activity that occurs irregularly every few years after onboarding to an automated trigger-based activity that works in real time,” according to a Moody’s report from earlier this year.
A host of startups offer AI tools to strengthen banks’ know-your-customer protections, including Citi Ventures-backed Quantifind, SymphonyAI, and Chekk. To protect the ecosystem as a whole, banks need to explore their options to find a solution that works better for customers and themselves.