While payments fraud continues to rise, community banks are using technological solutions and staff training to reduce fraud losses, according to survey results released today by the Independent Community Bankers of America (ICBA). The study, which was conducted by the Federal Reserve Bank of Minneapolis, found that half of community banks said fraud increased in 2011 compared to the year before.
“The 2012 Federal Reserve Fraud Survey once again confirms that increased fraud losses are a serious concern for community banks, which are deploying a variety of tools to reduce losses,” ICBA Senior Vice President of Regulatory Policy Viveca Y. Ware said. “Despite these fraud and compliance challenges, community banks remain committed to serving Main Street communities.”
Most community banks (84 percent) attribute the increase in fraud to signature debit card fraud. While most community banks that have experienced reductions in fraud losses focused on debit card transactions (95 percent) and deployed enhanced fraud-monitoring systems (70 percent), many improved staff training and education (63 percent) as well.
The survey also found that:
►Payments fraud is a challenge for virtually all community banks. Nearly all community banks report that they have experienced fraud attempts (98 percent) or fraud losses (97 percent).
►Signature debit cards are most vulnerable to fraud and are a key target for fraudsters. For more than 80 percent of community banks, signature debit cards were the target of the highest number of fraud attempts and the product responsible for the highest dollar losses from fraud in 2011.
►Potential losses from account takeover are a serious concern for community banks. Only 7 percent of community banks cite account takeover of their customers’ accounts as one of the most common fraud schemes, though community banks remain diligent on this potential source of fraud. Roughly 80 percent of community banks invest more in fraud prevention for wire and ACH than they experience in actual fraud losses.
►There is no magic bullet in the fight against fraud. Community banks use a variety of approaches to mitigate the risk of debit card fraud to varying degrees of effectiveness. Among the most-used authentication technologies are PIN authentication (90 percent), signature verification (86 percent), customer authentication for online transactions (79 percent) and magnetic strip authentication (64 percent).
►Community banks’ internal controls are focused on access and limits. For internal fraud attempts, community banks report that fraudulent or unauthorized ACH debits (32 percent), counterfeit checks drawn against their accounts (31 percent), altered or forged checks (28 percent), and fraudulent cards transactions (21 percent) are most frequently used. Prevention measures most often rated as very effective are daily bank accounts reconciliation, dual controls, dedicated computer, and authentication and authorization controls.
►Community banks offer tools to help their business customers mitigate payments risk.
►Community banks’ most frequently offered risk-mitigation techniques for business customers are online information services (93 percent), multi-factor authentication controls (87 percent), account alerts (65 percent), account masking services (53 percent) and ACH debit blocks (50 percent).