Fight check fraud with a strategic mindset 

Greg Kanevski is Global Head of Banking for ServiceNow. He joins Senior Editor Rachel Koning Beals on the BAI Banking Strategies podcast to discuss educating vulnerable customers and embracing a level of protection that positions your organization as an anti-fraud leader. 

Key Takeaways:  

• Paper preference. Checks remain one primary way to conduct business, especially among a mature banking demographic. Yet vulnerability grows as fraudsters get more sophisticated. The number of check scams reported to Treasury’s FinCen nearly doubled to 680,000 incidents in 2022 from 350,000 a year earlier even as check use continued a 30-year slide. 

• Cost considerations. Banks and credit unions look to reduce costs by consolidating anti-money laundering (AML) and other fraud defenses. And it’s a step that regulators push for. Other efficiencies are sought as well, particularly if fee flexibility is reduced, as fees historically offset fraud-recovery costs. 

• Satisfaction and security. Research points to increased customer satisfaction and a willingness to award major business to banking institutions that can prove fraud resiliency. 

Don’t miss the other insights, methods and tools that can help your financial institution shape and evolve its fraud strategy and prevention tactics in the BAI Deep Dive: Mitigating fraud threats.   

Transcript    

Rachel Koning Beals: Hello, Greg Kanevski, welcome to the BAI Banking Strategies podcast. So happy to have you with us today. 

Greg Kanevski: Thank you, it’s great to be here. I appreciate it. 

Why, Greg, in an era that most of us would think of as a digital age, is check fraud still a concerning issue for banks and their customers, and in fact, maybe a bigger issue than even a few years ago? 

Kanevski: Yeah, it’s funny we’re even talking about it, coming from the industry and spending 30 years in banking and financial services, check fraud was one of the first things we talked about when it first entered the industry, and it’s funny, even though the percentage of checks over the last 30 years has dropped better than 80%, we’re still talking about it. And just recently, [at] another institution, we were chatting about the volume and impact of check fraud. And their comment is, statistically, it’s insignificant as far as the number of incidents itself. But overall, the loss amount is high. It hasn’t dropped at all, and that’s in the past 10 years for that one bank. 

So, it’s still an issue in the industry, and mainly it’s an issue because it’s easy. It’s low-digital, it’s stealing them out of a mailbox. It’s an easy way to get money out, and despite the numbers going down, people leap the hurdle that provides you the easiest way to find a way to commit fraud. It’s unfortunate that it still is an issue, and it probably will remain an issue until at some point the banks stop taking checks. 

What is the impetus for banks to still support that paper-based payment? 

Kanevski: There’s still a customer demographic out there that feels better with checks. It tends to be the folks that are a little bit older. Get their payments in every month from the government when they cut checks. They’re not particularly digital, and it’s an avenue to support them. Those folks hold the demographic of a lot of deposits, and deposits are meaningful to banks so they can issue loans. They don’t want those customers to leave and go to another bank if they are not supporting checks. So as long as that demographic is still utilizing checks, the bank can continue to support them. 

I’m asking you to put your law enforcement hat on here a little bit, but can you walk us through, just at a high level, some of the ways that check users and financial institutions that are processing those forms, how are they being violated? What are some of the crimes that we are seeing? 

Kanevski: A lot of it is very simply stealing out of a mailbox, stealing it just directly out of the mail. It is an easy thing to do. You can then wipe that check. Simple nail polish remover can take the ink right off the check and reissue it in someone else’s name for a different amount. And by the time anybody knows something twice it’s already done. And it’s easy to do. Today, most institutions allow you to make a deposit. You are taking a picture, so you don’t need to be in front of a teller. 

You can make it a little bit more digital-based check fraud if you deposit it online, stay away from the teller. But it’s just real easy to do. And today, people are not surprised when the mail is delayed, or when something gets lost in the mail. The mail system has changed dramatically over the past five to eight years, where beforehand, you’d be issued a check on the 22nd. It’s now the 25th, and I haven’t gotten it yet [you would know something was wrong]. 

Today you roll your eyes [and accept the lateness]. So it gives them a little bit more time to actually complete the fraud because people aren’t surprised by the mail being late. So it’s giving the fraudsters a little bit more of an ability not only to steal it directly, for a low risk, but it also gives them a little bit more timeline [before detection]. And that’s why the fraud numbers aren’t dropping. Losses last year, $24 billion in banking. Just check fraud. 

You talked about demographics. I wondered maybe with demographics in mind, or widening that view a little bit, are there some best-in-class examples from banks and credit unions that have stepped up their awareness programs, their educational programs? How are they talking to these customer groups about this check fraud? 

Kanevski: Yeah, it’s a great question. We work with banks of all sizes, global. What we’ve seen is the ones that are doing this best are communicating with the demographic, and what I mean is some of the older folks today. Communicating with them by sending them either a text message or an email, [saying] “We’ve seen unusual activity. Usually you deposit something on this day on the average every month, we haven’t seen one. Or this transaction looks unusual for you.” And getting the communication out there so that they can proactively engage the customers is really what’s making the difference for them and helping them manage the losses. 

And if you do it right, you do it proactively and you really make them aware, they’re now going to check the accounts more regularly. They’re going to help respond much more quickly. The ones that are doing it best are communicating actively, where some of the others are just waiting for the fraud to happen and then waiting to fall. If you’re there and you’re proactively engaging, you have a better chance of shutting that fraud down more quickly or recovering those funds before they’re gone. 

As we’re talking about check writing persisting, it’s also true that digital is a very desirable revenue channel for banks. So that means financial institutions must spread their fraud fighting resources across low-tech, high-tech, hybrid. Hybrid I think of receiving a physical check, but then doing a digital deposit with your phone perhaps. So how do you advise your clients, Greg, on finding the right balance when they are planning their defenses across all these channels? 

Kanevski: A lot of institutions today say, “Oh, we want to focus on our debit card because that’s where our volume is, that’s where our fraud is.” And statistically as far as the number of incidents, they’re absolutely correct. But what I’ve said to them is, unless you have a broad strategy that handles fraud as an overall classification for the bank, not focusing on only one channel or any one type of transaction. Have a fraud system and a fraud plan that mitigates all of your exposure. 

Because the fraudsters are going to go… It’s like the old joke, I don’t have to run faster than they are, just have to run faster than you. The fraudsters are going to go to the one that provides them the least number of hurdles. And if you’re only focusing on the shiny new object, which is the volume of, let’s say, credit and debit card fraud, which is absolutely important, you have to have an overall awareness of your entire exposure point. And doing that and bringing your fraud teams together rather than having them chunked out organizationally allows for whatever it is system or systems that you use to run much more efficiently. 

So what we’ve said to some of the institutions are, stop having your groups broken out and handling different areas. Bring them together. At least bring them under the same leader, so that you’re focusing on all of your exposure points. And that’s what the regulators are pushing too. They’re testing on it. The assurance teams and auditing teams are testing on this as well. That’s why it’s really important for them to look at your entire landscape in total, and then having a program that covers all of them as best as possible. 

Really good points. Speaking of operational costs, the fee landscape is facing proposed change. Historically, fees have offset losses from check fraud. Credit cards too, and digital is certainly unknown territory, but we’re talking about check fraud today. Greg, can you walk us through this rather big issue for the industry, the fee landscape. Because it does tie into our check fraud conversation today. What are banks saying about the fee situation? Can we float possible alternatives to cover these fraud costs if that fee flexibility goes away? 

Kanevski: It is the number one concern we’re hearing from bank institutions, from centralized services, is how do I manage disputes and fraud? How do I manage these events? Because you’re right, fees did fund these programs before, and the regulatory [landscape] globally, not just in the States, but the regulatory landscape has been much more customer-centric. And because of that, the pressure is on what regulators are calling predatory fees. The banking environment would consider it normal fees, like regulations and credibility. 

Without that revenue stream, they’re being forced to look at it differently. And it is by far the number one [concern] we’re hearing from folks and saying, “All right, well because I don’t have that revenue, I have to look at this much more holistically. I have to look at how to do things digitally differently. I have to become more efficient in what I take, I have to lower my losses.” 

And what they’re coming to us and saying is, “All right, now let’s really work and partner together, so how do I bring these organizations under one leader? How do I bring these technologies together? How do I update them? How do I increase my deflection rate, so that it, just take disputes for instance, so therefore I’m not taking in a dispute that’s not necessary?” 

Most institutions today have legacy deployments, where if you go in… I’m sure anyone that’s listening to this would remember a time when you saw a transaction on your portal. You didn’t know what that transaction was, but when you try to figure out what it is, it just says ABC Corp. Well that’s not helpful, because you don’t know what it really is. Well, it’s because it’s a legacy deployment and they don’t have the latest information. But if you had the most information, you could now deflect that matter from coming in because it actually was a legitimate charge. 

Banks are saying, “I have to solve this problem now.” So this is what they’re trying to do to offset those fees, is to become much more efficient in how they do it organizationally, much more technically proficient across all the channels, whether it’s online, via app, via call center or via a branch. And they’re trying to become much more holistic in their approach to it, because there’s no other way to get fees out of the associate and out of the customer. 

And quite frankly, the retail side of banking, it’s really tough to make any money these days. It’s all coming from the commercial side because the retail side, it’s really hard to generate revenue. So they’re being forced into looking at it differently… We just spoke with [a client] this morning. They said the number one budget item for funding for 2025 is to solve this problem for their bank. 

Related to that, it makes me wonder too, because we often talk about should fraud be a competition differentiator? Should the industry share its data when it comes to fraud, because it’s a common enemy? And does the fee issue factor into that where yes, you’re saving money internally with efficiencies, but maybe you start to look away from internal differentiators and you’re driven to be a little bit more cooperative with sharing fraud data rather than it being a differentiator. I don’t know if that factors into the conversation at all as well? 

Kanevski: Absolutely does, and institutions realize that fraud is an emotional event, especially depending on what type. If it’s a standard “my card was compromised, and someone charged something on it” then probably not as much. But if your account gets taken over and they’re funneling money out and that’s your savings account, it’s extremely emotional to them. 

One of my former employers, we did a study on this, and found that not only was the customer and the associate more happy and the net promoter score went up, but because we treated that incident, we treated that customer with due care, they actually brought more money in and raised the net new revenue coming in the door because the customer trusted us. The customer felt as though we were on their side, we’re looking out, best case scenario for them. 

So you can actually turn this around and call it a differentiator, and you can call it a manner in which you get the allegiance of that customer, or that client if it’s on the commercial side, and get them to really embrace your institution and hopefully stay with you longer. So it can absolutely be an asset versus just a liability. 

Any other practices, best practices, out there amongst the forward thinkers when it comes to reducing check fraud? Are we just talking KYC? Is there more to it? What are you seeing on the ground? 

Kanevski: Yeah. Regulators have been pushing for years to try to get the AML [anti-money laundering] and fraud programs tied together, and institutions now are coming around. The discussions are, “Okay, I want to get my operation together, I want to get my technology system together. But I actually now want to link my proactive and reactive together.” And what I mean by that is proactive, meaning your alerting system that’s monitoring transactions. With the reactive, which is the customer engagement. And that ties together AML surveillance, it ties together fraud, and it brings a more holistic viewpoint for the institution. 

So a lot of folks are saying, “All right, well I have an alerting system, and I’m generating alerts over here. But that alert doesn’t get tied into my fraud …” Or, “For it to get tied in, I had to open another event, and it’s all manual. There’s a lot of swivel chairing. And I don’t want to do that anymore, I want to bring these together.” So they’re now actually talking about having larger data sets. 

Because most institutions are making good progress with bringing their data together and cleaning it up, they’re looking to do this and bring these systems and bringing these functions together. So it’s broader than just fraud, it’s surveillance, and money laundering and anti-money laundering, and bringing those programs together … And some of these institutions, quite large and quite small in size, have made very good progress in doing this over the last three or four years. I would expect this to be another top priority for them looking forward, just because the data set gives you more ability to stop more fraud and getting that together really does make a difference. 

You talked about this a little bit toward the top, but I really like it, so maybe we could revisit. But that was when we were talking about the digital channel versus the check writing channel, and you said, “Don’t treat them independently,” and I want to talk about that. And as far as response teams, so both IT response, and risk response and maybe even marketing response. So how does a bank’s check fraud approach fit into the enterprise’s broader fraud framework? Is it typically the same response team? Should it be the same response team? Should it be a whole of enterprise awareness? What are your thoughts on that? 

Kanevski: It does all generally come together when you get into the investigative process, where the investigative process for most institutions is based on internal fraud and external fraud. But when it comes to the fraud operations and dealing with the customers and the surveillance, that tends to be separate teams and separate functions, and it doesn’t really come together until, as I mentioned, you put it down the funnel. And that’s just due to the fact that we’ve got a very strict process and what we have to do for credit cards, different timelines, different regulatory versus check fraud rate, which is a different timeline. 

Do they talk to each other though? Is there value and shared information, shared processes there? Or for all those good potential reasons, regulatory differences, it makes sense to keep that separate. 

Kanevski: It absolutely makes sense to bring these together. But historically, it just hasn’t. The technology and the data haven’t been brought together to allow these things to do that until further down the funnel. That has changed recently, and that’s why they’re looking to bring these processes together. Because yes, you can also handle your timelines and your regulatory response. But when you share data, when you share functional process A: You’re better off with that efficiency. But now you’re improving your capabilities internally because more people understand the different processes themselves so it’s a more resilient process. 

And then the technology once you bring it together, helps you with the data to be more proactive in getting out to them. So you mentioned marketing a minute ago. When you understand that, hey, we helped this individual who had a compromised account and a savings account, fraud in the checking account. They also had a transaction issue, but we solved it for them, we worked with them. You could turn that around to an asset and get that to the marketing team, who can actually reach out and work with that customer and help them bring in more revenue. 

So taking these groups and bringing them together not only as a cost play, meaning the efficiency and lowering the loss of the top and the bottom line. But actually, you could get that and put into the hands of your marketing folks, turn it around, not just more deposits but get the customer to open a deposit account or get the customer to move their mortgage because it feels though it’s much safer with you. So it really does turn it around and make it an asset for the institution. 

You summed up where I wanted to sum up. Whether it’s empirical data or anecdotal, are we finding customers more likely to rank fraud practices high when picking up a primary institution, or your example of moving a large transaction like a mortgage to where they feel safest, are we seeing market evidence that this matters more and more? Customers used to be fairly prickly about friction understandably, but maybe the pendulum has swung a bit and it’s safety-first? 

Kanevski: I invite your listeners on this call to look at our company’s co-sponsored research with banks. And although it was technology-focused, one of the main findings from that was not only to the technology experts inside the bank, the CIO and their team, but the customers continually put fraud and concern about account security as a top five item. 

So it matters how your clients and customers rank your security. It’s a whole bucket, they see it together. How secure is it? How digitally strong do you require? How do you respond to fraud, and how do you make them whole? That whole process itself is what’s going to keep the customer and have them bring more deposits to your institution, and it remains and will remain a top priority for them.  

Well, this has been great. Anything else on check fraud in particular, Greg, that I just didn’t get at that’s important to mention while I’ve got you? 

Kanevski: We’ve just got to keep in mind that even though everybody is focused on the shiny object right now, the digital, check fraud is not going away. It will never go away until checks go away, and it just will be there. So the industry is going to have to continue to focus on it … because of the loss itself and the $24 billion, there were almost 700,000 cases of check fraud last year alone. It’s an issue, and the industry is going to have to continue to deal with it. 

Well thank you, Greg, for joining us today. I always learn a lot when I get the chance to talk to you, and I know our listeners do too. So glad to be able to grab some time with you, thanks so much. 

Kanevski: Appreciate being here.