In-Branch Fraud Occurrences Can Outpace Digital

Digital fraud is frustrating. Ambiguous cyber-strangers taking advantage of credit unions and their members force credit unions executives to “shadow box” with bad actors that they, most of the time, can’t identify. However, sometimes fraud can happen and it’s a little closer and more readily identifiable than the credit union might think.

In a digital age, assuming that most fraud events are going to be digital seems like a safe assumption. Yet, IDScan data is telling a different story. According to a recent interview of Jillian Kossman, COO of IDScan, by CU Today, approximately 50 percent of fraud is being perpetrated in-branch using stolen or fake IDs. Further, according to recent survey data from IDScan, of roughly 15 banks and credit unions surveyed with varying assets sizes, around 53% reported “measurable in-branch fraud losses over the past 12 months.” Among the financial institutions surveyed, the average annual losses totaled to $4 million.

What’s more telling is a different statistic from IDScan’s survey data that says 67% of financial institutions surveyed cited in-branch fraud as a concern. This statistic is over double the concern about online fraud (33%). From a credit union perspective, while the individual incidents of in-branch fraud may have a smaller dollar amount (i.e. $5,000 fake check or $15,000 certificate withdrawals), those smaller amounts definitely add up over time.

Unfortunately, according to Kossman, in-branch fraud is morphing from actions taken by a single individual, to more complex or sophisticated fraud schemes such as fraud rings that are capable of targeting multiple financial institutions or multiple branches. As the CU Today article notes, fraud rings use more complex materials to perpetrate fraud. Those materials can include high-quality counterfeit IDs, synthetic identities built from legitimate credit profiles, and materials that could almost pass for official Department of Motor Vehicles documents.

According to Kossman, the reason that in-branch fraud is successful is because credit unions aren’t considering the potential for sophisticated in-branch fraud schemes. She states “[m]ost credit unions think sophisticated fraud is happening digitally. But it’s also happening physically.” She notes that many credit unions, especially smaller credit unions, still primarily rely on teller training and printed ID guides rather than real-time ID authentication technology.

But perhaps the biggest issue is that many credit unions focus on each individual branch, rather than the credit union as a whole. Kossman further notes that many institutions “lack a centralized, enterprise-wide view of fraud attempts across branches…[Credit unions] might hear about one incident at one location, but they don’t have a bird’s-eye view,” she said. “In an era dominated by digital threats, that gap could leave credit unions underestimating a risk that is not only persistent — but growing.”

So, how does a credit union effectively and proactively fight in-branch fraud? Frontline staff training remains of paramount importance. Frontline staff is the first line of defense against in-branch fraud and they need to be accurately trained to identify circumstances that give rise to potential fraud. Additionally, ensuring that a credit union is familiar with their members and, more importantly, their financial habits is also an effective method of stopping fraud. Beyond Bank Secrecy Act requirements, credit unions knowing their members is an effective method of fighting fraud and providing financial services. Finally, credit union executives also need to be familiar with the expulsion provisions of their bylaws. In the event a credit union member is responsible for an occurrence of fraud, expelling the member stops future potential fraud and cuts off future losses before they can occur.

Have any questions or want to know more? Contact compliancesupport@viclarityus.com.

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