Why Check Imaging Isn’t Enough for True Fraud Prevention

June 26, 2023

Remote deposit capture—which allows customers to submit images of their checks online for deposit—has been around for a long time now. But it’s only become more popular as more customers shift to online banking options that make their lives easier and more convenient.

Unfortunately for financial institutions, this means ensuring the legitimacy of these checks by validating their authenticity and protecting against fraudulent checks. Since the FI never physically receives the check, this is much more challenging to do without errors.

To help organizations detect and prevent check fraud, we’ll explore the following:

Let’s start with exploring what remote deposit capture is and how check imaging works.

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What is Remote Deposit Capture?

Remote deposit capture is a service that enables customers to send electronic images of their checks for processing—the checks can then be reviewed and settled by the bank. This eliminates the need for physical checks, allowing customers to submit their checks for deposit electronically.

How Check Imaging Works

Check imaging is relatively straightforward on the customer’s end—they simply take an image of their check and send it to the financial institution (typically through a secure portal) for deposit. For financial institutions and businesses, the process involves screening the check to verify its authenticity.

Check imaging will analyze the received image, verifying the routing and account numbers on the check, and ensuring that these match what’s on record at the bank. Check imaging software can check for basic forgery and counterfeiting. If fraud is suspected, the check can be flagged for review—and analysts can investigate the check for flaws that may signal suspicious activity.

These solutions mitigate risk by allowing teams to hold checks that don’t pass the image screening process while they investigate further. This hinders criminals' ability to take advantage of check kiting and other schemes that abuse the check floating process.

Check imaging can be used by FIs to meet their regulatory requirements—but it isn’t required if the organization uses a more robust risk and compliance infrastructure that makes check imaging redundant.

Check Imaging Shortcomings: What Check Screening Can Miss

Check imaging offers some protection against check fraud, but it’s not foolproof.

Unfortunately, savvy fraudsters are sometimes capable of faking the checks well enough to beat these systems. At a more basic level, check imaging only offers risk professionals the opportunity to review the check itself—rather than other signals that could indicate fraud.

Below, we’ll explore some of the main shortcomings of check imaging solutions 

Risk Professionals Still Need to Perform a Manual Review

While check imaging solutions do review an image of the check, they often aren’t making a decision on the case themselves. Instead, they are identifying potential flaws that could signal suspicious activity is afoot. Once identified, these cases still need to be escalated to a risk professional for investigation—and eventually a decision on whether to accept or reject the check.

While this does streamline the alert process and help with prioritizing the checks that need to be investigated most closely—suspicious cases often still require a manual review by an agent.

The fact is, a lot more information can be gleaned from true data monitoring that analyzes transactions and customer behavior. Since some manual review is likely necessary, it’s best to rely on a robust investigation that will better identify fraudulent behavior by using more information available about the customer. This can also rule out legitimate customer behavior and save teams from reviewing cases unnecessarily.

Modern Fraudsters Can Beat These Tools Using AI and Photo Editing Tools

Check imaging tools are meant to be able to determine if a check is fake or compromised—unfortunately, many fraudsters have found ways of beating these screening solutions.

Savvy fraudsters are able to falsify checks better than ever using modern AI, machine learning, and photo editing tools—often well enough that they can fool check imaging software. Despite their best efforts, these solutions simply can’t catch bad checks with certainty.

Moreover, these fraudulent checks are sometimes legitimate looking enough that they not only fool the check imaging tools, but also the investigators that are manually reviewing the checks. With modern fraud tactics, these solutions aren’t able to sufficiently detect and prevent fraudulent checks from slipping through.

A Single Check Doesn’t Capture the Full Picture

Looking at a single check as an isolated item doesn't provide the full picture of the transaction, the customer, and the situation. This limited information doesn’t allow the agent to properly assess risk related to the check. They can only rely on the image submitted by the customer itself.

Instead, it’s best to have a solution that monitors customer transactions and activity so investigators have a holistic picture of the customer—which can then be used to better identify and predict suspicious activity that amounts to money laundering and fraud.

Prevent Check Fraud Using Unit21’s Data Monitoring and Case Management Solution

The fact of the matter is—most check imaging tools are redundant compared to true data monitoring solutions. While they can be used to verify the authenticity of checks, modern fraudsters can beat these tools with AI and photo editing applications that allow them to alter and counterfeit checks.

Data monitoring and anti-fraud solutions, on the other hand, provide a full picture of the transaction and the customer’s behavior. This gives analysts more information to draw on when making a decision, enabling them to factor in previous transaction patterns and related information that isn’t directly tied to the check.

How many transactions does this customer conduct per month, how much is coming in and out of their account, and does any of their behavior stand out from the norm? 

All of this information provides valuable insights that investigators can use to make a decision on suspicious activity. While check imaging can be used to detect issues with a check, these other signals are far more useful for actually detecting—and even preventing—fraud.

Schedule a demo today to learn how Unit21’s Transaction Monitoring and Case Management solutions can help provide meaningful insights on customer behavior which empowers risk and compliance teams to detect and prevent check fraud from happening.

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