Fraud involving financial transactions costs consumers, businesses and the financial sector billions of dollars every year. Fraudulent schemes cover all types of financial transactions: fake checks, stolen credit or debit card information, unauthorized electronic transactions, fraudulent online activities and outright identity theft. Although it is impossible to eliminate the risk of banking fraud altogether, there are many options available for mitigating its impact by preventive measures and early detection efforts.
All consumers engaging in financial transactions should familiarize themselves with the many types of threat. The Federal Trade Commission’s Bureau of Consumer Protection has extensive online resources available for consumers and businesses. All financial institutions provide abundant information on fraud and fraud prevention tips.
Understanding the threat is critical in assessing how vulnerable specific types of consumers are to fraud. Consumers relying heavily on check transactions need to learn about threats to the issuance, cashing and forging of checks. Debit and credit card users should be aware of risks of card or card information theft such as the theft of the physical card, skimming or the fraudulent technology devices potentially deployed in and around ATMs and card readers to capture account and PIN information from the cards, shoulder-surfing or spying on card users entering authorization credentials in public areas. Customers involved in online purchase transactions need to learn about online security issues, the sophisticated ‘phishing’ schemes designed to capture comprehensive personal information for use in full-blown identity theft.
Identity theft affects over 10 million Americans each year, costing them an average $5,000. In addition to the monetary costs, the effort and stress of reclaiming and cleaning up one’s identity can consume significant resources, as well.
Simple preventive measures
Consumers can take many simple actions to protect themselves against fraud and identity theft. Most fraud resources provide extensive tips: shredding mail, not giving out account and card number information on the phone or in email, watching out for suspicious activities and devices around ATMs and card readers and most importantly continuous monitoring of accounts, transactions and credit reports.
Services offered by financial institutions
Financial fraud costs banks and financial institutions significant amounts of money, so they are incentivized to help their consumers protect themselves. Not only do they offer comprehensive resources on fraud, but also almost all offer a variety of services, many for free or at very low cost, to help their clients secure and ‘fraud-proof ‘ their accounts.
The extensive and mostly free online and mobile banking account statement and alerting services offered by many financial institutions provide a first line of protection for everyone with almost real-time and up-to-date account information that allows clients to detect unauthorized transactions almost immediately. As most banks offer zero-liability resolutions for quickly detected and reported unauthorized transactions, consumers could feel well protected against being charged in fraudulent transactions – although the additional costs associated with a potentially breached account or personal information remain.
In addition to frequent and up-to-date account alerts, the largest banks also offer round-the-clock availability of resources for cancelling stolen or compromised cards and accounts and help and support with reporting account and identity theft. Different institutions complement these basic services with an array of services and tools aimed at preventing or detecting fraud targeting different types of financial services and transactions
Statistics indicate that almost 500 million checks are forged every year resulting in losses over $10 billion. Consumers and businesses relying heavily on checking transactions have a variety of options to protect themselves against fraud. Most institutions offer checks designed with enhanced security features to minimize the risk of forgery. Small businesses can also take advantage of check protection, ‘positive’ and ‘negative pay’ services offered by banks that provide a daily reconciliation between checks presented to the bank and issued by the business to identify potential fraud. For individuals, the online availability of images of submitted and cleared checks provides some protection
Debit and credit cards
Zero liability for and guaranteed credit of unauthorized transactions are widely available as free services by many card issuers. The largest institutions such as Bank of America or Chase offer free ‘fraud monitoring’ of card usage to detect unusual patterns in the frequency or location of card usage and alert clients.
Debit and credit cards are also changing. Not only may they be available with newer, more secure technologies such as chip-and-pin without the vulnerable magnetic stripe, but some of the new features such as addition of photo on the face of the card can also provide more protection from certain types of fraud.
The security of online transactions is a significant concern to many consumers as online fraud is difficult to detect and understand for most users. As Internet transactions proliferate, institutions and key e-merchants continue to focus on providing enhanced security services to clients. Customers engaged in frequent online purchases should investigate and use these tools against phishing and the electronic theft of account information. Options such as enhanced authentication relying on the identification of the user’s usual computer and requesting additional verification prompted for in email or text communication by the financial institution prevent unauthorized access to online financial accounts.
Banks and merchants try to enhance the security of online transactions by using OPT, or one-time passwords delivered to customers’ personal mobile devices. These temporary identifiers linked to the static account number only known to the banking institution allow customers to transact without revealing their actual information online. Bank of America’s SafePass and ShopSafe programs are free online transaction protection services. Banks and large e-busieness merchants also focus on improving their encryption and electronic data transfer security technologies to protect themselves and their customers against fraud.
Identity theft protection
Comprehensive identity theft protection programs provide a variety of detection, prevention and mitigation solutions. Many banks offer a particular packaged solution of a combination of these various services at a fixed monthly cost varying between $5 to up to $40 per month. Packages of identity theft services can be purchased from independent providers offering different combinations of basic and more sophisticated tools and services. In addition to the traditional monitoring of financial accounts, these services target the monitoring of all publicly available personal information to detect any breach early enough before it reaches the actual financial accounts.
Credit and identity monitoring
Monitoring of the customer’s credit report is a basic service provided by all offers. Coverage of all three major credit bureaus provides more security, but is costlier to clients. The level of detail covered: from account alerts to alerts about new inquires also varies by provider. More comprehensive monitoring covers all personal information, such as social security number, address changes and all potential personal data detected online by the monitoring service.
Victim resolution or restitution services
Almost all packages offer some form of support for identity restitution in case of an identity theft, although nation-wide there are numerous non-profit organizations and support groups that provide similar services free of charge. Basic services in identity theft guard packages include free consultation, packaging of publicly available forms and hotline services. Individuals at higher risk due to the volume of their transactions or their high net worth can subscribe to more expensive options that provide comprehensive coverage of most reporting, paperwork and filing tasks.
Security software and secure online solutions
A growing number of companies offer software solutions to provide users with full control over their financial and personal information in online transactions. These tools mask users’ real information untraceably and store it securely. Secure Payment Agents (SPAs) and other applications are increasingly used by businesses and individuals engaged in large volumes of electronic transactions.
Identity theft insurance
Identity theft insurance provides coverage up to a pre-specified amount for losses and costs related to the incident. Early detection can limit the exposure; however, identity breach is expected to result in clean-up costs as a minimum.
Working with your bank
Fraud and identity theft are real threats lurking around every transaction. With the proliferation of new technologies, there are more and newer ways for consumers to become victims. Fortunately, technology can also be leveraged to mitigate some of the risks. With banks and most businesses exposed to the risks as much, as if not more than, individuals, consumers should actively search for and leverage the solutions and services that the institutions equipped with significant resources and experience offer. It is also important to keep in mind that the most ambitious fraud attempts target the financial institutions themselves with their vast databases of information. Keeping in close touch with financial institutions is becoming more crucial than ever to understand and control the risk of fraud.