Check Fraud: Why are Losses Trending Down?

Check Fraud: Why are Losses

Trending Down?

Check Fraud - In The News

• American Banker, “…losses from check fraud will grow

by 2.5% annually in the coming years.”

2

• Frank Abagnale, “Check fraud is a huge, growing

problem.”

• Memento, “Check volumes may be trending down, but

check fraud is definitely on the rise.”

• Frank Abagnale, “The recent growth in check fraud has

reached epidemic proportions…”

• Fiserv, “According to the National Check Fraud Center,

check fraud and counterfeiting are the fastest-growing

problems affecting the nation’s financial system…”

Check Fraud - In The News

• ABC News, “During a year that saw a record rise in

financial crime reports, one scam that has plagued banks

and consumers for decades is fading away: check

fraud.”

3

• ABC News, “The number of check-related suspected

crimes peaked in 2008…”

• ABC News, “In dollar amounts, check fraud losses have

declined from $1.02 billion in 2008 to $893 million in

2010, according to data from the ABA’s 2011 Deposit

Account Fraud Survey Report.”

Check Fraud Trend

aba.com|1-800-BANKERS

Highlights of ABA Industry Survey Results

© American Bankers Association, Washington, D.C.


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2011 ABA Deposit Account Fraud Survey

Community Banks 19%

Mid-Sized Banks 49%

Regional Banks 20%

Superregional / Money

Center Banks 12%

Northeast 33%

Southeast 17%

Central 15%

Midwest 10%

Southwest 10%

West 15%

By Asset Size By Location

• Community: < $500 million • Mid-Sized: $500 million–$4.9 billion

• Regional: $5–$49.9 billion • Superregional/Money Center: $50 billion or more


Profile of Survey Participants (117 Banks)


Expected Change in Transaction Volume by Channel 6

Community Mid-Sized Regional Superregional/ Money Center

All Respondents

Online banking 4.1 3.9 4.0 4.0 4.0

ACH 3.7 3.9 4.0 3.9 3.9

Mobile banking, in general 3.6 3.8 3.9 4.5 3.9

Debit card (PIN based) 3.9 3.8 3.8 3.7 3.8

Debit card (signature based) 3.8 3.8 3.7 3.5 3.7

Mobile banking, P2P 3.4 3.6 3.8 4.1 3.7

Remote Deposit Capture, non-consumer

3.7 3.6 3.9 3.9 3.7

Image capture via mobile device

3.0 3.3 3.8 4.3 3.5

Remotely created checks (RCC)

3.6 3.4 3.6 3.3 3.5

Wire 3.5 3.4 3.7 3.7 3.5

Check 2.8 2.9 3.0 3.1 2.9

Expected Change in Transaction Volume Over the 12 Months by Channel (1 = significant decrease, 3 = no change, 5 = significant increase)



3.70 3.50

3.30 3.30 3.30 3.20 3.20 3.10 3.10 2.90 2.90 2.90 2.80 2.80 2.80 2.80 2.70

2.40 2.20

Perceived Threats Against Bank Deposit Accounts 7

Average Threat Level: 0 = None; 5 = Extremely High



Changes in Perceived Threat Levels 8

+0.78

+0.26

+0.37

+0.55

+0.39

+0.69

+0.77

+0.75

+0.38

+0.41

+0.84

+0.43

+0.74

+0.95

-0.33

-0.19

-0.17

+0.04

+0.04

+0.06

+0.26

+0.29

+0.36

+0.39

+0.41

+0.43

+0.51

+0.77

Customer victimization scams

Check fraud (paper based), withdrawal

Check fraud (paper based), deposit

Debit card (signature based)

New account fraud

Identity theft

Remote deposit risk

Organized ring attempts

Debit card (PIN based)

ACH fraud, receiving

Wire fraud, originations

Wire fraud, receiving

Online banking

ACH fraud, originations

2009 over 2007

2011 over 2009


Decrease (−) Increase (+)


Check Fraud Against Bank Accounts 9

$1,091 $2,200

$4,337 $5,509

$12,208 $11,365 $11,016

$512 $679 $698 $677 $969 $1,024 $893

1997* 1999* 2001* 2003* 2006** 2008** 2010** 2012

Loss Avoidance+Actual Losses

Actual Losses

* Commercial banks only.

** Commercial banks, savings banks, and savings and loan associations combined.

Industry Estimates in $ Millions



Check Fraud Leading Loss Categories 10

38% 35% 30%

28% 30% 30%

27% 22% 29%

7% 13% 11%

2006 2008 2010

$0.9B

$3.3B

$3.4B

$4.6B

$1.5B

$2.5B

$3.4B

$4.0B

Based on Estimated Industry Loss Amount


$1.2B

$3.2B $3.3B $3.3B

* Return deposited items where fraud is suspected, This category includes nine subcategories: closed accounts, no account found, NSFs, stop payments, refer to maker, remotely created checks, uncollected funds, reclamation (government checks), and other return loss reasons.

Other (alteration, kiting, etc.)

Forgery

Counterfeit

RDI*


Check Fraud Losses by Deposit Channel 11

81% 80%

62%

11% 6%

19%

6% 6%

5%

3% 8% 14%

2006 2008 2010



$0.3B Other (e.g., by

mail, RDC)

ATM non-proprietary

ATM proprietary

Over the counter

$0.7B

$1.3B

$9.9B

$0.9B

$0.7B $0.7B

$9.1B

$0.5B

$0.6B

$2.1B

$6.8B


75% 74% 62%

16% 16% 21%

4% 5% 8%

6% 5% 9%

2006 2008 2010

Consumer accounts Small businessMiddle market Large corporation

38%

Check Fraud Losses by Account Source 12



26% 27%

$0.7B $0.5B

$1.9B $9.1B

$0.6B $0.6B

$1.8B $8.4B

$1.0B

$0.9B

$2.3B $6.8B


Deposit Account Fraud Losses: Severity 13


Average Losses per Fraud Case, by Payment Channel (all respondents)

$123

$439

$783

$1,636

$1,718

$3,518

$60,326

Signature debit

PIN debit and ATM

Online ACH

Online billpay

Check related

Online wire

Wire fraud (not originated online)


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Check Fraud vs. Signature Debit Fraud: Frequency

Number of Fraud Cases, Industry Estimates (in thousands)

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2008 2010

Check Fraud Signature Debit Fraud

Avg. Daily Image Volume Trend

15

66.98 67.24 65.01

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

# i

n M

illio

ns o

f Tra

nsacti

on

s

Trend line shows decline of 2.9% over 23 months

Source: Federal Reserve, Viewpointe, The Clearing House, selected ECCHO Full and Participating

Members and other local / regional exchanges

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Discussion / Questions?

THANK YOU!

• Panelist:

– Julius Eccell, Frost Bank

– Luke Huys, Wells Fargo Bank

– Jane Yao, American Bankers Association

– David Walker (moderator), ECCHO

Documents

Check Fraud: Why are Losses Trending Down?