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Fraud on the Decline, But Still a Concern

Two recent studies show FIs are making some headway against cybercrime, but other types of fraud are on the rise.

Banks still face serious challenges combatting cyber crime, but overall fraud losses have been on the decline, according to two reports released yesterday.

According to a survey conducted during the second quarter of 2011 by the Financial Services Information Sharing and Analysis Center (FS-ISAC), more FIs were able to prevent account take-over attempts in 2010 than in the previous year.

Of the 77 financial institutions that responded to the survey, 21 reported that they had account take-over attempts in 2009 or the first half of 2010. There were a total of 108 commercial account take-overs reported during the first 6 months of 2010, compared to 86 for the full year of 2009.

In 36 percent of those cases from the first half of 2010, fraudulent monetary transactions were created but stopped before funds left the financial institution, up from only 20 percent in 2009.

In 2009, 63 percent of account take-overs saw monetary transactions created and funds sent out of the FI, whereas that number was reduced to 27 percent in 2010.

"We are very excited by these results," said Bill Nelson, CEO of the FS-ISAC. "These two statistics indicate that financial institutions are doing a better job of stopping transactions from being created and from leaving the financial institution."

The fraudulent take-over cases took place mostly in the online and mobile sectors, added a FS-ISAC spokesperson. The total exposure associated with commercial account takeovers totaled $15,781,530 in 2009 and $10,447,355 for the first half of 2010.

Meanwhile, software service provider Fundtech reports that while cyber fraud losses from all sources have been on the decline since first peaking in 2006, online wire transfer and ACH fraud is still climbing -- with 2010 seeing $87.5 million in losses, according to David M. Nelson, specialist in the FDIC's Cyber Fraud and Financial Crime Section. This type of fraud is increasing in channels other than online as well, including via call center and fax communications, and in-branch.

Part of the cyber crime problem is also a lack of end user knowledge, according to the report. A study of 1,000 small businesses initiated by financial crime and risk solutions provider NICE-Actimize found that only 18 percent of those businesses said that they understood they had liability for cyber losses, revealing a severe lack of basic fraud knowledge.

"It is clear that security and fraud monitoring is a top concern for bankers," said Ed Gainer, Senior Vice President of North American Cash Management at Fundtech, in a statement. "Seventy-four percent of our clients think that their business clients would be willing to change financial institutions for better security. Account security is now a key competitive issue as well as a legal concern."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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