For community banks and credit unions, digital channels are the most cost-effective way to deliver financial products and services. But as consumers embrace cashless payments and online banking, financial institutions also face greater risks that come with online transactions. In fact, respondents to KPMG’s 2019 Global Banking Fraud Survey cited “evolving digital channels” as a top three challenge for risk mitigation. Many bank leaders fear — not without reason — that digital channels are easier for fraudsters and cyber criminals to exploit.
Yet even though online banking and digital account opening can expose institutions to fraud, increased digital activity also provides a rich reservoir of behavioral data that helps financial institutions better manage risk. Most cases of fraud are preventable with the right data analytics, monitoring tools, and a rigorous risk management strategy.
Fraud in Physical vs. Digital Channels
Digital fraud often follows similar patterns to in-person fraud, and many cybercriminals use the same strategies as in-person scammers. For instance, “check kiting” is a common way of accessing unauthorized credit by writing physical checks. It involves writing a check from an account with insufficient funds to a second checking account. This second account can then withdraw the transferred funds before the check bounces, enabling vast sums to be stolen if the transfer is not flagged as suspicious activity.
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