My bank doesn't have a fraud problem
1 comment(s)
If I had a dollar for every time I heard those words, I could recover some of the damage in my 401 K over the last few months. Human nature being what it is, it's pretty common to downplay fraud losses. I'm not sure that it's all denial, though to be sure sometimes it's purely that.
Frequently, I suspect it is the failure or inability to correctly categorize the loss. Take for example the counterfeit item that is deposited in bank A, destined to be paid by bank B. The item would overdraw the account on an available or ledger basis and is returned NSF (Non-Sufficient Funds). When bank A charges back the RDI (Returned Deposited Item) they found that the account has been depleted and abandoned. The eventual write off will be categorized under RDI loss – NSF, not fraud. Neither bank in this case recognized the fraudulent event.
Whether it's denial or lack of recognition, I would submit that's an unhealthy way to approach the problem. Another way to approach it would be to assume that fraud is lurking somewhere in every bank. It is our job to find the indications that it is there, uncover it, and bring it into the harsh light of day. It's hard to imagine that with all the different types of fraud new account fraud, on-line fraud, ACH fraud, credit/debit card fraud, internal fraud, and more there isn't something fraudulent happening somewhere within every bank.
There's no shame in recognizing that fraud exists. In fact, it may help us address the complex and pervasive challenges of fraud in today's banking environment. Why?
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Denial/non-recognition precludes action. If banks don't admit that fraud is real, then they can't do anything to stop it. How can you get executive buy-in to solve a problem that is underplayed, underestimated, or miscategorized?
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Knowledge is power. Understanding our fraud problem will facilitate our efforts to combat it. If we know how we are being attacked, we can develop detection and prevention methods that are effective in preventing both economic loss and reputational damage.
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Power in numbers. Knowing the true magnitude of various types of fraud will help our industry set priorities and come up with solutions, best practices, and other methods of fighting fraud.
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Transparency means credibility. At least some of fraud denial stems from a desire to ensure that customers feel safe, particularly in a time of higher customer churn. We all know from our own feelings that customers would rather know that their bank is facing up to the challenge of fraud—and fighting it—rather than pretending it doesn't exist. This will enable us to enlist the help of our customers, without which some fraud schemes may never be stopped.
Clearly, it's time to recognize that fraud is real, pervasive, and a given in the financial services industry even more so during a down economy. So repeat after me. "My name is [Your Name Here] and my bank has a fraud problem."
There, feel better? Probably not. But you're closer to getting on with the real work of solving the problem, rather than the wasted effort of denying it.
Does your institution recognize that fraud is a growing problem? Do senior executives not want to hear about it? Have you ever seen fraud miscategorized or underestimated? Let me know. I promise not to tell.