Ask the Expert

Wire theft can cost banks and credit unions big bucks. Victor Searcy, director of fraud operations, has advice for businesses about what they can do to save millions.

Thursday, July 14, 2011
Q: What are the challenges that businesses face when dealing with wire fraud?

A: Banks and credit unions are losing hundreds of millions of dollars due to wire fraud each year, and once the money is gone it’s almost impossible to recover. Under banking regulations, an institution that wires money to another organization is responsible for the funds. In a fraudulent wire transfer, the funds often disappear after multiple transfers to domestic and international locations.

In this day and age, banks and credit unions want to be competitive. They don’t want to lose customers. And consumers want convenience. Financial institutions work hard to make banking as easy and secure as possible. But when it comes to wire transfer fraud, it’s in the consumers’ best interest to opt for less convenience and better security.

The latest technology, which makes it easier to deposit and transfer money, also makes it easier for criminals to commit wire fraud. Now consumers don’t even have to visit an ATM. They can pull out their smartphones, log in to their banks, access their accounts and transfer money. Consumers can just snap a picture of the front and back of an endorsed check and send that using a bank app. And that’s it—the bank doesn’t require any further verification.

Criminals are aware of this technology and are using it to their advantage. Since they know that customers rarely visit bank branches, it is easier to take over their identities.

Banks and credit unions either need to be able to take a financial hit when they become a victim of wire fraud, or they need to slow down the process of how money is transferred. If banks can’t afford the loss, they need to make things more inconvenient. They could require consumers to visit a bank branch and show identification for certain kinds of transactions. Verifying the information over the phone isn’t good enough to prevent wire fraud because criminals often hijack a victim’s phone lines. And when they receive the call from a bank requesting verification, the fraudster will be able to impersonate the victim—they will be able to provide the last four digits of a Social Security number and a mother’s maiden name.

Businesses can help protect their customers by following these six tips:

  1. Set a monetary threshold above which wire transfer requests must be made in person.
  2. Encourage members to add “strong” passwords to their accounts. A strong password contains numbers, symbols and characters; it doesn’t use a date of birth, child or pet’s name, or mother’s maiden name. Members should change passwords often and avoid using the same one for online banking that is used for shopping or social networking sites.
  3. Keep multiple current phone numbers and email addresses on accounts so customers can be reached in the event of a suspicious transaction or problem.
  4. Look for recent changes to customer activity and profile characteristics that might indicate someone is testing the system or changing information.
  5. Use “Out of Wallet” verification questions that are based on information driven by public records or credit history.
  6. Trust your instincts. If the caller can verify everything, but you still feel like something is wrong, then don’t approve the transaction. Have the customer appear in person.

Credit unions especially need to beef up their fraud departments, so they are more aware of red flags and better able to respond to fraudsters. Spending the time and money now can save millions of dollars in the future.

Victor Searcy has more than 20 years of experience managing fraud operations in the banking industry. His areas of expertise include fraud detection, claims, investigations and recovery functions.

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