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The Complex World of Fraud Detection and Prevention in Banking

by Jason Dzamba - October 24, 2023

Financial institutions, particularly banks, play a crucial role in safeguarding the assets and interests of their customers.

In our conversation with Calissa Brownell, a Fraud Detection & Investigation Associate at PNC and a Certified AML and Fraud Professional, we gained a deeper understanding of the challenges and complexities in combating fraud within the banking industry.

Calissa leads a team specializing in check fraud and also deals with anti-money laundering (AML) cases. Start listening at 00:52:44 for her section.

The Persistence of Check Fraud

Calissa pointed out that check fraud remains one of the most prevalent and concerning forms of fraud in the banking industry. It’s an enduring problem due to its accessibility and relative ease for fraudsters, particularly for older generations.

With routing and account numbers readily available on checks, it requires minimal additional information for fraudulent activities.

Evolving Challenges in the Fight Against Fraud

One of the most significant challenges in recent years is the ever-changing nature of fraud. Despite introducing new products and services to enhance security, fraudsters consistently find innovative ways to manipulate unsuspecting individuals and access unauthorized funds. Fraud schemes adapt, exploiting new opportunities as they emerge.

Lower Transaction Amounts – A Shift in Strategy

Traditionally, fraudsters used to target high-value transactions, aiming for thousands of dollars at a time. However, a notable shift has occurred where fraudsters prefer lower transaction amounts, often as low as $200.

This strategy is driven by the relatively low risk associated with smaller amounts and the ability to stack multiple transactions. It’s a more certain path to achieving their financial goals.

AML and Predicting Financial Crime

Calissa’s team focuses on identifying potentially suspicious activities. She acknowledged that AI and other technological tools play a vital role. They help in flagging unusual transactions, but the challenge lies in predicting fraudulent activities before they occur.

Predictive analysis can lead to false positives, given that unusual activity can sometimes be legitimate.

Watch Calissa starting at 00:54:16

Customer-Centric Approach to AML

Calissa emphasized that a customer-centric approach is crucial in AML. This involves contacting customers when potentially suspicious activities are identified.

Through conversations, investigators can delve deeper into the nature of transactions, understand the customers’ behaviors, and validate the authenticity of activities. It’s a blend of technology and human interaction.

Mitigating False Positives

False positives can be a significant challenge in fraud detection. While AI and machine learning can help filter out potentially suspicious activities, there’s no one-size-fits-all solution.

Calissa explained that false positives could be two types: one-off legitimate transactions that might appear suspicious and transactions that are out of the ordinary but still within the customer’s historical behavior. Proper communication with the customer often helps mitigate false positives.

Realistic Use of AI

Calissa expressed her optimism about the role of AI in fraud detection. However, she cautioned that as AI technology advances, so do the capabilities of fraudsters.

‘As AI evolves, the potential for fraudsters to misuse AI-generated content or tools grows. It becomes a constant race to stay one step ahead of those who aim to exploit technology.

Local vs. International Fraudsters

Contrary to common perceptions of organized, international cybercrime rings, Calissa emphasized that many fraud cases involve local individuals. For example, mail theft and check fraud can be initiated by neighbors or individuals within the local community.

It highlights the diversity of fraudster profiles, from technologically savvy cybercriminals to opportunistic local actors.

The Future of Fraud Detection and Prevention

Financial institutions should adapt their policies and procedures to anticipate future challenges proactively. The goal is to avoid potential threats, maintain customer trust, and provide secure financial services.

As the battle between banks and fraudsters rages on, technology remains a vital ally, offering both defense and challenge. The evolving nature of fraud means that financial institutions must be prepared for new forms of attack, combining the powers of human expertise with cutting-edge AI to protect their customers and assets proactively.

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About Jason Dzamba

Director of Media Relations, Productivity Strategist, and Host of Inside the Bot Podcast, Jason uses a process-driven approach to help leaders optimize their actions and achieve their most important business objectives. His creative outlet is painting abstract art and producing music. He lives in Orlando, Florida, with his three kids.