Balancing Member Service with Transaction Risk Prevention

Transaction Fraud by Credit Unions 

Produced By Ann Davidson, Vice President of Risk Consulting | March 29, 2019

This blog article first appeared in Credit Union Times.  

Member service and financial transactions play huge roles in the success and longevity of any credit union. So it is important to continue elevating each of these key areas at equal pace, versus strengthening one area at the sake of the other.


As the accompanying graph indicates, transaction fraud crimes continue to plague our industry and threaten our members, and the fact of the matter is these crimes aren’t going away any time soon. The good news is there are proactive steps credit unions can take to prevent, detect and respond to any one of these fraud crimes, so that you can continue offering the best level of service and convenience to your members, without forsaking your credit union’s financial stability.

Watch the Webinar: Card Fraud Today-- Key Facts and Prevention Tactics 

Card Fraud Prevention

Card fraud exposures continue to be one of the top fraud risks credit unions face on a daily basis, given the number of ways these attacks can occur. With card purchasing being the number one form of payment among consumers, fraudsters continue to develop new technology tools and methods for performing card fraud attacks, both in the card present and card not present environments.


Data breaches, phishing scams and attacks on ATMs are three of the more popular tactics used by fraudsters to steal card information. These attacks often happen outside of the credit union, but there are various proactive measures you can take that will help your credit union to prevent, detect and respond to subsequent fraud attempts using the stolen card information.


First and foremost, if you have not transitioned all of your cards and ATMs over to EMV, you should strongly consider taking that step right away. Though the initial cost of switching everything over may seem burdensome, non-EMV cards and ATMs are massive targets for fraudsters, therefore making this switch could save your credit union from hundreds of thousands of dollars in potential card fraud exposure. Establishing strong authorization strategies on your ATMs and at point-of-sale devices will also help to manage these card fraud exposures.


It’s important to balance these prevention methods with proactive response strategies, to minimize any damage should you in fact face a card fraud exposure. Leverage an internal fraud monitoring system and the support of your card servicers and processors to quickly identify, report and respond to a possible attack. By establishing fraud detection and reporting processes internally and with your third-party vendors, your credit union will be able to much more effectively reduce financial losses from any one attack.

Paper Check Fraud Prevention

Over the last few years, there have been a rising number of reported scams involving counterfeited personal, cashier or corporate checks. Fraudsters are well aware of the fact that credit unions and banks are required by law to clear deposited checks within a specified amount of time, and they are continuing to find new ways to take advantage of this time constraint. They know that if they disguise these checks well enough, your credit union may not discover that the check is fake until it is too late. By the time you discover a check has been forged or counterfeited, the criminal could be long gone and your institution or member may be stuck repaying some or all of the owed funds.


A counterfeited check scheme can therefore have serious financial implications for your credit union, while also creating some serious trust issues with impacted members. Fortunately, there are steps you can take and tools you can leverage to manage these attacks more effectively.


Adopting tools to monitor and catch checks before they clear is an excellent way to prevent counterfeit check fraud exposures. Tools like “positive pay” or “payee positive pay” will flag and report potentially counterfeited corporate or cashier checks so you can validate the information and catch fake checks before they become fraud.


It is also much easier to minimize your credit union’s exposure to any kind of check fraud if you have the right controls in place. These include placing holds on checks over a selected dollar amount, implementing strong authentication layers when accepting a check and establishing a required waiting period before making any check funds available.


Establishing methods that dually prevent and control counterfeited check exposures will all but guarantee that your credit union’s risk will drop significantly.

Online and Mobile Transaction Fraud Prevention

Online and mobile payments and transactions are exploding. Not only are members shifting their buying habits into the digital realm, but they are also seeking to have this same at-their-fingertips access to other types of transactions traditionally performed in person, such as check deposits, bill payments and account transfers. Offering this level of convenience to your members can offer a huge opportunity for your credit union to both pull in new members and increase activity among current members. However, fraudsters are also seeing new opportunities within these expanding transaction channels, and as such, it is important to expand your risk strategies to protect any new online or mobile services being offered to your members.

Educating your employees and members about warning signs for scams and phishing attacks is a must for managing online exposures of any kind. Providing members access to fraud monitoring resources and fraud prevention solutions like identity theft protection are also great ways to prevent these attacks from the outside in. Advise members to monitor their accounts daily and let them know to never give away their personal or financial information unless they are certain about the recipient.

Watch the Webinar: Proven Wants to Spot Transaction Risks & Prevent Fraud Attacks

Online and Mobile Transaction Fraud Prevention

Remote deposit capture has been a particular area of concern for credit unions. Some institutions have refrained from adopting this tool out of fear of increasing their risk of remote check fraud, even though this service offers a faster, more convenient depositing solution for members – and one many of them have come to expect from their financial institution. As long as you adopt strong security measures, you can keep up with the modern expectations of your members while protecting your financial institution. Such prevention methods include requiring physical review of each remote deposit before releasing the funds, setting daily transaction and/or dollar limits on remote deposits, and adopting internal audit procedures and technology tools to spot fake or duplicate checks before the funds are released.

Online bill pay fraud prevention: Many financial institutions now offer P2P bill payments, in which a one-time person-to-person bill payment can be requested from your members’ account to an account holder at another financial institution. This can be a convenient service to offer members, but these have been particularly of interest to fraudsters over the last couple of months, and should be monitored and protected closely.

If you offer P2P bill payments, be sure to confirm with your vendor what authentication methods – i.e., micro deposit authentication or dollar limits – are required of the person or business account requesting the bill payment. Pay special attention to how you are authenticating outgoing ACH credit requests on P2P bill pay transactions while also limiting the amount on ACH credits going to the receiving financial institution for P2P bill payments, as this has been a newfound area of opportunity for cybercrime.

The bottom line is no credit union should have to forego member convenience and value out of fear of opening your credit union up to new risks. As long as your credit union continues to actively seek out and adopt proven fraud prevention strategies, you will be able to continue offering members top-notch service, whilst minimizing your exposure to ongoing risks.

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Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.

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