Strategies to Mitigate Fraud

As credit unions embrace digital transformation, they modernize their operations and improve member services. However, this shift also introduces new vulnerabilities for fraudsters to exploit. From 2019 to 2023, the volume of suspected digital fraud grew by a staggering 105%. Fraudsters have become more sophisticated, using advanced technologies to carry out their schemes. To safeguard operations and protect members, credit unions must adopt comprehensive and proactive fraud mitigation strategies.

Understanding Fraud Trends

To effectively combat fraud, credit unions must first familiarize themselves with the most common types of fraud in the industry:

1. Phishing attacks: Phishing attacks use deceptive emails, texts, or websites to trick individuals into providing sensitive information. Since late 2022, there has been a 1,265% increase in malicious phishing emails. Credit unions must educate members on recognizing and avoiding phishing attempts.
2. Credential stuffing: Credential stuffing involves using stolen usernames and passwords from data breaches to access other accounts. With 65% of individuals reusing passwords, this method is highly effective. Implementing security questions, out-of-band authentication, and biometrics can help thwart these attacks.
3. Automated account takeovers: Automated tools and scripts are used to take over accounts using stolen credentials. Automated account takeovers have increased by 81% since 2019. Robust security measures and monitoring are crucial to prevent these breaches.
4. Data manipulation: Fraudsters falsify information, such as pay stubs, leading to increased delinquencies and financial losses. Credit unions should use data encryption, integrity checks, and AI tools to detect and prevent data manipulation.
5. Deepfake technology: Deepfake technology creates fake audio, video, or images for fraudulent purposes. Biometrics can help verify member identities and combat this type of fraud.
6. Artificial intelligence: Both fraudsters and financial institutions use AI. About 40% of financial institutions rely on rules-based anti-fraud systems, which can be outsmarted by advanced AI. Credit unions need sophisticated AI solutions to stay ahead of fraudsters.

Tactics to Strengthen Fraud Prevention

Credit unions must continuously improve their fraud strategies to stay ahead of emerging threats. To be most effective, credit unions should consider layering methods that include the following actions to help protect their business and members:

1. Leverage comprehensive fraud solutions: Partnering with reputable fraud companies offering advanced artificial intelligence (AI) and machine learning (ML) powered solutions helps identify and mitigate fraudulent activities across all channels. Multi-layered fraud solutions, including device, behavior, and database monitoring, provide comprehensive protection.
2. Implement multi-factor authentication (MFA): MFA adds an extra layer of security to member accounts. Methods like biometric authentication, one-time passwords, and device recognition significantly reduce the risk of unauthorized access.
3. Collaborate with industry networks: Participating in industry-wide fraud intelligence-sharing networks allows credit unions to stay informed about emerging trends and best practices. Fraud technology partners often have access to extensive networks and data that provide valuable insights.
4. Comply with regulatory requirements: Adhering to regulations like the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) laws is crucial. Regularly reviewing the Customer Identification Program (CIP) ensures appropriate measures for each channel and product.
5. Educate and empower employees: Employees are the first line of defense against fraud. Continuous education on the latest trends and protocols prepares employees to make informed decisions and act quickly. Encouraging employees to report suspicious activities helps the credit union remain resilient.
6. Choose the right partners: A great technology partner has a deep understanding of the evolving fraud landscape and actively contributes to shaping credit unions’ fraud strategies. They will maintain rigorous data security measures, comply with relevant regulations, and prioritize data privacy and security.

Credit unions must prioritize fraud mitigation strategies to protect their business and members in the fight against fraud. Implementing comprehensive fraud prevention and detection solutions strengthens their defense against methods like phishing attacks, account takeovers, data manipulation, and more.

Credit unions must stay vigilant, continuously educating both their staff and members about emerging fraud trends. Collaboration within the industry and compliance with regulatory requirements will also play critical roles in maintaining robust security measures.

By leveraging advanced technologies and fostering a culture of awareness and proactive defense, credit unions can safeguard their operations and provide a secure environment for their members. The fight against fraud is ongoing, and a commitment to evolving strategies will be essential for future success.