California Credit Union Comes Face-to-Face With Wire Fraud

One California credit union found a way to successfully walk the fine line between member experience and security challenges, specifically growing wire fraud threats, through a mobile video banking platform.

One of the fastest-growing global cybercrimes, wire transfer fraud is a multi-billion-dollar problem affecting all types of personal and business transactions.

In June, Operation Wire Wire, a coordinated law enforcement effort among multiple government agencies, produced 74 arrests domestically and overseas, seized nearly $2.4 million, and disrupted and recovered approximately $14 million in fraudulent wire transfers. In July, the FBI’s Internet Crime Complaint Center warned business email compromise (BEC), a sophisticated scam targeting both businesses and individuals performing wire transfer payments, is continuing to grow and evolve. It found a 136% increase in identified exposed losses from BEC wire fraud scams globally, totaling $12.53 billion, between December 2016 and May 2018.

John Buzzard, industry fraud specialist for CO-OP Financial Services, observed, “Credit unions experience periodic issues with consumers taken in by wire fraud scammers. Romance, relative-in-jail and IRS scams are big criminal business these days, and many of them rely on wire transfers to steal from their victims.”

Buzzard maintained credit unions often go the extra mile to address the challenge, such as by presenting a pre-wire questionnaire for members to review before a credit union employee. “Today’s consumers increasingly value speed in banking, but in the case of wire fraud, slowing down just a bit gives credit unions enough time to chip away at the careful veneer created by fraudsters.”

The $105 million, Redondo Beach, Calif.-based South Bay Credit Union now wields an unexpected weapon against wire fraud. After adding a solution from the Salt Lake City, Utah-based POPio Mobile Video Cloud to its digital suite last year, SBCU discovered visual identification via mobile to be a game changer for reinforcing wire transfer security.

SBCU President/CEO Jennifer Oliver pointed out it was an unintended benefit stemming from the digital transformation goal it set in 2014. “We’ve been making strides to really marry anything you do at a branch [to something] you could do with us virtually.”

The original plan was to use interactive video technology to limit branch visits and lengthy phone calls. SBCU’s interactive video enables face-to-face collaboration with representatives via mobile devices to instantly verify IDs, transfer funds, change PINs, apply for loans, sign documents, etc. – creating a protected, branch-like experience from anywhere.

Oliver added the video not only validates the member to prevent fraudulent transactions, but removes the distress from the process of verifying legitimate members. “It really helps us authenticate people for these high-level transactions.”

In one particular scenario, SBCU had a member requesting a wire transfer who didn’t quite sound like the person they knew. “But you don’t want to call them out,” Oliver noted. So SBCU requested he use the video messaging app. In this particular case, it was him, but the member was under the weather. Nevertheless, it saved the credit union from possibly refusing a transfer from a legitimate member.

In another case, the process stopped an actual wire fraud. Oliver described it as a typical line-of-credit advance. “[Fraudsters] got in, overtook the entire account and changed the phone number for call backs,” she said. SBCU then used the video identification process to block the transfer. “Our member was thrilled.”

Oliver acknowledged the two sides of the wire fraud dilemma. In one case SBCU faced real fraud, but in the other, the credit union was allowed to delicately authenticate a member, which helped maintain a good relationship. “You don’t want to treat people like criminals,” she said.

While some of the credit union’s members make routine fund transfers, SBCU’s major focus is on large wire transfers. Oliver explained wire transfers are usually initiated via a phone call or email, although she is very suspicious of email requests. “We’ve got a high-level, well-experienced team trained to look for red flags, and they’re kind of the center of all this, the traffic cop making the decision on what to do with different transactions.”

Referring to mobile video banking, Oliver said, “It’s really cutting edge. I don’t think people are used to calling their banker with FaceTime. Having a video interaction really personifies that transaction. I see the future with people who are coming to us virtually and still see the same level of convenience.”

“Mobile and video technology working together is the future of financial services,” said POPio Mobile Video Cloud Founder and CEO Gene Pranger, who created the concept of video banking with uGenius video around 2005, when he personalized the interactive video ATM experience. “With POPio, we’re taking hold of that future, allowing consumers to touch base with financial experts entirely at their convenience – to pop ‘in’ and ‘out’ – whenever and wherever they choose.”

However, SBCU’s use of the tool came by surprise. “One of the unexpected benefits was eliminating wire fraud within their financial institution. Now all of the financial institutions using our mobile video platform are looking at incorporating this same concept.” Pranger explained if someone needs a wire transfer, they can download the app (or click a provided link) to call into the video call center; the accountholder will then be visually authenticated. In addition, a video recording of the entire transaction is saved.

“This takes all of those [verification] issues and basically wipes them away because now I can see the person,” Pranger emphasized. “We had no idea when we first started this project that this particular platform would ever be used for wire fraud. Not only did it not cross our minds, we were shocked when we heard about the application.”

Pranger added, “Larger credit unions are reporting that they’re losing literally millions of dollars in wire fraud every year.” The video banking pioneer also noted wire fraud is very concerning for smaller financial institutions, where every dollar counts. “If they can address it through a simple new communication channel, it’s addressed in such a way that they don’t have to worry about that particular problem within their structure any longer.”

POPio Mobile Video Cloud revealed its solution has been adopted by several additional credit unions, including: SouthPoint Financial Credit Union ($335 million, Sleepy Eye, Minn.); Providence Federal Credit Union ($138 million, Milwaukie, Ore.); River Valley Community Federal Credit Union ($43 million, Camden, Ark.); Decatur Earthmover Credit Union ($256 million, Forsyth, Ill.) and Chaffey Federal Credit Union ($155 million, Upland, Calif.). POPio Mobile Video Cloud was also recently honored with a “Best of Show” award at the CUNA Technology Council Conference Awards Program.

Rebecca Herold, president of SIMBUS and CEO of The Privacy Professor, also advised credit unions on wire fraud. “Cyber crooks target credit unions because that is where the money is at. Credit unions need to establish strong security controls to help reduce the possibility of becoming a cyber crook victim.”

She suggested a few other things credit unions can do:

• Use strong authentication/secret answer questions. Don’t ask for information that can be easily found online, such as a mother’s maiden name or city of birth. “Ask for information that is not likely to be found online, and that family members and friends would not know.”
• Require members to use at least two-factor authentication – preferably three-factor. The authentication information should never appear on a loan document or stored anywhere except within a centralized, strongly-secured and encryption-protected corporate network location.
• Establish and follow exception monitoring procedures, processes and tools.
• Require an ID and password/PIN to validate wire transfers.
• Provide four short (10 to 15 minute) wire fraud information security and privacy training sessions per year to all employees involved with wire transfers.
• Send out frequent wire fraud security awareness reminders that include various fraud scenarios, and walk through what employees should do in those situations.