Until just the last few years ago, credit unions have seemed immune to fraud losses while other financial institutions have been hit hard. With banks taking a more aggressive posture against fraud and credit unions allowing for more competitive account opening criteria, fraud operators have taken notice. And fraud losses for credit unions are beginning to escalate. In the early 1990′s, taking advantage of bank's relaxed customer service policies, restrictive hold regulations and inexpensive desktop publishing technology, fraud rings realized that money was easy to get, using check fraud. Targeting easy victims – such as the largest banks with their many branches, high volumes and reoccupation with acquisitions and mergers – rings were able to develop deposit account fraud schemes amounting to millions of dollars in losses annually. Pickings continued to be lucrative for nearly a decade, while the big banks fought to catch up, developing and then implementing fraud detection and prevention defenses. The American Bankers Association has been tracking check fraud losses through a bi-annual survey starting in 1992. In all the surveys the results have shown an increasing fraud loss trend with the largest banks seeing the largest increase in fraud loses. Until recently. In the 2000 survey, community banks saw a large leap in escalating losses, and not in any small measure. In 1998, only 49% of community banks recognized check related losses. In 2000, however, 67% reported check related losses. Experts float the hypothesis that fraud rings have been finding the large banks more and more difficult to "hit" thanks to aggressive prevention programs and have realized that smaller organizations are nearly as easy to infiltrate and, perhaps, even more vulnerable. Why more vulnerable? While big banks have been able to cost justify expensive software solutions that are placed within their technology infrastructure, smaller financial organizations, such as community banks, have difficulty justifying that expense. Also, larger organizations are able to provide the ongoing technology support required to maintain and periodically update the system, while smaller organizations often do not have that technical expertise in-house. Fraud operators have come to realize this is a terrific opportunity and are switching their attention. Credit unions, being close cousins to community banks, are likely to be included in this fraud target market, which would account for the increase in credit union fraud losses. Up until the last few years, the only technologies available to provide fraud detection products and services have been built for mainframe or PC platforms, perfect for larger financial organizations, but too costly for more moderately sized organizations. Fortunately, recent advances in Internet technology provide a platform that would allow the same successful fraud detection methodologies to be made available to credit unions and community banks in a much more cost-effective manner. As we see fraud begin to move aggressively to credit unions and community banking, fraud protection must be cost-effective for smaller institutions. One innovative fraud prevention solution is ASP – Application Service Provider – hostable technology. Forrester Research recently reported that ASP provides the best value for users with the benefits of systems that incorporate state-of-the-art technology without the need to build their own infrastructures. This service relieves the user of investing a large, lump sum in software and hardware acquisition costs as well as of the cost of providing on-going technical staff to support the technology. After a small, one-time set up fee, charges are "pay-as-you-go" per transaction fees. Costs can be more easily controlled and can be expensed as regular monthly operating expenses, just as other services are charged. Support is usually provided through a toll-free Help Desk when needed and providers retain the responsibility to maintain and upgrade the technology. Right now, ASP fraud prevention technology is targeted at three crucial fraud prevention functions through one Web site: * New account verification; * New employee screening; * Loss tracking-case management. New account verification checks new member information against a number of different databases to verify the integrity and accuracy of the information being provided by the potential new member. New employee screenings perform a number of different checks of background information to make sure applicants are providing truthful and complete information before they are hired. Loss tracking and case management uses software technology designed to support a number of different functions that all use much of the same loss information – risk management, security and investigations – while maintaining all loss and case information in one database for accurate, efficient tracking and reporting. As ASP fraud prevention technology continues to develop, it will focus on more transaction-oriented detection, including deposit fraud (including ATM deposit protection), On-Us fraud and kiting detection. The ASP model is compelling – particularly for credit unions – because of the following advantages: * Reduced overall management and hardware costs; * Faster application deployment and trouble-free upgrades; * Improved IT department focus on value-added projects; * Access for anywhere, anytime, with just an Internet connection; * Enhanced security and redundancy An ASP approach provides continuous access to fraud prevention technology without the risks, costs and administrative responsibilities associated with developing and maintaining the required Information Technology infrastructure. ASP technology should be offered through secured Websites using 128-bit encryption technology. It should also offer user-defined information access allowing the client to set access levels for vendors, employees and management.

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