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Bank Fraud Continues To Plague Businesses, Study Says

In nearly 80 percent of cases, banks did not detect fraud before funds were transferred
Business banking fraud -- particularly in small and midsize companies -- is still causing major problems for both the businesses and the banks that serve them, according to a study published today.

The "2011 Business Banking Trust Study," a follow-up to a similar study conducted last year, was written by Ponemon Institute and sponsored by Guardian Analytics. This year's numbers suggest that the banking fraud situation has not improved since 2010.

"The industry has not moved the needle in addressing the corporate account takeover and fraud plaguing SMBs and their financial institutions," the report states. "The data shows that fraud is still pervasive, money is leaving accounts unnoticed at an alarming rate, and businesses will leave their banks because of it."

Fifty-six percent of businesses experienced fraud in the past 12 months, according to the study. Of those that experienced fraud, 61 percent were victimized more than once. Seventy-five percent of the victims experienced online account takeover and/or online fraud. These figures are nearly the same as last year's, the researchers say.

In 78 percent of fraud cases, banks failed to catch fraud before funds were transferred out, according to the study. Banks were able to keep money from leaving the bank in 22 percent of the cases and fully recover fraudulently transferred funds for 10 percent of businesses.

Banks were unable to recover funds in 68 percent of cases, leading to losses for both business and banks, Ponemon says. Banks took the losses in 37 percent of cases by reimbursing businesses for unrecovered funds; businesses took losses in 60 percent of cases.

Forty-two percent of respondents in the study said they do not believe the bank would cover any losses if their companies' assets were stolen and not recovered. Despite this attitude, 70 percent of businesses still think their institution should be ultimately responsible for securing online accounts.

Forty-three percent of businesses said they have moved their banking activities elsewhere after a fraud incident. Ten percent of businesses that have experienced fraud have terminated their banking relationships following fraud attacks. Thirty-three percent said they did not fully terminate their relationship, but moved their primary cash management services to another institution.

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