Bank Fraud: Using Technology to Combat Losses

CHAPTER 4

Tackling Fraud: The Ten Commandments

Risk management is an exercise every one of us does voluntarily or involuntarily countless times during the course of our lives. Every decision we make involves some assessment of the risk involved. Even members of the animal kingdom do this on a regular basis. When an antelope in the African savannah decides whether it should go alone to have a drink of water in the nearby pond, it is making a calculated decision based on whether it can hear a lion roaring nearby, whether it is dark, whether it makes sense to go with the other deer to drink water or go alone. When a pedestrian is trying to cross a crowded New York street after the light has turned to a blinking Don't Walk, the decision to cross or not involves assessing the risk involved. We tend to draw from our personal experience and what we have been taught to make the decision. When a bank is trying to decide whether to approve a purchase for $1,500 that Joe Right is attempting at an electronics store, risk assessment is involved. While financial institutions are likely interested in managing all risk associated with their customers, fraud risk associated with certain products is one of the most important to the bank because of its direct and unpredictable impact on the bank's bottom line.

The one big difference between the situations of the antelope and pedestrian as opposed to the bank is the role that one's intuition can be allowed to play. It is very likely that the antelope ...