Rampant Fraud Kept “in Check” By OrboGraph

OrboGraph | Rampant Fraud Kept in Check | The Enterprise World

About OrboGraph

Established in 1995, OrboGraph is a premier developer and supplier of AI-based fraud detection and recognition automation for the U.S. check processing market. Processing for nearly 4,000 financial institutions, service bureaus, and clearinghouses, OrboGraph technology is the core scoring engine used to process billions of checks and payments annually. 

OrboGraph most recently introduced its OrbNet AI and OrbNet Forensic AI to the market. By doing so, OrboGraph expanded its global footprint by partnering with the four top Israeli-based banks in check processing.

In 2022, OrboGraph was acquired by private equity firm Thompson Street Capital Partners (TSCP). TSCP manages over 4.5B in assets and is a middle-market private equity firm that helps transform already-exceptional businesses into market leaders. OrboGraph will see an estimated 20% growth in 2023 and will continue to gain market share in the check processing and fraud detection market segments.

Rampant Check Fraud 

For financial institutions across the US, fraud continues to be one the most difficult challenges. Billions of dollars are spent each year to combat fraud overall;  but one payment channel continues to see ramped fraud: check payments. An article by the Federal Reserve Bank of Richmond titled, “Check Fraud Running Rampant” highlights the industry challenges. 

Industry experts point to the introduction of EMV chips in 2014/2015 as the starting point for the surge in check fraud. According to the Federal Reserve report entitled Changes in U.S. Payments Fraud from 2012 to 2016, the number of fraudulent credit card payments rose from 14.0 million in 2012 to 30.4 million in 2015 and the number of fraudulent debit card payments rose from 13.7 million to 28.7 million in 2015. Conversely, from 2012 to 2015, the total value of check fraud declined. The fraud rate, by value, for checks also declined from 0.41 basis points to 0.25 basis points.

However, in just a few years, the data shows that the fraud increase shifted towards checks, exceeding credit/debit card fraud. According to the 2020 Deposit Account Fraud Survey — which examined data from 2016-2018 — the ABA reported that in 2018, check fraud accounted for 47% or $1.3 billion of industry deposit account fraud losses, closely followed by debit card fraud losses—signature, PIN, and ATM combined—44 percent or $1.2 billion.

Today, many industry experts have reported that check fraud has increased by over 300% from pre-pandemic levels – and there is data back it up: 

  • Auriemma Bank Fraud Control Group: Check deposit fraud is up 385% in 2022.
  • Financial Crimes Enforcement Network (FinCEN): In 2021, financial institutions filed more than 350,000 Suspicious Activity Reports (SARs) to FinCEN related to check fraud. In 2022, the number of check related SARs nearly doubled to more than 680,000.
    • FinCEN has since reported that in Q1 of 2023, financial institutions have reported over 185,000+ check fraud related SARs 
  • 2021 AFP® Payments Fraud and Control Report: Checks are the most impacted payment method at 66%.

This challenge is only made worse with the rise in mail carrier and mailbox robberies. According to Postal Inspection Service data, there have been more than 2,000 assaults or robberies against postal carriers since 2020. The motive for the robberies is for criminals either steal paper checks directly or obtain the “arrow keys” to open mailboxes to steal paper checks. While a portion of these stolen checks are used directly for check fraud, we are seeing a rise of these stolen checks and arrow keys ending up on the dark web for sale. 

The Georgia State University Evidence Based Cybersecurity Research Group has been tracking stolen checks on the dark web starting in 2020. In August of 2020, the group observed 60 dark web channels and recorded 1,639 checks up for sale on the dark web and peaking at 8,021 in January 2021.  David Maimon, associate professor of criminal justice and criminology at Georgia State University and founder of the group, notes that personal checks typically go for $175 on the dark web and $250 for business checks. Buyers can either purchase the physical checks – where they can perform alterations on the check – or the information from the check to create forgeries or counterfeits through digital software. 

All these factors have driven check fraud to be the top challenge for financial institutions. 

Technology Limitations within Financial Institutions

The key issue that financial institutions face is the lack of the right combination of technology components deployed for check fraud detection. Many banks rely on outdated, legacy transaction-based systems and/or optical character recognition systems. These systems are not able to detect most new cases of altered, forged, and counterfeit checks. Additionally, check deposits at the bank of first deposit (BoFD) are particularly vulnerable due to mobile remote deposit capture (mRDC) through mobile banking applications and ATMs.  

Additionally, during the COVID-19 pandemic, there was a drop in customers visiting physical bank branches and an increase in utilization of banking mobile apps and ATMs. To ensure that banking customers were able to perform all their banking needs digitally, financial institutions invested substantial resources to the customer experience. This enabled fraudsters to open new checking accounts – known as drop accounts – to utilize for check fraud deposits.

What occurs is the fraudster is now able to opens a new account digitally with lower threshold for ID verification, deposit a stolen check to the account via mRDC and ATM without encountering a physical bank employee, and transferring funds within 24-48 hours before the check item is flagged as fraudulent. 

OrboGraph Keeps Check Fraud – “In Check”

As a leader in check processing and fraud detection, OrboGraph was an early adopter in leveraging artificial intelligence and machine learning technologies. In 2018, OrboGraph announced the release of its OrbNet AI technology for check recognition and in 2021, announced the release of its OrbNet Forensic AI technology for check fraud detection. Through its OrbNet Innovation Lab, OrboGraph’s Research & Development department worked directly with partners and clients to develop its technology to meet the needs of the market. 

OrboGraph recently announced the release of OrboAnywhere Version 5.0 and 5.1 with many image forensic improvements including: 

  • Handwritten and printed payee recognition 
  • Improved coverage for alterations
  • Writer Verification of multiple fields of the check to detect postal stolen checks 

See press release highlighting OrboGraph Writer Verification Technology Wins Business Intelligence Group’s 2023 AI Excellence Award for Detecting Altered and Fictitious Checks.

“OrboGraph success is heavily reliant on our ability to provide new and innovation solutions to the industry.” Said Avikam Baltsan, Chief Technology Officer at OrboGraph. “Our partners and clients look to OrboGraph to provide them with the latest and greatest technologies to drive detection rates to exceed 90%.”

Thought Leadership

OrboGraph has been a partner in the check recognition and fraud detection for more than 25+ years, with its Senior Leadership team having a combined industry experience of 50+ years. Chief Executive Officer, Barry Cohen, has been leading OrboGraph since 2007 after a successful 5-year stint as President of Orbotech, Inc. Co-founder and Chief Technology Officer Avikam Baltsan has been an industry innovator for over 28 years, bringing valuable technical expertise to the team.

Chief Operating Officer, Stewart Levine, joined OrboGraph in 2008, bringing 20+ years of experience managing technical groups, an acute appreciation for the demands of production environments, and a great understanding of the importance of relationship building with customers, vendors, and co-workers. Chief Strategy Officer, Joe J. Gregory, has been with OrboGraph for 25 years and is known as an industry expert, frequently presenting at industry and partner conferences, and contributing to numerous publications. 

OrboGraph continues to publish new content such as research papers, eBooks, and blogs through their website and Modernizing Check Fraud Detection and OrboNation Check Payments blogs — providing industry insights, trends, and analysis to their prospects, clients, and the industry.

Moreover, the company has launched several initiatives, including the #OrboIntelligence Check Fraud Hub, a centralized resource for primary and secondary research, industry trends, and 3rd party reports. Additionally, OrboGraph has established the Check Fraud Roundtable — a financial institution-driven series of organized meetings where the industry shares experiences, trends, and prevalent fraud use cases while identifying key technological barriers within check fraud. The first in-person Check Fraud Roundtable was recently completed May 22-23, 2023, in Charlotte, NC. 

“OrboGraph is in a unique position within the check processing and fraud detection industry.” Said Joe J. Gregory, Chief Strategy Officer. “With our experience, knowledge, and reputation within the industry, partners and clients of OrboGraph look to us to be a strong voice for the industry.”

Employee and Client-Centric Approach 

OrboGraph has established a unique company culture that prioritizes employee satisfaction and retention. By treating employees as family members and providing them with opportunities to give feedback and shape their future direction, OrboGraph has created a positive work environment where employees feel valued and invested in the organization’s success. This approach has resulted in a retention rate that exceeds industry standards, with many employees remaining with the company for over seven years.

In addition to prioritizing employee satisfaction, OrboGraph is dedicated to building and maintaining strong client relationships. OrboGraph’s Customer Service and Account Management teams are all US-based, with 24/7 customer support. While many companies choose to outsource customer service outside of the US, OrboGraph understands the communication needs of its partners and clients. 

“We understand the needs and expectations of our clients and partners.” Said Stewart Levine, Chief Operating Officer at OrboGraph. “They don’t want a nameless person on the other end of communication. Having those one-on-one relationships where an account knows who they are working with has been key to our success.”

Looking Towards the Future

OrboGraph continues to be at the forefront of innovation for the check processing and fraud detection industry. The company is dedicated to continuing development its technologies to meet the needs of its partners and clients, while also looking to expand its technology capabilities into new markets.  

“We’ve recently secured the contracts of five new large financial institutions,” stated Barry Cohen, Chief Executive Officer at OrboGraph. “We continue to build momentum for our existing platform, while looking at expanded workflows which are complementary to the core competencies of the company.”

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