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  • Frank Tian

๐Ÿ’ธCheck-kiting - Live and Large

In the 2002 movie โ€œCatch Me If You Canโ€, Leonardo DiCaprio played a top con man who defrauded many banks with fake checks - that was in the 1960s.


Six decades later, the check fraud is still live and large, as illustrated by the StateView Homes/TD incident.


What is check-kiting?


๐Ÿ“Œ An accountholder maliciously makes a large payment to the checking account or credit card account.


๐Ÿ“Œ But there are not enough funds to back the payment, or in this case, the checks get canceled.


๐Ÿ“Œ An unsuspected bank releases the open-to-buy (available fund or credit) right away, not knowing that the payment will eventually be returned.


๐Ÿ“Œ The fraudster quickly withdraws the funds. Days later, the payment gets returned and the account is left with a big hole.


Understanding business accounts receive less restrictive treatments given their large volumes of transactions, it still intrigues me how the loss became as high as $37M.


How to mitigate check-kiting?


๐Ÿ“Œ By analyzing recent payment behaviors such as recently reversed payments vs. payment velocity, a bank can segment out payments with a high fraud risk.


๐Ÿ“Œ High-risk payments can be โ€œfloatedโ€ - holding the funds or credit for a few days until the payment is settled. Ultra-high-risk accounts can be blocked and subject to manual fraud review.


๐Ÿ“Œ The upcoming real-time payment scheme would help reduce such incidents.


๐Ÿ“˜ Check kiting is introduced in ๐‘ช๐’‰๐’‚๐’‘๐’•๐’†๐’“ 15 ๐‘ญ๐’“๐’‚๐’–๐’… in my book ๐‘ผ๐’๐’”๐’†๐’„๐’–๐’“๐’†๐’… ๐‘ณ๐’†๐’๐’…๐’Š๐’๐’ˆ ๐‘น๐’Š๐’”๐’Œ ๐‘ด๐’‚๐’๐’‚๐’ˆ๐’†๐’Ž๐’†๐’๐’•.


๐Ÿ‘จโ€๐Ÿซ Click here for more free and low-cost learning resources


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