How Banks Can Limit Losses From First-Party Fraud

Financial institutions face rising losses from first-party fraud schemes that begin with online account opening. One of the most effective ways to reduce exposure involves practical, risk-based controls that limit how much trust new customers receive before their behavior can be established, said Brent Phillips, senior vice president and director of ACH operations at Cadence Bank.

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The strongest control banks can implement is lowering the maximum initial deposit allowed during online account opening. “These are brand-new customers, and you really do not know their intentions,” he said.

“If you allow very large initial deposits, you are exposing yourself to unnecessary risk. Keeping that amount low significantly reduces potential losses.”

Under U.S. ACH rules and Regulation E, banks generally have a 60-day window to accept consumer disputes from the statement date. This window, which can stretch close to 90 days in practice, often gives bad actors time to exploit provisional credit and withdraw funds before investigations conclude.

Verification tools such as multifactor authentication and behavioral biometrics play a limited role in pure first-party fraud but remain critical for broader fraud prevention, Phillips said. Internal monitoring, strong processes and layered controls matter more when the account holder initiates the activity in the same way that MFA and layered controls help stop account takeover and origination fraud before transactions occur.

In this video interview with Information Security Media Group, Philips discussed:

• How lowering initial online deposit limits can reduce exposure to first-party fraud;
• Why banks should apply risk-based monitoring before expanding new customer privileges;
• The role of MFA and dual-approval controls in preventing origination and account access fraud.

Phillips is responsible for ACH operations, compliance, fraud and audit at Cadence Bank. During his 18 years as a payment leader, he has worked in a variety of roles, including treasury management operations, fraud, sales and risk management.