Before modern technology, how did financial institutions protect against fraud and identity theft?
In: Economics
Sometimes I wonder if it was more difficult because you needed access to paper and not data but I’m pulling that out of thin air
Any basic banking induction course would tell you that Anti-Fraud / Money Laundering / etc are catching up to fraudsters – bankers are never *ahead* of fraudsters. Therefore, it was only when fraudsters used modern technology that bankers needed to respond in kind. When fraudsters didn’t use modern technology, financial institutions didn’t use it either. So to answer your question specifically as to how: back in they day it was done manually, by people, because the fraud was done manually, by people.
What countermeasure is done depends on what type of fraud you’re talking about; but whether it is wire fraud, cheque fraud, account takeovers, or whatever, most of it comes down to ensuring the customer in front of you is who they say they are and doing the legitimate thing they say they are doing – technology or not.
Identity theft was less of a thing when the only bank you could withdraw money from was the one where everyone knew your name and face.
A lot of stuff that was accepted outside your own bank would be bearer instruments, so that whoever held that piece of paper got the benefits associated with it regardless of identity.
Things like signatures, stamps, seals etc existed to prove identity, but much of it used to be done because someone was personally known or some other person who was vouched for them.
Forgeries were a real issue, but pretending to be someone else to get access to their money was less so.
Fraud definitely was still happening back then, but generally it was just requiring a lot more proof in person to make big transactions
The biggest thing to understand is that financial institutions of the past generally operated on a personal basis and a local basis. Our modern world of global finance has little in common with the past and is nearly a company new thing entirely
“Banker” and other related jobs were a local profession. Banks and finance places generally knew their clients personally, their lives, their businesses, their kids, and such. It was a personal relationship.
They could also be pretty stringy. They were not interested in doing business with anyone who might be a risk. And by very many regular people, lending and finances transaction were considered a pretty shady if not just unethical business (because sometimes they were) in what they do and who they choose to do business with. For example they may only work with a certain ethnicity.
These institutions were also local. Limiting your area and amount of clients and actions drastically reduces even the possibility of fraud or theft. You know your customers. You know what’s happening with them. You don’t have to look far.
The easiest way to reduce issues was simply by choosing your customers carefully. You are not interested in doing business with people who may defraud you or otherwise run away to another town or you don’t know.
Money lending could also be ruthless. And many past societies had massive penalties, including major prison terms for fraud or failing to pay a loan. You really don’t wanna run afoul these people or screw them over.
Identity theft was a lot harder back then, and identity didn’t matter as much then as it does now, so there wasn’t nearly as much interest in doing it.
Fraud, they did what they do now–careful financial research. They just did it with punch-cards and card catalogues and filing cabinets, and it took a lot longer to do. But the fraud also took longer to do, so…it mostly balances out.
Personal relationships were important. My father always went grocery shopping on Saturday morning at one particular City Market (now Smiths). He would also seek out the same cashier since she knew that his “out of town” check would be good (we lived in one two but he banked in another where his job was). He drove past several other grocery stores to get to that one City Market.
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