One would think that, with digital payments becoming more and more pervasive, we should expect the check fraud threat to begin shrinking.
Unfortunately, that is not the case.
As reported on the Minnwest Bank website, a 2022 survey of businesses revealed the following:
- 63% of businesses have reported check fraud activity, topping the list of payment fraud types. (Corporate card payment fraud came in a distant second at 36%)
- 75% of businesses plan to continue using paper checks to some extent.
The article points out one of the key reasons check fraud persists -- the relative ease with which check fraudsters can pull off their capers:
Paper checks have highly sensitive details printed right on the front — the account number and routing number. If a mailed payment falls into the wrong hands, a criminal can use one of several methods to siphon money out of your account:
- Check washing is seeing a marked increase. Just use some chemicals to wash away the filled-in amount and payee and, voila, the fraudster has a blank check.
- Bogus check printing
- Fraudulent transfers: Criminals can also use your account information to pay themselves via ACH transfer (30% of business experienced fraudulent ACH debits in 2022).
Another of the factors making checks a ripe target is "high handling" -- they are handled by many persons. That's not to mention the fact that checks are vulnerable while in the "mail stream," where they can be easily (and are routinely) stolen.
Technology Solutions for Check Fraud Detection
Back in the day, fraudulent checks would have to be deposited through a bank teller -- enabling a human to examine a check before it is deposited. Today, it is physically impossible for banks to manual review each check that is deposited, particularly when the majority are deposited through digital channels such as mRDC and ATM/ITM.
Myriad technologies are able to assist banks against check fraud. The article mentions payee positive pay as a strong technology solution for businesses, as it enables the bank to compare the deposit with an issuer file. Furthermore, advanced payee positive pay systems now feature artificial intelligence and machine learning to accurately read and extract the payee field, increasing the match rate. This does require the business to subscribe to the solution, while also routinely sending an issuer file to ensure detection.
Banks can take it a step further by deploying transactional analysis and image forensic AI for check fraud detection in the back office. This enables banks to protect their business customer further by analyzing the transactional behavior of an account, while interrogating the physical attributes of check images for counterfeits, forgeries, and alterations.