Skip to content

Check Fraud a Focus at 2023 Fintech Nexus USA Event

On May 10-11th, 2023 the Fintech Nexus USA event was held in NYC at the Javits Center. This particular session, Mail Theft, Check Fraud and the Digital Fraud that Ensues, opens as the moderator notes that "we are in the midst of, I'd say, the greatest resurgence in the most archaic fraud in history -- check fraud. Checks were supposed to die, and check fraud was supposed to die with it."

Moderator Frank McKenna goes on to note; "For thirty years we waited for checks to die, and they never did." And, he adds, the rules and parameters put in place back in 1993 -- that looked really good then -- aged and the industry became "stuck in time."

Mail Theft: The Arrow Key

McKenna then points out how the emergence of the Arrow Key in 2020 -- the "magic key" postal workers use to get into any post office mail "blue box" in a zip code or jurisdiction -- created a crisis.

Inside those blue boxes are "treasure troves of checks," and this key became a prime target for fraudsters. In 2021, McKenna notes, there was a 300% increase in armed robberies for those keys. Meanwhile, check fraud doubled.

Blue Post Office Box

Once criminals have the arrow key, they typically take one of two paths: Sell the arrow keys on the dark web or use the arrow keys to steal checks (which typically end up on the dark web for sale as well). From there, criminals can either wash the checks or use the information to create counterfeits -- both a problem for financial institutions and victims alike.

Karen Boyer of M&T Bank notes all that is needed is "one check that's legitimate, but scaled exponentially to probably 30 or 35 types of deposits that are all fraudulent, and it's up to the banks to see who takes the liability."

Ms. Boyer goes on to note that banks need to do a better job at the origination stage, when accounts are opened. "As many as 70% of new accounts that have been opened up are 'synthetic accounts.'" She also goes on to note that "mules" -- persons who collaborate with fraudsters to physically deposit checks into these synthetic accounts -- can be curbed by tracking behavioral and transactional analytics.

And, while there has been progress from USPS and the government, McKenna said, "Check fraud gets no respect."

Immediate Check Validation in the Near Future?

Ms. Boyer suggested that it's not unfeasible to bring to checks some of the security and analytics "transaction alert" tools used in credit card and electronic transactions.

"It'd be nice if you'd know, 'Hey, checks one, two, and three for thousands have cleared in your account," she said. "'Did you write that? Yes of no.'" The issue with these types of alerts derives from the customer service aspect. Do individuals or business want to be inundated with constant alerts to approve check payments?

Stop Fraud OrbNet Forensic AI-01

Fortunately, the technology exists for financial institutions to automate check validation and fraud detection. AI and machine learning technologies have the capability to read any field of the check to validate the negotiability, while also identifying counterfeits, forgeries, and alterations. This is accomplished through multiple analyzers, including:

  • Check Stock Validation (CSV-AI)
  • Automated Signature Verification (ASV-AI)
  • Alteration detection using check style comparison and amount discrepancy
  • Writer Verification (WV-AI)

While there is no single tool for check fraud detection, utilizing multiple complementary technologies is the best solution to combat check fraud.

Leave a Comment