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ICBA Addresses the Check Fraud Challenge for Community Banks

  • The rise in check fraud surprises some
  • Instant payments are an alternative, but many people do not use them
  • The public is becoming more aware of fraud and how to avoid it

Over the past few years, the Independent Community Bankers of America (ICBA) has been on the forefront of taking on check fraud. Last year, the ICBA worked with the USPIS to distribute an alert to community banks of red flags to look for, and they are continuing their efforts to help community banks fight against check fraud.

The ICBA is pushing three major initiatives this year:

  • Establish a community bank task force to take on the challenges of check fraud
  • Lead an industry fraud working group that brings together regulators, law enforcement agencies, trade associations, and other government stakeholders to share information, identify best practices, and discuss emerging approaches to combatting check and other types of fraud
  • Focus on member education, training, and resources

In a recent interview with Pioneers in Payments, Scott Anchin, VP, Senior Operational Risk and Payments Policy at the ICBA, continues their education initiative by discussing the significance of Community Banks in the US economy.

Mr. Anchin pointed out the rise in concern about fraud within the industry.

"One of the most surprising things I think that I'm seeing is an increase in check fraud," he noted. "Check fraud is really hitting our community banks very hard and I think financial institutions more broadly as well. The good news is of course that there's a lot of mechanisms I think to sort of start to combat this."

Instant Payments: The Answer to Check Fraud?

Mr. Anchin sees instant payments as a possible solution for check fraud:

"This rise in fraud, and especially check fraud, is sort of a concerning trend now. If we want to tie these two trends together -- adoption of instant payments and the rise in fraud, especially check fraud -- I think that instant payments actually offers a solution for reducing check fraud, especially because instant payments, of course, are much more secure and people aren't stealing things out of mailboxes and altering physical things."

While the theory is logical, it's not likely to occur. The "demise of the check" has been predicted for the past two decades -- yet, there were over 10B checks written last year in the USA.

Furthermore, Mr. Anchin presents instant payments as a more secure payment channel. However, instant payments present a whole different set of challenges, as noted by the Federal Reserve:

While prone to types of fraud that are similar to those for other payment types, instant payments pose some unique challenges due to their speed and irrevocability. With most payment types, a customer can recall a payment made in error before it is processed. In contrast, an instant payment is completed in a matter of seconds, and because it is irrevocable, the payer cannot cancel the transaction. In addition, the payee can withdraw the funds immediately. When the bad actor is the payee, these characteristics make it more challenging to detect and stop payment on a fraudulent instant payment transaction before the bad actor has already withdrawn the funds.

So, is the industry simply trading one fraud type for another that could result in faster fraud?

Combatting Check Fraud is a Collaborative Effort

As noted by the ICBA, "Check fraud is unique among common schemes in that no single party can solve the problem on its own."

Fighting check fraud is a group effort, including:

  • Financial institutions
  • Federal and state law enforcement
  • The United States Postal Inspection Service
  • Payment Service Providers
  • Fintechs
  • Consumers
Check Fraud software

Eliminating check fraud will also require a collaborative approach from a technology perspective. As the last line of defense, banks must deploy a variety of complementary technologies such as behavioral analytics, image forensic AI, consortium data, and dark web monitoring to build the best possible defense to protect themselves and their customers.

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