Rethinking the Numbers: Payee Positive Pay Reduces Check Fraud for Corporate & Small Biz

• ABA reported a significant check fraud uptick in 2018 data
• B2B payments are still dominated by checks - leading to more opportunities for fraud - is it overrated?
• Assessing real-time, Positive Pay fraud systems with image can stop fraud at various stages of the workflow

Corporate Payments Landscape: Checks Still Rule in B2B

The Wall Street Journal recently published a piece speculating as to whether the rise in check fraud could lead corporate treasurers to move away from paper checks completely -- even though they are currently the most-used business-to-business payment method -- and replace them with faster, perceived safer and lower cost electronic payments.

An Association for Finance Professionals survey in September, however, found that checks are still the most popular payment method for transactions between U.S. businesses; they are not going away in the foreseeable future.

The AFP survey also found a staggering amount of U.S. organizations, 82%, were victims of fraud or attempted fraud in 2018. 

Electronic payment companies will use this data to undermine the stability and security of the check by highlighting the increase in attempts—$15.1 billion in 2018, up from $8.5 billion in 2016—and losses of $1.3 billion, a rise from $789 million in 2016.

But note the nuances of the 82% number cited in the WSJ story; it actually encompasses both "fraud or attempted fraud." If you apply the percentages of prevention from the ABA study (1.3B losses/15.1B attempts = 8% successful fraud), could be it be that only 8% of the 82% (fraud or attempts) were true losses? Either way, what else can be done to "lock down" corporate and small business checks?

A Legacy System to the Rescue

As related in a Springfield Business Journal opinion column by Dee King, Guaranty Bank Corporate Services Director Ashlee Radford asked a room of more than 100 business leaders to raise their hands if they knew about the Positive Pay system. Only a few hands went up.

Positive Pay is an underutilized fraud prevention system, an easy solution to help protect a business from check fraud. It’s offered by most banks and helps protect businesses from having their checks forged. (But don't forget about alterations!)

The Association of Certified Fraud Examiners estimates the typical organization loses 5% of revenues per year because of fraud. Businesses can help protect themselves by investing a small amount of time and money in systems like Positive Pay. Even with electronic payments gaining in popularity as a predominant payment method, paper checks are still used extensively and will be for the foreseeable future.

Positive Pay systems are not new, but are a proven solution for the paying bank. These systems can be enhanced by adding a layer of imaging, recognition, and validation to the mix to reduce B2B check fraud.

Assessing Positive Pay Fraud Systems

Most banks have systems deployed where positive pay only matches serial number and amounts. Advancements in optical character recognition and payee matching have revolutionized Positive Pay systems, allowing for a comprehensive approach that matches the payee name to payee issue file source, building a strong deterrent to payee alterations.

Furthermore, new technologies can validate additional fields like signature, date, and payor to provide a more robust fraud process. Banks, credit unions, financial institutions, and corporate entities need to do their due diligence to fully assess the capabilities and technologies of fraud systems, while identifying specific alteration, forgery, and counterfeit use cases detected by the system.

In another article looking at what Corporate Treasurers can expect in the year ahead, PaymentsJournal.com warns that fear of fraud and security breaches -- not just incidents --will increase, which just adds an exclamation point to the need to adopt tools like Positive Pay.