How Positive Pay Helps Fight Check Fraud By Jason Young, Senior Director of Enterprise Banking, CSI Check use has declined for years as consumers gravitate toward faster, more digital transactions. Yet despite the slow and steady phasing out of checks, the financial sector has seen a recent uptick in check fraud. FinCEN reported 680,000 instances of known check fraud in 2022, and those trends continued into 2023, with experts estimating a whopping $24 billion in losses. 40% of community bankers who responded to CSI’s 2024 Banking Priorities Executive Survey listed check fraud as one of the top types of fraud they encounter, only narrowly losing out to card and wire transfer fraud. Only half saw their prevention measures as very effective. Why is check fraud on the rise, and what can banks do about it? This article explores the problem and how positive pay can help stem the tide. Why is Check Fraud Increasing? Fraudsters have sought to manipulate paper checks for about as long as checks have existed, but recent years have seen a surprising increase in fraud with a modern twist. For many, the resurgent trend became most evident during the distribution of COVID-19 relief checks, as fraudsters exploited the confusion and emotion of the moment. But it didn’t stop there, as check fraud has spread to areas like social security checks, unemployment benefits, paychecks and more. Fraud in particular domains will inevitably increase when there aren’t enough safeguards to prevent it. In addition, instances of fraud tend to grow when the economy begins to dip or enter uncertain territory, like throughout a pandemic or times of intense inflation. Although check use has decreased, the average dollar amount of the typical check has increased and is often used for more considerable expenses, like paying employees or bills. So, it’s a ripe opportunity for fraudsters to make more in a shorter period. How Can Banks Prevent Check Fraud? As with all forms of fraud, the best defense against check fraud is staying alert and knowing the signs. For instance, consumers may be less inclined to mail a check if they are aware of the risks. They may be less likely to rely on checks altogether if they have the technology, training and convenience to pay another way. However, education isn’t limited to customers. Bank personnel should be better trained to spot bad checks. If they know some red flags, they will be better equipped to prevent them. Similarly, some tellers may need to say no when a pushy fraudster (under the guise of a dissatisfied customer) urges them to overlook red flags. Technology can also help in the constant effort to prevent fraud. For instance, an institution can update its remote deposit capture solution to enable real-time updates and alerts to its fraud team. Data visibility can help ensure bad checks are stopped, and good ones aren’t cashed multiple times. Implementing positive pay is another critical strategy. What is Positive Pay? Positive pay is an optional feature that banks can add to their existing core banking platform that tracks the checks issued and paid on selected commercial accounts, or the bank’s official checks account. It helps detect fraudulent checks by comparing ones to be cashed with ones already issued in the system and a predetermined set of parameters. It’s also a form of insurance against fraud, losses and other liabilities to an institution. The system compares the account number, check number 19 West Virginia Banker
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