Despite a steady drop of checks in circulation, check fraud remains tenaciously persistent. Fraudsters continue to take advantage of access to inexpensive technology, social engineering tactics, and remote business practices to engage in illegal and deceptive check fraud schemes.
Even as the use of ACH, mobile, and card payments increases, paper checks continue to lead B2B transactions around the world. According to the Association for Financial Professionals (AFP), checks make up 42% percent of B2B transactions.
Meanwhile, the overall threat posed by check fraud only slightly decreased as the ‘most vulnerable payment method’ from 70% in 2019 to 66% in 2020, according to AFP. (A drop likely due to branch closures and a decrease in in-person banking amidst the pandemic.)
What is more, according to the FBI, 70% of U.S. organizations reported check fraud, resulting in more than $18 billion in losses. For financial institutions, the average phony check or money order scam resulted in $1,500 in losses per item, according to the Better Business Bureau.
As checks continue to be a rewarding target for fraudsters, are financial institutions doing enough to address check as a significant threat?
Check Fraud Tactics Today
As deposit channels have evolved, so too have check fraud tactics.
New check fraud techniques, strengthened by advanced printing and scanning technologies, have made producing fake checks less expensive and simpler than ever before. Fraudsters can create counterfeit checks on high-quality stock with legitimate financial institution names and addresses, multi-colored watermarks, and verifiable routing and account numbers.
There are also social engineering tactics to contend with. The FTC has repeatedly warned about cons involving people duped into believing they have landed a new job as a mystery shopper or personal assistant; bought into car-wrap advertising; won a phony sweepstakes; or received an overpayment. In these instances, the victims will receive instructions to deposit a bogus check into their account. They are then usually instructed to send or wire an electronic payment before their FI can detect the fake check.
During the pandemic, checks were especially prevalent in unemployment and stimulus payment fraud, romance and pet scams, as well as get-rich-quick-type money mule schemes.
According to data from Advanced Fraud Solutions, we have also seen a massive uptick in fraudsters attempting to taking advantage of remote and mobile deposit channels. For example, duplicate deposit scams that can be executed through the convenience of the fraudster’s phone.
Getting Check Fraud Protection Right
As deposit channels expand, from mobile/remote deposit capture to ATMs and ITMs, and more in-person banking is conducted as the world returns to a post-pandemic normal, financial institutions will be under increasing pressure to get check fraud protections right. To do so, financial institutions will need to implement an array of solutions that focus on every point of presentment. This includes applying the same type of processes and rigor across deposit channels, from remote to mobile, to the front line.
Another avenue for improving check fraud protections includes using better, more accurate data. One way to solve this is to take a cooperative approach. This can be achieved by sourcing and contributing to a shared check fraud database.
Now is not the time for financial institutions to disregard the threat of check. As we exit the pandemic, fraudsters will continue to lean on check as one of easiest ways to dupe consumers and financial institutions alike.
