Digital Payments Turn the Tables on Check Scams

Despite the prevalence of digital alternatives, checks continue to be a preferred payment method for many organizations.

PYMNTS Intelligence research underscores this trend, revealing that checks constitute a significant portion of business-to-business (B2B) transactions across various industries. In real estate, nearly 21% of B2B transactions involve checks, while retailers rely on checks for 15.2% of their B2B payments.

Similarly, in the construction sector, 76% of subcontractors receive payments primarily via paper checks, further underscoring the ongoing popularity of checks in commercial transactions, despite their inherent drawbacks in terms of speed and security.

These findings align with a recent report from the Association for Finance Professionals, highlighting that 75% of respondents acknowledge the ongoing use of checks within their organizations. Notably, 34% of these respondents indicate that checks account for over a quarter of their payment transactions.

Amid this widespread use of checks, check fraud remains a persistent threat. Criminals continuously adapt their tactics, from check washing to counterfeiting, exploiting vulnerabilities in traditional payment systems.

As PYMNTS wrote last September, “the manual nature of paper checks introduces a higher risk of errors that can damage relationships with vendors, suppliers and even employees. Not only that, but their physical characteristics are an attractive attack vector for fraudsters, and they can be easily lost or stolen in transit.”

Ernest Rolfson, CEO and founder of Finexio, discussed this trend in an interview with PYMNTS last June, emphasizing how paper-based processes pose a significantly greater risk of inadvertently allowing bad actors to infiltrate systems.

Ultimately, these vulnerabilities result in significant financial losses for businesses and individuals alike.

Recent data from the Financial Crimes Enforcement Network (FinCEN) reveals that suspicious activity reports related to check fraud at depository institutions more than tripled between 2018 and 2022, representing a staggering increase of 201.2%.

In light of this, technology and digital solutions have emerged as critical tools for organizations seeking to strengthen their defenses and reduce the risks associated with check fraud.

Identity verification firm Mitek’s fraud management console, MiControl, and Check Fraud Defender exemplify the potential of digital solutions in combating check fraud. By leveraging advanced visualizations and business rules, MiControl significantly reduces the time required for fraud analysis, enabling swift detection and mitigation of suspicious checks.

Additionally, recent partnerships between industry leaders, such as fraud and risk platform DataVisor and Mitek, provide comprehensive check fraud protection services, streamlining the experience for financial institutions (FIs) and enhancing their fraud detection capabilities.

Moreover, banks are actively promoting the adoption of digital payment services as a defense against check fraud. Collaborative efforts between organizations like the American Bankers Association (ABA) and the United States Postal Inspection Service (USPS) aim to educate stakeholders on preventive measures against check fraud.

Recommendations include embracing digital payment alternatives such as e-checks and ACH automatic payments, leveraging mobile banking platforms for check verification, and conducting regular reviews of bank activity to identify discrepancies.

“Working together to address the unprecedented rise in check fraud offers us a number of opportunities to make a difference, including educating the public on how to safely use the mail system to send checks while also taking advantage of the advancements in payments technology banks offer,” ABA President and CEO Rob Nichols said in a March 19 press release.

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