By Todd Robertson
ARGO
Despite the banking and payments industries making the jump to digital, check fraud remains a serious threat. While check usage has declined in the United States, check fraud has surged over the past few years, being the most common form of crime committed in the country with banks experiencing more than $24 billion in fraud losses.
Last year, a spike in mail theft-related check fraud prompted the Financial Crimes Enforcement Network in collaboration with the United States Postal Service to issue a nationwide alert imploring financial institutions (FIs) and consumers to remain vigilant for potential check fraud. In 2022, suspicious activity reports related to check fraud reached over 680,000, doubling from 2021 (see tinyurl.com/3e7f66jf).
Blue USPS mail collection boxes have become a primary target for criminals to steal personal checks, business checks and Social Security payments. A large portion of the 25,000 mail theft incidents came from those boxes last year. In response the postal service upgraded thousands of blue boxes with more robust defenses, including dual-factor lock access and a revised chute that combats fishing devices (see tinyurl.com/385yzd89).
Small businesses make up a sizable portion of those impacted by check fraud, with a report finding that around 31 percent of small businesses have experienced check fraud in 2023, with 65 percent reporting losses exceeding $50,000. Small businesses are the lifeblood of the U.S. economy and comprise 99.9 percent of all American businesses, making it critical for FIs and businesses to take necessary steps to detect and mitigate fraud (see tinyurl.com/3kx3rnkp).
Criminals often "wash" stolen checks with chemicals to remove ink from a check and change the dollar amount and recipient name. This can be financially devastating for consumers or small businesses owners and can diminish the credibility of FIs that fail to address the issue.
Fraudsters have also moved to sophisticated means such as graphic design to make copycat checks for use in future schemes or sell them to third-party entities on the dark web or through encrypted social media platforms like Telegram. A simple way to combat check fraud is to use indelible gel black ink pens that are more resistant to check washing techniques. FIs should also bolster their internal controls and partner with third-party firms that mine the dark web for account information associated with their institution to proactively place stops and holds on compromised accounts.
Although the banking and payments industries have transitioned to digital, 81 percent of businesses use paper checks daily. To better protect these businesses, FIs should proactively offer positive pay services. Positive pay places the responsibility for fraud mitigation on businesses, while enabling FIs to better detect fraud on a business account.
Altering a payee's name on a known, good check is a technique often used to defraud organizations. While the dollar amount, check number and other details are being verified, payee positive pay verifies the payee's name printed on the face of the check and automatically scans, reads and matches against the payee information in the issued-check file.
Traditional positive pay enables check fraud protection by positively matching and validating dollar amounts and serial numbers against information from issued-check files. In addition to the baseline service, banks offer several types of positive pay. Reverse positive pay presents all paid items to the corporate customer for self-service review. Positive pay ACH enables customers to create ACH debit blocks and debit filters, which the solution uses to evaluate ACH transactions. The solution also allows customers to add or remove ACH vendors or items in real time. The ACH solution also processes converted checks against the original issue information, generating alerts for altered, mismatched or duplicated items.
Despite most FIs charging businesses for positive pay services, the benefits justify the price tag. Positive pay allows institutions to protect themselves and businesses against fraudulent checks and electronic transactions. Additionally, positive pay cuts down on costs and time required to evaluate potentially fraudulent checks. Check fraud is not going away soon, necessitating the need for financial institutions to offer solutions that protect their small business customers. 
Todd Robertson is senior vice president of business development for ARGO. Contact him via LinkedIn at linkedin.com/in/todd-robertson-038b475.
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