The Green Sheet Online Edition
July 14, 2025 • 25:07:01
Combat check fraud with advanced detection technologies
Physical check usage has steadily declined in the digital era, yet check fraud remains a persistent, costly issue. U.S. financial institutions (FIs) have reported a staggering $1.3 billion (bit.ly/4kFxuAh) in check fraud losses, highlighting the severity of the problem.
According to a recent Federal Reserve survey (bit.ly/44xeCx4), checks and debit cards account for the highest levels of fraud and losses among all payment types. The report found that counterfeits, payee forgeries and check washing were primary drivers of fraud events in 2024.
Additionally, FIs noted an uptick in perceived physical forgery, compromised credentials and physical alterations. Check fraud is a glaring issue that requires FIs to seek additional resources and strategies for detection and mitigation.
Fraudsters gaining sophistication
Fraudsters are increasingly sophisticated, often conducting repetitive, small deposit account transaction fraud attempts. The size and frequency of these events make them difficult for FIs to detect and prevent, especially for institutions using legacy systems that fail to keep pace with more advanced fraud types.
According to the Fed's survey, counterfeits, washed checks and payee forgery are the most difficult for FIs to mitigate. Alteration fraud, a popular check fraud method, relies on "check washing" to modify checks for a new recipient and larger sum. This can often range from hundreds to thousands of dollars.
Sophisticated fraud calls for sophisticated countermeasures. Yet many FIs employ outdated systems that are prone to false positives and misidentifying transactions as suspicious. Thus, FIs spend time and money chasing and reviewing "good" transactions manually.
Addressing the fraud problem
Effectively combating check fraud requires solutions that implement real-time data to quickly respond to evolving fraud trends. Initiating fraud prevention at the point of disbursement, combined with automated verification and fraud detection at all points in the clearing process, strengthens an FI's ability to thwart fraud.
The cost of technology and resources might cause apprehension, but compared to potential financial and reputational losses from fraud threats, the investment is justifiable. Solutions should address all types of physical fraud across channels, and offer functions such as:
- Alteration detection: Uses AI "deep learning models" to compare check attributes and features against potentially washed or altered fields, giving institutions a major advantage. AI-driven solutions are trained on a large, diverse dataset of handwriting samples and can verify handwriting, particularly in a check's payee and legal amount fields.
- Transaction analysis: Applies tests at account and entity levels, measuring such things as account velocity, account volume, and deposits or withdrawals of unusual amounts.
- Check stock validation: Lets FIs access presented check images against historical, referenced check images, thereby validating consistency and accuracy of check stock. Effective software accurately identifies counterfeits in clearing and over-the-counter checks faster and more reliably than manual visual inspections.
- Signature verification: Allows FIs to analyze check signatures in detail using machine learning algorithms and sophisticated decision trees. This is accomplished by comparing digitized signatures to referenced images, managing multiple signatories on the same account, and monitoring items requiring dual signatures to validate check signatures on personal and business accounts.
By focusing on the signing action's dynamic aspects, including signature fragments, handwriting trajectories and geometric analytics, institutions can produce confidence scoring based on these aspects when comparing newly presented check signatures with previously saved images to determine matching and non-matching elements.
- Automated holds: Allows FIs to tailor thresholds and levels according to their business rules for: customer information, such as when the relationship was created; relationship based on segmentation; account attributes such as when the account was opened, number of NSFs, average balances, return items, etc.; item analysis, including real-time image fraud analysis, for on-us and transit items; channel variables, including ATM, mobile banking and OTC; conductor information; and geolocation to identify transaction locations.
As check fraud continues and grows more sophisticated, traditional approaches are becoming obsolete, making it crucial for FIs to adopt data-driven solutions that can quickly and accurately identify and mitigate fraud. 
As ARGO's senior vice president of business development, Todd Robertson works with the largest financial institutions and healthcare providers in the United States to demonstrate how ARGO solutions can transform customer experiences and improve operational efficiency. Contact him via LinkedIn at Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.
