Three Challenges for Banks in the New Era of Check Fraud

Paper checks no longer dominate daily transactions but remain critical for high-value payments. According to the Federal Reserve’s 2022 Payments Study, the number of checks processed in the U.S. fell from 14 billion in 2018 to 11.2 billion in 2021. Despite fewer checks being written, the total value rose to $27.23 trillion in 2021, about a 27% jump in average value per check, signaling their continued use for high-value payments, mostly in the commercial sector.

At the same time, check fraud is surging. According to the 2024 AFP Payments Fraud and Control Survey Report, 65% of organizations in the U.S. reported experiencing check fraud activity last year. Even more alarming, Suspicious Activity Reports (SARs) related to check fraud nearly doubled between 2021 and 2023, signaling a growing crisis.

Banks must navigate the perfect storm of shrinking check volumes, increasing check values and escalating fraud. In this new era of check fraud, three major challenges have emerged, pressuring banks to react efficiently and effectively.

Balancing Risk Assessment With Operational Efficiency
The rise in high-value checks is pushing banks to enhance verification and risk assessment protocols to ensure the security of these larger transactions. The challenge is balancing these new requirements without slowing down operations, which might frustrate customers and/or expose the bank to costly repercussions.

Maintaining Fraud Prevention Under Increased Scrutiny
Fewer checks being processed overall can lead to banks scaling back on check-processing infrastructure and specialized talent, potentially exposing gaps that fraudsters may explore. At the same time, regulators are increasing scrutiny on fraud mitigation efforts, expecting banks to maintain strong controls despite the declining volume of checks. This forces banks to do more with less, safeguarding check fraud with more rigor than ever with fewer resources and expertise.

Keeping Pace With Evolving Threats
While traditional check fraud methods, like forgery, check washing, counterfeiting and unsecure mail systems are well-known and actively combatted by banks, fraudsters continue to evolve these tactics. For instance, check washing now often involves digital manipulation or advanced chemical methods to erase and alter check details. A Federal Reserve Bank projected that losses from check washing would reach $24 billion in 2023. Banks must remain vigilant and pay closer attention to emerging fraud trends with phishing, mobile deposit fraud, check fraud kits sold online, altered screenshots and synthetic identity check fraud. Continuous training for staff to recognize and combat these evolving threats will be crucial.

Artificial intelligence is a critical tool for banks in this new era of check fraud. According to the U.S. Department of the Treasury, enhanced fraud detection processes using AI have helped the agency recover over $375 million in fiscal year 2023.

As fraud tactics evolve and regulatory demands grow, a trusted partner with proven technology is key to staying ahead of fraud. Today’s advanced platforms can process over 25 million checks daily with exceptional speed and accuracy, reducing fraud transactions by 90%, all without slowing legitimate transactions. Leading solutions with optimized algorithms can run two to three times faster than industry standards, allowing banks to verify high-value checks in real time and cut processing costs by up to 95%. These systems also go a long way to eliminate false negatives and positives, helping banks make smart and informed decisions that follow their unique fraud guidelines. Moreover, leading systems also include self-learning capabilities along with continuous optimization and updates, helping banks stay ahead of evolving threats by adapting to new fraud patterns in real time.

Being able to identify fraud either in real time or early on is key to stopping fraudsters and maintaining a secure reputation. The cost of inaction is high, both in dollars and in reputation. By embracing smarter tools, stronger partnerships and more secure processes, banks can better protect themselves and their customers from the new era of check fraud.