If you use a payment card, it’s almost certainly happened to you: Standing at a point of sale (POS) terminal making a purchase, your smartphone buzzes with an alert from your banking app or a text message. It’s your card provider, verifying that you are, in fact, making that purchase at that location, for that amount. A quick ‘yes,’ the transaction is approved, and you are on your merry way. As consumers we have welcomed this type of fraud protection for our credit cards for more than a decade. I believe it’s now time to leverage existing communications channels to actively engage customers in protecting all payment types: P2P, ACH, wires (on the commercial side) and, most urgently, checks.
This blog explains how new customer communications for check fraud can be created with existing core systems and technologies, supercharged by the power of consortium data sharing.
Why checks need next-level fraud protection
If you are reading this blog, you are passionate about fighting fraud. But you might not be aware of how quickly check fraud has escalated. According to the Federal Reserve Bank of Boston, in 2023 check fraud was on track to cost banks $24 billion in losses, almost double the amount from five years ago. In a perfect storm that combines the pandemic, easily accessed check fraud tutorials and falling investment in legacy payment types, “Millions of new fraudsters were radicalized," Frank McKenna said in American Banker. "When the stimulus funds dried up, there was a whole ecosystem waiting for the next big payoff, and they turned to check fraud."
Similarly, a confluence of Regulation CC, a surge in fake bank accounts, and long NSF lag times has made it nearly impossible for banks to identify fraudulent checks until after these items have posted—and been returned.
But the outlook on check fraud is anything but bleak. Banks already have in place the core technologies, process automation and customer support for interactive check fraud communications that can help posting banks (banks of first deposit), depositing banks (banks where the checks are drawn) and customers all to avoid billions in future losses. Real-time data sharing in a multi-bank consortium is the supercharger that ignites this powerful tool in the fight against check fraud. Let’s take a look.
Check fraud customer communications: An example
Check fraud customer communications can look very similar to those for card fraud, with a few key differences from transactions that are real-time (cards), and those with lengthier time-to-post (checks). A mobile deposit example might look like:
- John has a check from Jane. John uses mobile deposit to put it into his account. Before it is accepted for deposit, posted to John’s account and the funds made available, the check goes through fraud review at his bank. The bank must accept or reject the deposit within a certain timeframe.
- If, during its fraud review, John’s bank has a question about the check because it looks potentially altered, or Jane never wrote a check to John, or other factors indicate it may be fraudulent, the check may be sent to Jane’s bank for fraud review. The clock is ticking.
- If, during its fraud review, Jane’s bank receives signals that the check may be fraudulent or otherwise unusual, as a baseline it could send Jane a message through her banking app or via text along the lines of: “Jane, we’ve noticed that you’ve written check #2172 to John for $1,000. We want to confirm this information is accurate.” Jane can indicate ‘yes,’ ‘no’ or ‘more info,’ setting the stage to stop a fraudulent check in its tracks before it posts.
Protecting PII while prompting recall
In the above scenario, the personally identifiable information (PII) of both John and Jane is protected; key information is provided about the check but not the check itself. However, Jane may have a joint checking account with her spouse as a second signatory. Jane knows she did not write the check to John, but maybe her spouse did. If Jane is unsure about the check she can choose ‘more info,’ to which her bank will respond by pushing a snippet of the check image via a secure banking app alert or text message. This image could be the right-hand half of the check image containing the check number, date, amount, part of the “To” line and the signature.
With this visual reminder, Jane’s recall can be prompted, allowing her to say with confidence whether the check is authentic or fraudulent. Her approval or decline of the check also serves as an additional verification for the bank, mitigating risk.
The power of a check fraud consortium
A check fraud consortium enables John’s bank to quickly notify Jane’s bank that it wants Jane’s check to be verified before posting it. It also addresses the fact that Jane’s bank owns this customer relationship and is her proper point of contact. However, John’s bank wants to send Jane’s bank the information to be presented to her. The check fraud consortium, through its data extraction and imaging capabilities, makes these information asserts available to both banks instantly—and can reduce check fraud detection timeframes from days to minutes.
Working collaboratively through the consortium, after Jane responds, her bank can notify John’s bank if the check is authentic or fraudulent. If the latter, this information can be immediately added to the consortium’s data set, to aid other banks.
It’s important to note that if Jane does not respond to her bank’s text message inquiring about the authenticity of her check, her bank’s fraud team can message her again via the banking app and call her directly. Banks’ current check fraud messages generally garner response rates of more than 50% but bank impersonation text scams are rampant, often necessitating multiple points of customer contact.
In addition to speeding time to verification, a check fraud consortium can further alleviate fraud teams’ workloads on both sides of the transaction. In our example, John’s bank can adjust its check fraud scoring algorithm to determine which suspicious checks are automatically diverted to the consortium for verification, lowering the volume sent to the fraud department for manual investigation.
Modernizing fraud detection for legacy payment types
While it’s true that check volumes are declining, checks still comprised 4% of all US transactions in 2022. Checks aren’t going away any time soon and check fraud certainly isn’t either.
I believe it’s time for all parties in the banking industry to take charge and connect the dots on check fraud, leveraging current investments in newer technologies (like banking apps and customer communications), and consumer preferences, to stamp out check fraud today. A direct approach that is proactive, preventive and engages customers improves their satisfaction with their financial services provider and, equally important, can eliminate billions of dollars of check fraud losses before they occur.
Check out my other insights and thoughts about check fraud and digital banking on LinkedIn and my page on Mitek’s Innovation Hub.
About Kerry Cantley - VP, Digital Banking Strategy at Mitek
Kerry Cantley is VP of Digital Banking Strategy at Mitek, leading the strategic expansion of Mitek’s Check Fraud Defender service, which detects forgeries and fraudulent activity across all deposit channels, otherwise missed by traditional fraud prevention protocols.