Positive Pay is increasingly becoming an essential tool in banking, especially as financial institutions face growing threats from check fraud and identity theft. As banking evolves, fraudsters' strategies also evolve, making it imperative for businesses to adopt proactive solutions like Positive Pay.
At Mitek, our extensive experience and deep expertise in digital identity verification and fraud prevention positions us uniquely to explore and explain the intricacies of Positive Pay. Our trusted solutions have empowered numerous financial institutions in leveraging Positive Pay effectively, helping them maximize its benefits while successfully mitigating risks associated with check transactions.
In this blog, we'll demystify Positive Pay—clarifying what it is and how it operates. We will explore the benefits, examine potential challenges, and explain how Mitek’s advanced solutions like Check Fraud Defender enhance traditional Positive Pay services. With the right understanding and strategies provided by Mitek, businesses can confidently navigate this powerful fraud prevention tool and secure their financial transactions.
Why is Positive Pay still used today?
Despite the shift to digital transactions, payment fraud—particularly check fraud—continues to escalate. In 2024, check fraud became the most common type of payment fraud and is a major threat to banks and consumers alike. According to the 2024 AFP Payments Fraud and Control Survey Report, 65% of organizations reported check fraud activity last year.
In this environment, banks and financial institutions continue to lean on technologies like Positive Pay for combating fraud and ensuring the financial security of individuals and businesses alike.
What is Positive Pay?
Positive Pay is a solution designed to detect and prevent fraud in check and ACH transactions. By proactively validating transaction details, Positive Pay ensures that only authorized payments are processed, safeguarding funds and protecting institutions from financial loss.
How does Positive Pay work?
Businesses provide their financial institution with details of checks issued, including check numbers, amounts, issue dates, and payee names. When checks are presented for payment, the financial institution automatically cross-verifies each check against the provided list. The system flags any discrepancies—such as mismatches in check numbers, amounts, payees, or stale dates—allowing businesses to review these exceptions and decide whether to approve or reject payment. This proactive verification process helps prevent unauthorized or counterfeit checks from clearing, protecting businesses from financial loss.
Types of Positive Pay
Positive Pay solutions play a vital role in protecting businesses from check fraud. They are available in multiple forms, and each type offers a different level of protection - enabling businesses to choose the option that best fits their operational needs and risk tolerance.
Here’s a breakdown of the three main types of Positive Pay solutions used in banking and fraud prevention today.
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Payee Positive Pay - Payee Positive Pay provides protection by verifying details such as the payee name, amount, serial number, routing and account numbers, and check date. This detailed verification helps prevent fraud related to changes in payee information - one of the most common types of check fraud. For businesses looking for the highest level of protection, this is the option we recommend.
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Standard Positive Pay - Standard Positive Pay matches the check’s amount, serial number, routing and account numbers, and check date. It’s effective for catching mismatched values and altered amounts, but it doesn’t verify the payee's name – leaving a potential gap if a check is changed to redirect funds to a different recipient.
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Reverse Positive Pay - Reverse Positive Pay gives businesses more responsibility over fraud detection. After the bank automatically matches checks to issued records, it sends the business a list of checks that did not match. The business would then be responsible for deciding if the items are accepted or not. While this gives the business more control, it also requires consistent monitoring and quick action to prevent fraud.
Benefits of Positive Pay in banking
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Enhanced security: Protect accounts by ensuring only legitimate checks and ACH transactions are processed
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Proactive fraud prevention: Stop altered, counterfeit, or unauthorized transactions before they impact accounts
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Competitive differentiation: Stand out by offering comprehensive, commercial-strength fraud prevention tools
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Liability reduction: Mitigate the financial and legal risks associated with fraudulent transactions by employing proactive verification measures
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Strengthened relationships: Build trust by offering businesses a dependable fraud prevention solution
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Operational efficiency: Reduce manual fraud investigations and streamline transaction verifications
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Market leadership: Position your institution as a leader in advanced fraud prevention, enhancing customer loyalty and acquisition
Problems with Positive Pay
While Positive Pay is a valuable tool for preventing check fraud, it's not without its challenges. Here's what businesses should keep in mind:
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Reliance on accurate data: Positive Pay works only as well as the data you provide. If there are errors in the issued check file, legitimate checks might get flagged as exceptions, causing unnecessary delays. On the flip side, if a fraudster manages to produce a check with details that match your records, it could slip through the system undetected.
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Time sensitivity and operational load: To catch fraudulent checks, businesses need to review exception reports quickly and in a timely manner. Missing this step could result in unauthorized checks being processed. This requires a dedicated team or individual to stay on top of the process, adding to the operational workload.
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Managing exceptions: Minor discrepancies can sometimes cause legitimate checks to be flagged as exceptions, resulting in exceptions or "false positives." When this happens, it can disrupt day-to-day operations and delay payments—frustrating both businesses and their partners.
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Not a one-size-fits-all solution: While Positive Pay offers strong protection against check fraud, it doesn’t cover all types of threats. Electronic payment fraud, internal fraud, and evolving tactics used by scammers remain potential vulnerabilities. Businesses need a multi-layered approach to fully safeguard their finances.
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Cost: Financial institutions typically charge for Positive Pay services. These costs can vary and should be factored into a company's operating budget to avoid surprises. Adding to the business case, you can reduce the cost associated with working exceptions and the time to set up.
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Dependence on internal controls: Even with Positive Pay in place, strong internal controls are essential. The system doesn’t protect against insider threats or fraud that occurs before a check is even issued. Businesses need robust processes to minimize these risks.
This legacy technology isn’t as invested in as modern check image analysis. With a cutting-edge team, and years of experience with check deposits, Mitek can add image analysis and dark web monitoring on top of positive pay – giving you a more robust fraud fighting solution.
Reduce exceptions causing manual review
Working the first round of these (scrubbing) then push back to customer to resolve. They have to log in to their portal and manually check. A top 3 bank in the US have utilized Mitek advanced computer vision and extraction to reduce the number of exceptions by 75%. By adding new technologies and monitoring the dark web we are looking at the account level – allowing us to be more proactive with threat signals to determine if an account has been compromised.
Enhancing Positive Pay with Check Fraud Defender
Mitek’s Check Fraud Defender solution can enhance Positive Pay services for financial institutions who are aiming to safeguard their operations, reduce fraud liability, and build lasting trust with commercial clients. If you’d like to learn more about how Mitek’s Check Fraud Defender or direct Positive Pay solutions can empower your institution to stay ahead of the fraud curve, reach out today. In addition, if you are already a Check Fraud Defender customer, Mitek can help you implement Positive Pay faster, since you can skip sending in voided checks to set up your instance, which can reduce set uptimes from 2-4 weeks down to days.
Learn more about how Check Fraud Defender can help your business
About Barry Hall - Senior Programs Manager at Mitek
As senior programs manager at Mitek, Barry brings deep experience and expertise in fraud detection. Before Mitek, he spend 14 years at Bank of America in performance engineering roles. Barry has been a leader in technology since the early 90s. He has designed, built, implemented, and supported multiple image technology solutions for payments, remittance systems, item processing, account reconcilement, and fraud detection where he holds more than 25 patents. Barry is deeply knowledgeable about current fraud trends and how financial institutions are solving those problems, today.