What Check Fraud Can Teach Banks About Preparing For The Instant Payments Future

Check Fraud And Preparing For Instant Payments

If there was a handbook for how to become a successful fraudster, the first sentence of the first chapter would go something like this: “Go where the money is.”

Perhaps that’s why, in the midst of the seemingly never-ending stream of headlines about data breaches, account takeovers, stolen credit cards and online fraud, the notion of “check fraud” seems something of an outlier for the up-and-coming fraudster looking to make a decent living.

But it’s an outlier that, according to the FBI, has racked up more than $18 billion in losses last year in the U.S. and has hit about 70 percent of all organizations in the country.

It seems fraudsters have found a rich vein that exploits the same technology deployed by banks to make cashing checks less of a hassle for their customers, enabling remote mobile check deposits tied to their digital banking apps. Check fraud has become increasingly sophisticated and digital, just like every other form of payment fraud over the last decade.

Ingo Money CEO Drew Edwards told Karen Webster during a recent conversation that he’s not at all surprised.

“Mobile check capture fraud is now escalating so badly that some banks are thinking about shutting it off, because the losses just aren’t worth it,” he noted.


It’s a channel that has now become a huge headache for banks (particularly the big banks), Edwards said, by racking up fraud losses that he described as “just plain scary,” and which he saw and lived through a decade or more ago.

It’s why he is emphatic that understanding the “how” of check fraud via digital channels like mobile remote deposit is what will ultimately lead banks to the “why” and “why now” of instant payments.

And the death of checks – sooner rather than later.

The Whole New World of Check Fraud

Fraudsters, like any other professionals in the digital age, take their craft seriously and are now using technology to do more with less. That means not only going where the money is, but also using innovation to find the shortest path to the vulnerabilities to access those funds.

As Edwards told Webster, checks accomplish both of those. And remote deposit technology simply turbocharges those vulnerabilities.

Here’s how.

A customer gets a call or an email from a firm that says it’s working on a mobile check capture software pilot with their bank. As part of a research study, they are asked to take a $500 (obviously bad) check, take a picture of it with their phone to deposit to their bank account and then use Zelle to immediately transfer $250 back to them. The consumer thinks he or she is getting a cool $250 for a few minutes of work. The fraudster is then $250 richer, and a day or two later, the consumer and the bank are trying to figure out who’s responsible for eating the loss.

Should the customer know it’s a scam? That’s a tough question. Fraudsters can be very convincing, Edwards noted, and very skilled at sounding official. And consumers sometimes run into hard times. Approached with the prospect of easy money, they may not use quite as much critical thinking as they otherwise would. Fraudsters count on that, he pointed out. And as long as enough consumers fall for those tricks, fraudsters will keep teeing them up.

Mobile Check Capture Circa 2009

As Edwards told Webster, he’s really not that surprised to hear stories like these.

Check fraud – and, more importantly, how to avoid it – is more or less the DNA of the Ingo business. Before Ingo became the instant money platform that could route funds in real time to more than 30 different endpoints – bank accounts, digital wallets and debit, credit and prepaid cards, for some 300 brands – its business was all about turning paper checks into instant digital funds for consumers.

The Ingo app lets consumers take a picture of a check and get instant, irrevocable access to those funds instead of standing in line at their bank or check casher. Ingo’s tech and risk engine was built to determine, with precision, whether that check was from a legitimate payor with sufficient funds or not. Staying in business meant getting that right a whole lot more often than getting it wrong.

That experience, Edwards told Webster, is what helped ignite the Ingo Money Network a decade or more ago. Ingo’s technology for locking out fraud from its own remote check cashing business has also helped a host of FinTechs keep their own fraud in check.

It’s perhaps a little-known fact that about 10 years ago, one of the early instances of mobile check capture technology wasn’t from the big banks, but from PayPal.

“When it was a niche thing for PayPal customers, they had no issues,” Edwards said. “Then, once the big banks started adopting it, and TV commercials advertised the slick new mobile banking capability, the crooks started to notice. And [check] fraud went through the roof.”

The fraud rates that had previously been manageable suddenly spiked – so much so, in fact, that PayPal shuttered the service for a while.

Edwards noted that Ingo gave them access to their instant check cashing mobile money platform to help improve their own mobile check capture feature. In those early days, Ingo worked with many up-and-coming FinTechs and alt banking firms – many of them were prepaid card firms that wanted to accept funds from the checks consumers received from employers, governments and other parties.

“That was the start of the Ingo Money Network,” Edwards explained, adding that over the last decade, the Ingo platform has locked out most of the check fraud issues for 300 FinTech brands.

But with the FinTechs and security players deepening their moats with better data and AI, the bad guys are now doing what they do best: looking for a more vulnerable target.

And in an odd reversal of fortune, that is the traditional bank.

Learning the Right Lessons 

Naturally, shutting down mobile remote deposit is an extreme option, and not the favored one. In his conversations with banks, Edwards is hearing of their growing interest in extending availability – making consumers wait even longer for access to those funds.

In giving consumers this “anti-instant” option, he noted, the “direction of innovation is being pulled westward.” As long as firms like PayPal are offering secure infrastructure to support instant and safe access to remote check deposits, traditional banks can’t just opt out or start offering a deeply handicapped version of a service customers clearly want.

“They need to think about checks today, the way they will have to think tomorrow about push payments,” Edwards said. That means putting a system in place to help isolate and identify the organized fraudulent activity – and then shutting it down. And that, he said, takes a network that has access to activities across its entirety.

Edwards told Webster the story of examining a bank partner’s mobile deposit security data and seeing that they had cleared 187 different checks, all drawn on different accounts, that had all come from the same apartment. A network and system that can tap into that intelligence will detect this as an obvious problem and start flagging those transactions instead of letting them go through.

It’s a system and a lesson that becomes even more relevant as the push for instant funds gains traction, Edwards noted. The long-term solution to the check fraud problem is to kill the check and replace it with instant digital disbursements that are cheaper and more secure for the payor, the payees and the banks.

But getting from here to there can’t take the mobile check deposit path of finding technology that can perform instant disbursements and then assuming everything will be just fine.

“Banks and corporates can just say ‘I’m going to connect to this rail or that rail without figuring out how to manage the new fraud risks that come along with it,’” Edwards said. “They have to think about those plans while keeping an eye on the crooks – and then coming after them at scale.”

Unlike checks, instant payments is, well, instant – and irrevocable. There is no option to extend availability. And once banks move into the wider world of use cases for instant disbursements, they must be better prepared for the fraudsters in all the ways they weren’t with mobile check capture.“And the fraudsters will definitely show up,” Edwards warned. “Once this is out there and advertised as an exciting new feature on television, you can be certain crooks will come in massive numbers to see how much of this they can capture.”