Down But Not Out: Paper Checks Are Still Catnip For Fraudsters

If you’d have asked anyone 10 years ago about the state of the paper check in 2021, the answer might have come back in a single word:


But a decade later, even with the great digital shift well underway, the imminent demise of those paper payment instruments has been greatly exaggerated.

Consider this stat from the American Bankers Association: Check fraud accounted for 47 percent of annual deposit account losses pre-pandemic — equating to a more than a $22 billion hit.

As Michael Diamond, senior vice president/general manager of digital banking at Mitek, told PYMNTS, the situation has actually gotten worse as fraudsters were lured by trillions of dollars in stimulus payments and other government disbursements.

For a while, the trend has been going on where check use is declining, but in Diamond’s estimation, the pandemic has become “fuel on the fire” — particularly through mobile and ATM channels. As people shunned branches to embrace those contactless (or less-contact) settings, that’s to be expected, maintained Diamond.

For financial institutions (FIs) girding against fraudsters who always take the path of least resistance, Diamond likened it to a game of “whack-a-mole,” where the digital age and social media have combined to foster a web of geographically disconnected scams. Romance scams are one current example, where unwitting victims hand over checks or checking account details to a new purported love interest. There are even YouTube videos that show how to commit check fraud or launder money.

“These are sophisticated social media accelerants for the fraudsters, so that an attack or a scam that starts in the morning in New York is in Miami by lunchtime, and then the West Coast by dinnertime,” explained Diamond.

Against that backdrop, Mitek introduced its Check Fraud Defender, which leverages digital image capture, mobile deposit and identity solutions to detect forgeries otherwise missed by traditional tools. The service analyzes checks deposited from all channels — mobile, in-branch and ATMs. Diamond noted that many FIs had not made the investments in technology to battle check fraud that has been committed to other lines of defense. He pointed to the use of a cloud-based consortium model among banks to share data and help them determine whether checks are likely fraudulent or not.

“There’s a great opportunity for financial institutions to button up their ‘leaky bucket problem’ with check fraud by leveraging this image science, looking at the visual aspects of the check and spotting potential anomalies — and then diving in and looking at the check more closely,” said Diamond.

He pointed to Mitek’s recent acquisition of ID R&D, which focuses on biometrics and liveness detection, as another step to ensure that people are who they say they are.

Taken together, the range of tools to examine checks — as well as those who wield them — can reduce the alarming rate of erroneous alerts that plague FIs, and that require hundreds of false positives to discover one truly fraudulent check.

“This is also helping financial institutions hone their signaling and their insight into whether or not something is potentially fraudulent or not,” explained Diamond. “And that way, they get to focus their resources on the checks that really look bad instead of looking for a needle in a haystack of good checks.”

Looking ahead, he said, there are still billions of checks out there — and almost certainly, they will be around a lot longer than any of us expect.

As Diamond told PYMNTS of check fraud: “The fire was lit pre-pandemic and will very much continue to burn post-pandemic.”