Banks on High Alert as Check Fraud Threatens New Deposits

The old-fashioned check looms as a 2023 flashpoint in the battle vs. the fraudsters.

Criminals steal checks from mailboxes. Enter the search term “check washing” into any search engine and headlines have massed over the past several weeks, citing businesses and banks that have been scammed.

In September, the United States Postal Inspection Service noted the rise of “washing” — where fraudsters take those checks, alter the details (payee names), and deposit them. In other cases, they use basic tech including copiers and scanners to make copies of the checks. Stealing checks from the mailbox (aka “mailbox fishing”) is also in favor.

And as noted recently via Bank Info Security, Frank McKenna, chief fraud strategist at Point Predictive, estimated that check fraud will reach at least $24 billion or more this year, up 50% from 2018’s levels.

Check fraud, of course, spans paper and digital channels. In the latter case, as detailed by PYMNTS, Ingo Money President and Chief Operating Officer Rusty Pickering and Chief Risk Officer Bill Roese discussed that there’s been a rising misuse of the digital account origination and remote check deposit features.

“Everybody is originating accounts digitally,” Pickering said. “It used to be you would have to walk into a bank lobby with your driver’s license and your ID and other identity verification documentation. Now it’s all done online, and everybody’s identity is available to be stolen and used to open accounts. You’ve just got a massive amount of fraud.” In many cases, “duplicate deposits” are proving to be a favored method of thieves – where the check is deposited digitally and in person somewhere else.

Making Money Mobility Safer

The rising fraud spotlights the vulnerabilities of money mobility – generally speaking, defined as the ease and seamlessness with which account holders move money in and out of accounts. Checks remain a vital component of money mobility.

In the case of the banks, joint research between PYMNTS and Featurespace shows that 50% of banks with assets of $25 billion to $100 billion have seen rising rates of check-related fraud. Across all banks, more than one-third have seen check fraud increase, as measured in 2022 over 2021’s levels.

The FinTechs have proven to be targets and will continue to be in the cross-hairs.

In the “FinTech Fraud Ripple Effect,” a collaborative effort between PYMNTS and Ingo Money, 50% of FinTechs already offer, or plan to offer, mobile check cashing; more than a third offer or will offer check deposit on location and/or check deposits at ATMs. But at the same time, these FinTechs lose about 1.7% of their annual top lines to fraud. The cost of battling that fraud is a significant challenge, and 19% of the FinTechs that find fraud-fighting a challenge say that their inability to guarantee deposits is the foremost factor limiting their money-in mobility.

“Technical constraints, a category that includes both organizational constraints and regulatory requirements, are FinTechs’ second-most pressing issue, and 32% of firms cite technical constraints as their primary challenge,” our study found.

As for the promise of using digital defenses to improve money mobility, among recent efforts is Ingo Money’s Inbound Digital Transfer and Risk Services application programming interface (API).

“Traditional banks that are moving into the digital realm and are opening new accounts online, the neobanks or the challenger banks or the issuers of all types in that space that are opening new accounts and looking to fund those accounts safely and experiencing fraud,” Ingo Money CEO Drew Edwards told Karen Webster at the time of the launch in last May.

In terms of mechanics, as Ingo Money processes transactions for clients, it collects customer risk attributes from the client and, in the background, watches for telltale signs of fraud. Along the way, Ingo Money offers a “fraud guarantee” that can be applied to all client firms’ transactions of classes of customers (such as new users).

As 2023 winds on, the humble check will be in the scammers’ sights – and the banks and FinTechs will need to bolster their efforts to protect consumers at the mailbox and across mobile channels.