Despite rallying cries like “kill the paper check,” this form of payment survived the pandemic digital shift, remaining popular as a form of mass disbursement — and a favorite of fraudsters.
In a talk with PYMNTS, Ingo Money President and Chief Operating Officer Rusty Pickering and Chief Risk Officer Bill Roese delved into how check fraud continues to thrive in the presence of — and in some ways assisted by — digital banking tools.
Pointing to one survey from 2019 showing that check fraud doubles about every two years, Pickering noted: “In 2018, there was $1.3 billion in losses from check fraud, and banks stopped about $14 billion in losses from check fraud. If you think about that, that was 2018, that was four years ago. Today those numbers are much, much larger.”
The culprit these days is a misuse of the digital account origination and remote check deposit features that make everything from bank apps to neobanks hot with consumers today.
“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.”
It’s a mix of local and international, with much of the truly organized criminal use of paper check coming from suspects in places like Nigeria and Eastern Europe.
Roese concurred, noting that COVID-19 stimulus checks were rich pickings for organized fraud rings, as well as more casual fraudsters who walk up to a neighbor’s mailbox and steal checks.
“When you talk about rampant, I think we’re just hearing about it more,” Roese said, “and the banks, I don’t believe, have the tools to focus on this type of fraud.”
The Anatomy of Check Fraud
While it’s true that consumer use of the old paper checkbook has dropped considerably with the digitization of payments and the aging out of those raised in a pre-digital world, it remains a primary form of payment for governments, insurance companies and other large institutions managing millions of dollars in disbursements to consumers.
“People think that checks are nearly extinct, but the fact is that there are billions of dollars still being deposited through checks,” Pickering noted. “The other factor that has really changed the game is remote deposit capture. A lot of banks didn’t make remote deposit capture available until the last two years, or they throttled it and prevented access to their customers or restricted access.”
That’s changed now to the point where remote capture is passing paper check deposits, and that’s proved an ideal growth medium for various types of check fraud.
Roese illustrated how this happens. “Imagine that you’re using remote deposit capture offered by your bank. You take a picture of the front and back of your check, but now you have the check. In prior banking experience, you would have turned that check into the teller. It’s almost a crime of convenience. Now you’ve got this check, you’re having trouble making your rent, so you deposit it again [elsewhere], or take it down to a check casher” and cash it a second time.
This “duplicate check fraud” is hard to stop, the pair said, and as often as not is committed by individuals and not savvy fraudsters who leave a bigger footprint and may be easier to detect.
But it’s still the sophisticated fraud rings behind most of it, and they’re getting better.
“You’ve got a lot of these new banks who really thought that … it is easy to manage check fraud,” Pickering said. “What everybody’s finding out is that the fraudsters are getting more and more sophisticated, they’re continuing to attack banks with different vectors, and check fraud’s not going down, it’s getting worse. I think the fraudsters are getting the upper hand.”
FIs Fighting Back
Both guests agreed on the misperception that check fraud is easy to control due to funds clearing policies and banking rules that hold funds until checks clear. Pickering said with remote capture a bank or FI may hold funds for up to three days, while in the duplicate deposit scenario it can take as long as 15 days for banks to catch the bamboozle.
“For counterfeit government checks, those checks return for up to six months,” he added, “so, just holding the money for a few days does not manage the fraud by any means.”
As the use of paper checks in retail settings has declined dramatically in recent years, it is ironically in the safeguarded banking space that most check fraud is now taking place, typically taking the form of fake checks, counterfeit checks and stolen checks.
It’s a real problem, and Ingo Money among others has dedicated an entire team to root out paper check fraud. Roese added that banks “need to be faster in detecting and mitigating check fraud. Fraudsters change their techniques very quickly and if you’re always being reactive, you’re going to get beaten badly.”
The holidays usually see an uptick in check fraud, they said, and it will be so in 2022. With the economy on the brink of a recession after a year of sky-high inflation, banks can expect an increased flow of fake checks and duplicate deposits.
There’s no easy answer, but Ingo Money’s approach of dedicating resources to identifying bad checks has caught tens of millions of dollars in these payouts, they said, while at the same time Pickering added, “We absorb and stop tens of millions of dollars of check fraud every year.”
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