In the digital era, one type of noncash and non-digital payment is still being used for transactions worth trillions of dollars across the globe.
If you guessed it to be bank checks, you are absolutely correct!
Accounting for approximately 21% of the overall noncash payments, checks cashed a total value of $27.23 trillion in 2021 for the US market.
The landscape of financial transactions is a continuously evolving one, and recent trends point to a notable shift in the usage and risks associated with check payments.
While the Federal Reserve Payments Study indicated a consistent decline in the overall number of check payments, with an annual reduction rate of 7.2% since 2018, the total value involved in these transactions remains substantial.
However, despite the decreasing use of checks, the threat of check fraud not only continues to persist but is also escalating. This is due to the high value typically associated with individual check transactions, which seems to have rendered them more susceptible to fraudulent activities.
Data from the Financial Crime Enforcement Network (FinCEN) underscores this concern, revealing a stark increase in Suspicious Activity Reports (SARs) related to check fraud. In 2021, over 249K such reports were filed, this number more than doubled to 501K SARs filed in 2022 and further went up to 528K SARs in 2023.
Source - SAR Stats | FinCEN.gov |
This increasing number of cases continues to create several check fraud processing challenges such as backlogs in check warranty claims, availability of funds and the average check fraud value doubling over the last decade.
For instance, Frank McKenna, chief fraud strategist at Point Predictive, had told the website BankInfoSecurity.com that he expected check fraud to hit $24 billion or more in 2023.
The types of check fraud schemes are diverse and complex. The following section delves into the factors contributing to the complexity of check fraud, highlighting their unique characteristics and the challenges they pose.
The rise in mail theft poses a significant threat to check security. Criminals, emboldened by a surge in incidents and the availability of master keys online, target mailboxes to steal checks.
This is particularly concerning given the recent increase in government payments delivered via checks, creating a lucrative target for fraudsters. For instance, on Feb. 27, 2023 FinCEN published an alert highlighting the nationwide surge in mail-theft-related check fraud. From March 2020 through Feb. 2021, the United States Postal Inspection Service received 299,020 mail theft complaints, an increase of 161 percent compared with the same period a year earlier.
There has also been a significant increase in armed robberies and assaults of U.S. Postal Service workers. The target? Their master keys, which can open mailboxes in building lobbies and those on streets.
Source - FinCEN published an alert
Stolen checks are traded in shadowy online markets, shielded by encryption and anonymity. This poses challenges for law enforcement and necessitates vigilance from financial institutions and consumers. Criminals exploit encrypted communication platforms to sell stolen checks without leaving a trace.
Counterfeit checks, often containing real account numbers, are fabricated to resemble legitimate documents. Fraudsters may advertise for "money mules" online, who then cash or deposit these checks using fake identities matching the payee information. Stolen checks can also serve as templates, with routing and account details copied to create new counterfeits.
The impact of check fraud extends beyond the immediate financial loss. Stolen checks can expose personal information, potentially leading to further identity theft and credit card fraud. This highlights the need for comprehensive security measures across all aspects of check handling and processing.
The good news?
We're not defenseless. By employing a multi-pronged approach, including trained specialists, global monitoring, advanced analytics, and AI-powered check verification tools, financial institutions can significantly reduce fraud and protect both themselves and their customers.
So how do we do that?
Coforge Fraud Engine
Our fraud engine performs validations on the scanned cheque images (handwritten or printed) using our Vision AI engine and helps raise fraud alerts with extremely high level of accuracy. Our tool can detect anomalies in
Our tool can be integrated with various banking applications via APIs/Data feeds with ease. Coforge SME expertise augmented with validations performed by our AI engine can significantly improve the detection of fraudulent cheques and assist in reducing false positives.
Check Fraud Verification Process Enhanced with the Coforge Fraud Engine
Enhancing Fraud Detection Efficiency: A Case Study by Coforge
Introduction: A leading regional banking client of Coforge BPS faced an $8 million annual loss due to counterfeit checks, lacking comprehensive fraud detection capabilities. With 50,000 daily checks, only 40% of alerts could be processed promptly. Challenges:
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Solution: Recognizing the urgency to address these challenges, Coforge embarked on a process re-engineering initiative. The key components of the solution included:
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Results:
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Follow the link to know more: Check fraud of ~$45MN saved over last 4 years for a Top 40 U.S. Bank
Coforge is a global digital services and solutions provider, that leverages emerging technologies and deep domain expertise to deliver real-world business impact for its clients. A focus on very select industries, a detailed understanding of the underlying processes of those industries and partnerships with leading platforms provides us a distinct perspective. Coforge leads with its product engineering approach and leverages Cloud, Data, Integration and Automation technologies to transform client businesses into intelligent, high growth enterprises. Coforge’s proprietary platforms power critical business processes across its core verticals. The firm has a presence in 21 countries with 26 delivery centers across nine countries.
Learn more at www.coforge.com