By Tim Vanderham, Chief Operating Officer at Featurespace, A Visa Solution
Checks are an ancient form of payment with beginnings tracing back to the Roman Empire – but demand for these payments shows no signs of abating.
The North American reliance on checks may seem like an outlier to global onlookers but it remains a huge contributor to the financial system. In the US alone, the latest Federal Reserve figures show that over 11 billion checks are deposited each year – a total transaction value of $27.44 trillion.
This remains a major issue across North America. Research from 2023 shows there were 30 checks per person in the US whilst Canadians cash eight checks a year on average; that’s four times as many as in UK, where it is as low as two checks per person per year.
I understand the importance of checks having grown up in rural South Dakota, where paying by check was a daily occurrence – this continues to be the case for many in rural America.
In some areas, broadband access and phone signal remain relatively limited, making online banking unreliable and hugely challenging. For a proportion of the population who are disconnected, paper feels safer and more reliable than digital payments. Here, checks are king.
However, reliance on checks is also making millions of people potential targets for fraudsters. Our research shows that over half (54%) of US consumers say they have seen an increase in check fraud attempts in the last 12 months, and tackling check fraud is becoming a major priority for banks and other financial institutions. Three quarters (73%) of US financial institutions believe check fraud is one of the biggest fraud challenges they currently face whilst almost eight in ten (77%) say preventing check fraud has become a bigger priority in the last 12 months.
The continued important role checks play in the wider payments system has led to eight in ten (80%) US financial institutions increasing investment to tackle check fraud this year.
The global impact of check fraud and its key role in payments
Check fraud takes many forms – stealing checks from the mail and changing the payee, generating fake checks with unique numbers using AI – even grooming vulnerable people to cash in checks at banks to take money from accounts.
Not to be dismissed as solely a North- America issue, both consumers and financial institutions globally should be paying as close attention to surging fraud in this area as they do other types of payments fraud. Check usage remains high in other global markets too – France, for example, cashes 16 checks per person on average – and this form of payment still accounts for trillions of transactions globally.
Check fraud inevitably feeds into the global payments landscape. For example, we might see a fraud in which there is money wired to one account, paid out as cash using a fraudulent check, cash then paid into another account before being wired overseas. A fraudulent check paid into a bank in rural America or Canada can be linked to major global crimes such as money laundering, human trafficking and the drugs trade just as much as credit, debit or crypto fraud.
It is vital that check fraud is no longer seen as an isolated issue, but as part of an interconnected and international web of payments.
Is an AI approach the answer to tackling global payments fraud?
Payments fraud will continue to be a global issue, and how the financial industry fully adopts AI to tackle it will be key in the fight against fraud. When it comes to check fraud, the answer lies in removing the vulnerabilities fraudsters could exploit rather than trying to force consumers away from checks.
This might be an old type of fraud, but it requires a new type of technology to combat it.
At Featurespace, a Visa solution, we developed Adaptive Behavioural Analytics to enable financial institutions to tackle fraud more effectively. This approach analyzes billions of transactions to create a full picture of an individual’s spending behaviour across payment methods – whether that be check, credit or debit card, or account-to-account payments. By building a framework that understands ‘good’ behavior, anomalies are easier to detect and prevent.
Featurespace’s check fraud detection solution also combines both transaction monitoring with forensic check image analysis to provide financial institutions with a robust solution that effectively tackles check fraud globally.
Results suggest that AI gives financial institutions an edge in the fight against check fraud. One major US credit union cut its check fraud losses by over 90% over two years by integrating an AI approach whilst reducing overall fraud alert volumes by 35% and seeing a 15% increase in fraud capture rates as its anti-fraud efforts not only became more streamlined but also much more effective.
Eight in ten (82%) financial institutions have already integrated AI into their security measures to combat payments fraud – those who have not yet turned to adaptive fraud prevention risk putting themselves at a competitive disadvantage.
This approach enables banks to continue to adapt to changing behaviours, and spot out of character transactions in real-time, without having to build new rules every time a criminal tactic emerges. Many financial institutions have been integrating an AI approach for a decade or more to ensure they continue to stay one step ahead of the increasingly sophisticated tools fraudsters are using.
The same approach is needed whether financial institutions are looking at transactions made using cards, digital payments or checks – because they are all part of one connected system.
Our platform provides a unified view of an individual’s transaction activity across a range of payment methods. Rather than integrating multiple fraud solutions for different types of fraud, banks should be bringing them together in one platform to enable them to tackle all types of fraud before it happens.
North Americans are not going to stop using checks any time soon. Fraudsters continue to target checks because they’re seen as an easy target. Thinking about them as part of the entire payments ecosystem, and using AI to spot when they are being used to steal money, increases confidence not just in checks, but in the banks that issue them and the payments system that continue to play such an important role.
Research conducted by independent research agency Opinium – research of 2000 US adults (weighted to be nationally representative) and 500 Senior decision makers in banks and financial institutions in the US between 22nd August – 5th September.
