In a world where money can travel at digital speed through the cloud, the use of paper checks as a payment method continues to decline as it has for more than a decade. Yet, a recent survey by the Association of Financial Professionals (AFP) and JPMorgan found that checks and wire transfers are payment methods that are still the most impacted by fraud activity. In 2020, 66 percent of all payment fraud activity involved checks and more than 30 percent involved wire transfers.

This trend does not surprise fraud investigators and security experts. They believe the increased security of digital payments makes paper checks easy targets for criminals. Paper checks are easier to steal, duplicate, alter, and cash illegally.

Businesses Share Liability for Check Fraud

It gets worse for the victims of check fraud. Since 2016, the liability for bad checks has shifted away from the bank to the check issuer. For a business to seek restitution from a bank that pays a fraudulent check, it must demonstrate it exercised “ordinary care” in issuing the check. Even though banks must also exercise ordinary care when paying on checks, the courts have placed a more substantial burden on the check issuer.

Positive Pay is the Technology Solution for Check Fraud

1st Source Bank has an answer to this problem. We offer a technology solution that can catch fraudulent checks before they become a problem. By using Positive Pay technology, we can protect businesses against altered, forged, and counterfeit checks. Positive Pay is a fraud prevention system that checks the authenticity of a check’s account number, date, and dollar amount when it is presented for payment. The system provides business customers with the opportunity to reject a check if it is deemed fraudulent.

How Does Positive Pay Work?

When checks are presented to a bank, positive pay works in the background to verify their authenticity and then notifies the customer when it uncovers any inconsistencies. There are essentially three steps to the process.

  1. You send a check register file to the bank that includes check numbers, dates, and amounts for checks you have written.
  2. When a check is presented for payment, the bank’s electronic systems compares it with the information in your check register file.
  3. If a discrepancy or inconsistency arises between the presented check and the check register file information, the bank notifies you through an exceptions report and holds up the payment until you tell the bank to accept or reject it.

Bottom Line

Positive Pay is an effective way to stop criminals from cashing a fraudulent check using stolen account numbers or altering the amount or date of a check. It also includes another layer of protection, payee verification to ensure the payee’s name hasn’t been altered. This feature uses an optical comparison of the payee’s name in the check register file to the payee’s name on the check presented. If the name appears to be altered, the bank includes the check on the exception report presented to the customer.

With check fraud on the rise in the U.S., it is now essential for businesses to be able to track checks issued to suppliers and other payees. The costs to businesses in terms of bank fees, overdrawn accounts, rejection of other payments, and angry payees can never be justified when a technology solution is available to prevent them. Positive Pay is readily available at 1st Source Bank. Please give us a call if you would like to sign up or have questions.