The not-quite-forgotten check

By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

Whitman publisher Dennis Tucker notes:

“Syngraphics is a term coined in 1974 by numismatist Gene Hessler and The Reverend Richard Doyle, chairman of the Department of Classical Languages at  Fordham University, to encompass paper currency and related items—printed checks, bonds, and the like. Hessler observed that coins had the logical term ‘coin collecting,’ and he was looking for one word to similarly represent paper-money collecting. (Numismatics is too broad, covering both coins and paper.) More recently, Neil Shafer, who wrote a monthly article for Banknote Reporter for nearly 40 years, has been using the term exographica—similar to exonumia (coin-like items such as tokens and medals) but related to paper money. Shafer defines the scope of exographica as paper items that are not regular currency issues, for example, checks and other fiscal documents, tickets for lotteries, railroad passes, depression and panic scrip, food-stamp change, coupons, receipts, bonds and stock certificates, and insurance forms. In this article David Lott, a payments risk expert in the Retail Payments Risk Forum at the Federal Reserve Bank of Atlanta, talks about ‘The Not Quite Forgotten Check,’ and how old-fashioned paper checks are being counterfeited today. From conversations with coin dealers, I know there are all sorts of shenanigans these days involving fake checks and check scams. Be on the lookout!”

When did you last write a check? Last month, I wrote my first check in almost ten years to send funds to sponsor an out-of-state friend for a charity event. This was after I failed to convince my Luddite friend to sign up for an electronic peer-to-peer (P2P) app so I could send the funds almost instantly.

That experience caused me to think a bit more about that somewhat forgotten payment method: the hand-written paper check. The triennial Federal Reserve Payments Study as well as the annual Diary of Consumer Payment Choice (DCPC) have consistently shown that check usage continues to decline. The 2020 DCPC revealed that of the average of 35 payments (including cash) made per month, 2.3 were made by check. The 2016 DCPC showed an average of 46 payments per month, with 3.3 of those using a check. While the share of overall payments made by check dropped by just about one-half of a percentage point, the absolute number of checks written dropped by 30 percent in just those four years.

With the decline in check usage, why are financial institutions and merchants seeing an increase in fraud losses related to checks? The simple answer is that checks are easy to counterfeit or alter. The industry has made efforts over the years to improve check document security, including techniques such as microprinting, holograms, embedded fibers, and tamper-resistant paper. Despite these defenses, most would consider the check to be “low tech” and, as this blog has often stated, criminals go for the low-hanging fruit, making checks ripe for the picking. Anyone with graphics software and a high-quality printer can readily turn out counterfeit checks. Blank check stock, some even incorporating the defenses mentioned above, can be purchased at most office supply and stationary outlets. The 2022 Association of Financial Professional’s Payment Fraud and Control: Key Highlights report noted “that check fraud remains the most prevalent form of payments fraud,” with two-thirds of their professionals reporting their organization had experienced some level of check fraud.

Losses from check fraud come in a variety of forms. I wrote about cashier’s check fraud scams in a recent post. Criminals often use money mule networks to cash counterfeit checks or to purchase with a counterfeit check merchandise that the criminal then sells at a discounted price. The criminal may deposit counterfeit or altered checks and then take advantage of the time gap between funds availability and when the check is returned after being identified as fraudulent. Check out this comprehensive guide to check fraud.

The industry is now seeing small to mid-size financial institutions and merchants targeted. To mitigate check fraud, the best action for both consumers and businesses is to monitor checking accounts closely to spot any unauthorized items posted to the account. For businesses, consider positive-pay software that automatically alerts you of incoming checks with altered amounts or checks that may have been counterfeited. For financial institutions, software that verifies document integrity or detects transaction data anomalies can be useful. For merchants, third-party check verification services as well as strong customer documentation will help minimize losses.

Although it may be another decade before I write another check, the prevalence of check fraud relative to check use suggests that Take On Payments will continue to highlight this topic and discuss the industry’s efforts to combat fraud.

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