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Partly in response to spiking check-fraud incidents, midsize corporations have accelerated their plans to transition to exclusively relying on digital payments. Ninety-four percent of middle-market firms are planning to phase out use of paper checks within the next five years, according to Citizens Bank, which in March surveyed 202 treasury executives at businesses with annual revenue of $50 million to $1 billion.
Less than a third of their organizations experienced payments fraud last year, but 91% said they were concerned about rising fraud, and a majority said they are increasingly turning to banks to support the growing use of digital payments for transactions via the RTP network, FedNow, Zelle and Venmo to help displace checks, Citizens said in a press release.
Check fraud continues to menace banks in part because of the ongoing decline in overall check volume, which caused banks to reduce investments in check-fraud surveillance while new forms of check fraud have emerged. Criminals are committing more
Instant payments are the fastest-growing category of digitization to displace checks. More than 90% of midsize corporations said they are using The Clearing House's RTP network and 77% are using FedNow, according to Citizens' survey, and most respondents are using both.
Midsize corporations' use of business-to-consumer instant payment networks like Venmo and Zelle also jumped last year, with 84% using them in 2023, up from 58% in the previous year, according to Citizens' survey, which showed an increase in payments technology across the board. The exception was in usage of wire transfers, which are also subject to rising fraud trends. Forty percent of midsize corporations are using wire transfers, down from 64% last year.
Despite these modernization moves and midsize corporations' plans to cut their use of paper checks, many other businesses have not signaled their intentions to eliminate checks in the near future, the Association of Financial Professionals concluded in its annual AFP Payments Fraud and Control Survey Report released this month.
In a survey of 521 corporate finance professionals the AFP conducted in January, businesses of all sizes are still using checks to pay employees, vendors and contractors; and 70% of organizations have no immediate plans to discontinue their use of checks in the next two years. Small businesses in particular are still relying heavily on checks, according to the study.
The AFP's survey also found that payment fraud is a top concern for all sizes of corporations, with 80% of survey respondents reporting that they were victims of payment fraud attacks last year, up from 65% in 2022.
Checks were the dominant form of payment fraud affecting survey respondents, with more than 65% of corporations saying that they were hit by check fraud last year, up from 63% in 2022, part of an ongoing spike in check fraud that began in 2017, according to the AFP.
Among all respondents to the AFP's survey, 75% said they still use checks in some capacity, and 34% said that more than a quarter of all of their payments are via checks.
Organizations with at least $1 billion in annual revenue were the biggest targets for check fraud last year, with 72% of respondents reporting attempted or actual check fraud, compared with 52% for organizations with under $1 billion.
Criminals steal all types of checks from the U.S. mail, including personal checks, business checks, tax refund checks and government-assistance checks, according to Fincen. But business checks may be more valuable because business accounts are often well funded and it may take longer for the victim to notice the fraud.
Attempting to block fraud in check usage is difficult for a number of reasons, according to Jim Mortensen, a strategic advisor in the fraud and anti-money-laundering practice group at Datos Insights.
"While the industry has tried to adapt checks to the digital ecosystem through Check 21 and remote deposit capture, these innovations did nothing to improve fraud losses and only seem to contribute to the problem," he said, noting that despite banks' expanded usage of image analysis and machine learning, the paper check structure is fundamentally flawed in 2024.
"The false positive rates on check fraud alerts are notoriously high, making the review process akin to looking for the proverbial needle in a haystack. Both businesses and financial institutions need to accelerate the move away from check payments with a longer-term goal of elimination," Mortensen said.
