US cheque theft surge requires better anti-fraud controls, education

Losses stemming from cheque fraud topped $21 billion in 2023, driven by an increase in cheque theft. The surge requires a rethink of anti-fraud measures designed to detect forgery, as well as customer education to discourage the mailing of cheques.

“Believe it or not, cheques are still the most popular payment mechanism for payments over $500,” said Uri Rivner, chief executive at Refine Intelligence, an anti-money laundering (AML) and anti-fraud compliance software company in Israel.

Cheque fraudsters shifted from forgery to theft during the Covid-19 pandemic. The government sent large cheques to households through the mail, inspiring organised criminals to steal them from mailboxes and work with US Postal Service (USPS) employees to steal on their behalf.

New methods

Bank tests look at signatures, sequence and numbering that can indicate if a chequebook is a wholesale forgery.  They donʼt work for cheque fraud, however, Rivner said.

“[Fraudsters] donʼt bother with changing the amount, or, obviously the signature on the cheque, or the sequence number. They just change the payee. And if they change the payee, the bank will not know why this would be any different than any other cheque that youʼre writing. Thatʼs extremely difficult to detect,” he explained.

Banks’ fraud teams use systems that flag up a lot of false positives and about 10% of these are escalated for further investigation. They might be routed to an operations team or a branch, which calls the customer. But even then, they tend to ask about the amount, not the payee. Banks should start by showing the customer a picture of the cheque.

“The customers are the best investigators. They can look at the cheque immediately and say, is it mine or not? Did I write it? Is the beneficiary correct? And they can immediately say pay, or donʼt pay, the cheque,” Rivner said.

He calls this approach intelligent customer outreach, which can start with a mobile phone push message to prompt the customer to inspect the payee and amount on the cheque.

Behavioural change

The most recent study of Americans’ payment habits using cheques, conducted by the Atlanta Federal Reserve, showed an 8.3% decline in the number written between 2018 and 2021, while the value of payments rose from $8.4 billion to $8.7 billion over the same period.

Businesses and consumers wrote about the same number of cheques in 2018 and 2021. Although the number written declined over the period, usage declined less among businesses, at -5.9% versus 10.5% among consumers.

Firms will need to educate customers and improve anti-fraud measures to mitigate cheque theft losses. They should inform customers about the risk of check fraud and promote easy-to-use alternative payment methods, recommended a report by US cyber security company Recorded Future.