One of the Most Underutilized Bank Services: Positive Pay

In the 2002 biographical film, Catch Me If You Can, Leonardo DiCaprio plays Frank Abagnale Jr., a con man who allegedly between the ages of 16 and 21 cashed 17,000 fraudulent checks worth $2.5 million.  This claim is heavily disputed, Alan C. Logan, author of The Greatest Hoax On Earth, makes the point that, “[The] time [Abagnale] wasn’t in some prison or jail [between the ages of 16 and 21] amounts to about 14 months. Cashing 17,000 checks in that period is 40 checks per day.”  Whether Frank Abagnale Jr. greatest con was check forgery or getting Americans to believe his exploits may be debated but there is no debate that check fraud is a real problem for business.

Throughout civilization’s long history of paying for things, development of payment methods tends to be driven by a need for convenience and security.  Checks essentially came about as an alternative to traveling with sacks of coins.  Although checks may be more convenient and secure than lugging around a sack of coins, the payment method is fraught with fraud.  According to the Association of Financial Professionals (AFP) 2022 Payments Fraud and Control Survey, 66% of organizations reported being targeted by check fraud, making it the most common form of payment fraud.  Last year, the Financial Crimes Enforcement Network (FinCEN) issued an alert on a “nationwide surge in check fraud schemes targeting the U.S. Mail”.  The alert indicated that there were 680,000 cases of possible check fraud reported in 2022, nearly double the previous year’s cases.

Check fraud can be perpetrated by criminals through a variety of means including:

• Check Alteration:  Check alteration involves modifying a legitimate check to change critical details such as the payee, amount, or other information. Fraudsters may use chemicals to erase the original ink.
• Check Forgery: Check forgery occurs when someone signs another person’s name on a check without their permission. This can happen by stealing a legitimate check and forging the account holder’s signature or by creating a fake check with a forged signature.

• Check Theft: Thieves (which could be one of your own employees) may steal checks from the mail or your business. Once they have the checks, they may either alter or forge them to steal the funds.

• Counterfeit Checks: Check counterfeiting is a sophisticated type of check fraud where criminals create fake checks that closely resemble legitimate ones. Using advanced computer software and high-quality printers, counterfeiters can produce counterfeit checks that are nearly indistinguishable from the real thing.

Going back to the film Catch Me If You Can, Tom Hanks plays FBI Agent Carl Hanratty who through an all-consuming pursuit, finally puts an end Frank Abagnale Jr.’s fraud.  Tom Hank’s likely made millions for his role in the movie and the average FBI Agent’s salary is in the low six figures both of which are well over the average business’s budget for fighting check fraud.

Fortunately, your bank should be able to provide your business check fraud protection that is significantly better than a dedicated FBI Agent at no or minimal cost.  The service is known as Positive Pay.  Positive Pay is a feature of online banking that allows a business to track information from checks they issue and compare this information to checks that are presented to their bank for payment.  The system can compare the account number, check number, dollar amount and payee of each check presented against a digital list provided by the business of legitimate checks to protect against forged, altered or counterfeit checks. When information does not match exceptions can be generated.  When the information doesn’t match the check, the bank can notify the business through an online exception report, withholding payment until the company advises the bank to accept or reject the check.

According to the Mitek 2023 Mobile Deposit Benchmark Report, nearly one-third of small businesses in the U.S. were victims of check fraud in 2023 and 65% of small businesses affected by check fraud reported losses exceeding $50,000.  Despite this very real risk of loss to businesses, the PaymentsJournal reported in 2024 that only 30% of eligible businesses use positive pay.  Unfortunately, many business leaders are reactive to check fraud and don’t think about implementing Positive Pay until they have been the victim of check fraud.  Be proactive, talk to your banker about enrolling in Positive Pay.