How to Beat Check Fraud: Go Digital, Get Positive Pay, or Get Swindled

The business world faces a startling resurgence in check fraud. Once considered a declining threat, check fraud has roared back to life, with FinCEN reporting a staggering 385% increase in 2024. This alarming trend has caught many businesses off guard.

That’s a serious problem in business payments, as the ongoing reliance on paper checks can turn a $500 or $5,000 problem into a $500,000 nightmare.

The root causes of this resurgence are multifaceted. Firstly, the rapid digitization of financial systems has paradoxically made paper checks more vulnerable. As businesses fortified their digital defenses during lockdowns, fraudsters pivoted back to exploiting the weaknesses in physical check processing. Secondly, the persistence of paper checks in B2B transactions (still accounting for about 40% of business payments) provides ample opportunities for criminals.

Moreover, the technological advancements that make our lives easier have also empowered fraudsters. With sophisticated tools at their disposal, criminals can now intercept checks, alter them, or create convincing forgeries with ease. But perhaps the most significant factor is the false sense of security that many businesses have regarding their check processes. Many organizations continue to rely on outdated control measures, failing to appreciate the evolving nature of the threat.

This complacency has left them more exposed to check fraud schemes despite digital alternatives.

"It's a mystery,” said David Stifter, Founder and CEO of PredictAP. “Some people don't buckle their seat belt when driving. Some people smoke cigarettes. I think it's because something hasn't happened to them yet, so it's a theoretical” instead of a proven danger.

To protect B2B payments, he said, solutions lie in a multi-pronged strategy centering on digital systems, and implementing robust security measures for the few necessary check transactions that will continue, largely due to the flawed belief that checks offer control.

Digital Payments: The Future of B2B Transactions

Transitioning to digital payment methods is the most effective long-term solution to the check fraud problem. Electronic payments, such as ACH transfers and virtual cards, offer several advantages. Stifter said that with digital, “You're accruing a lot more benefit as far as speed of payment, security, and potential cost savings and potential rebates."

He added that digital payments and matching back office tools like AP automation offer:

1. Enhanced Security: Digital transactions leverage advanced encryption and authentication methods, making them significantly harder to compromise.
2. Faster Processing: Electronic payments are processed more quickly, reducing the window of opportunity for fraudsters to act.
3. Improved Traceability: Digital transactions leave a clear audit trail, making it easier to detect and investigate suspicious activity.
4. Cost-Effective: Over time, digital payments prove more economical than managing paper checks.

Positive Pay: A Crucial Safeguard for Check Transactions

For businesses that continue using checks, implementing the Positive Pay service is essential, in Stifter’s view. The Positive Pay fraud detection system offered by many banks matches the checks a company issues with those presented for payment.

Like the best solutions, it’s an uncomplicated fix in the complex maze of B2B finance:

1. A company sends a list of issued checks to their bank, including details like check number, amount, and payee.
2. When a check is presented for payment, the bank compares it against this list.
3. Any discrepancies are flagged for review before the check is cleared.

But while Positive Pay has been around for years, its adoption has been surprisingly low.

Stifter said reasons for that low adoption include a lack of appreciation for the risk and the perceived effort required to implement the system. But given the resurgence of B2B check fraud, the benefits of Positive Pay far outweigh the initial setup effort.

Modern banking systems have made it easier than ever to integrate Positive Pay into existing financial processes, requiring minimal implementation work for solid protection.

Steps Towards a Secure Payment Future

Looking at 2025 and the near future, Stifter said "There will be significant incidents of fraud facilitated by AI, which could drive more businesses to adopt modern payment systems."

It’s a costly way to learn a lesson, but he is convinced that Generative AI will be more useful to fraudsters than it is to fraud fighters in the short term. Until the industry flips that script, there are important considerations, especially for check-heavy verticals like commercial real estate, where PredictAP primarily operates.

To protect against check fraud and modernize payments, Stifter said businesses should:

1. Conduct a thorough risk assessment of current payment methods.
2. Implement Positive Pay for all check-issuing accounts.
3. Gradually transition to electronic payment methods, starting with the highest-volume vendors.
4. Invest in employee training to recognize and prevent fraud attempts.
5. Regularly review and update payment security measures.

As 2025 dawns, businesses must recognize that the check fraud threat is not just persisting: Stifter said “…it's evolving and growing.”

By embracing digital payment solutions and implementing robust security measures like Positive Pay, and by tapping into resources like tightly vetted closed-loop payment networks, companies can protect themselves from financial losses and position themselves for a more secure and efficient financial future.