Why are cheque frauds on the rise when cheque usage is actually declining?

April 30, 2021

Summary: The decline in cheque usage reflects the changes in the payments market as a result of technological innovations and customer preferences for faster, digital payments. Surprisingly yet, cheque frauds seem to be on the rise in recent times. Let’s dive deeper to understand why this is happening and how it can be prevented.

Cheque Usage and the Current Landscape Cheque usage has actually been decreasing for several years currently and also has actually been terminated in some European nations such as Sweden. In the UK, cheque use went down from 1.3 billion items in 2008 to 324 million in 2018, a substantial 75 percent decrease. France has actually seen a 9 percent decline in the previous year, with U.S. usage halved from 2003 to 2018. It had not been long ago that cheques were most likely to be delegated to a distant memory, while as that holds true in some nations, they are still going solid in others. Also, with all the fraud in real-time payments, cheque fraud seems to be picking up around the world. So, it might amaze you that there are currently considerable rises in cheque scams happening throughout the world. According to a leading financial publication, Imitations are up 159 percent to USD 52.3 million Imitation is up 88 percent to USD 8 million Fraudulently modified cheques are up 379 percent to USD 7.4 million.

Usual Fraud Types With regards to frauds, we are presently seeing the conventional types of imitations, made and altered, together with conversion. Various other scams consist of uncleared fraud, or else referred to as kiting. Counterfeits are where the entire cheque is fake, which will then after that be drawn against an account, and then funds eliminated prior to the fraud being noticed. Conversion is where a legitimate cheque is paid right into the account of a person who is not the desired recipient. Accounts might be made in comparable names or paid at another institution’s counter to credit an account at a third bank, to hide the mismatch. Altered & forged cheques are actual cheques created by the real client, yet either have the amount or payee alerted or the signature of the actual consumer forged with the various other aspects done by the scammer. Scams against customers are when the customer requires to return some of the funds sent out by the fraudster by cheque, typically using wire transfer. The cheque bounces later. Uncleared fraud or cheque kiting is where scammers abuse inequalities in the float/clearing cycle to take out funds from the recipient account prior to they bounce on the paying account. Such scams can be a one-off effort or a cycle of increasing quantities in between 2 or even more accounts. This can additionally entail misuse of remote down payment capture to pay the exact same cheque numerous times. This is a kind of first-party fraud.

Why is Cheque Fraud Happening? The decline in cheque use has actually minimized the rewards companies need to purchase brand-new modern technologies for cheques, whilst financial investments in protecting payment techniques that are expanding have actually increased. However not every little thing remains the very same. With the advent of image clearing, remote deposit capture and also faster-clearing speeds, we are seeing the fraudsters returning to assault, searching for weak points and also, unfortunately, finding them. It does not help that several customers have the understanding that cheques are more secure than online and mobile banking. Do remember that a cheque you send out unsecured includes your account information, name and also your handwriting as well as signature. As fraudsters proceed taking funds from FIs as well as customers, we will certainly see them abuse these gaps as well as try to find even more. Till substantial investments are made to shut these gaps, cheque scams will certainly keep growing.

How to prevent Cheque Fraud? Usually, FIs will either do image analysis to determine scams on the cheque itself, or they will perform some type of transaction analysis to look for fraud. Both of these are excellent choices individually, however, clubbing these 2 together can increase detection rates. Having the ability to use ML and also various other innovative analytics to the issue instead of basic guidelines will certainly help in reducing false-positives. Additionally, layering physical controls along with this, such as unique reference numbers or 2D barcodes, can be useful. Bringing cheque fraud profiling in together with various other fraud systems can also help, as richer data of client behaviour can produce better alerts. Concentrating not simply on cheques being paid away, but also on down payments can additionally assist detect cross-channel frauds. This type of integration additionally enables you to take advantage of investments made in various other locations. With a mix of strategies, FIs can remain ahead of both old and new kinds of fraud to safeguard their clients.