Check Fraud in 2025: How Banks Can Fight Back

Despite the rise of digital payment methods, checks remain a significant target for fraudsters, posing a considerable challenge for financial institutions. Even in 2023, a substantial portion of B2B transactions (33%) still rely on paper checks, according to the American Bankers Association (ABA). This continued reliance makes checks an attractive target for criminals employing both traditional and sophisticated fraud techniques.

The consequences of check fraud are felt through financial and reputational losses. When customers fall victim to fraudulent check activity, it erodes the trust and affinity they have for brands that cannot provide a safe operating environment. As a result, it can severely tarnish a company’s brand image, it disrupts customer service and creates negative experiences, all of which lead to frustration and inconvenience. 

To combat this persistent threat, banks and other financial services firms must adopt a proactive and technology-driven approach to fraud prevention. This involves embracing automation and leveraging innovative identity verification and trust technologies. By integrating AI-powered fraud detection systems, enhancing identity verification processes, and utilizing risk-based behavioral models, financial institutions can effectively mitigate the risks associated with check fraud. 

This blog explores the challenges and solutions surrounding check fraud in the digital age. We'll explore the evolving tactics employed by fraudsters, examine the impact of fraud on financial institutions and their customers, and discuss how automation and leading technologies can help safeguard the financial system. 

What is Check Fraud?

Check fraud is a complex crime that thrives on deception and exploitation of vulnerabilities in our financial system. It typically begins with criminals establishing a network of fake bank accounts, often called "mule accounts," to hide their true identities. They achieve this by either stealing personal information from data breaches and assuming the identities of real people or by creating entirely new, synthetic identities by combining bits of real and fabricated data. The dark web, unfortunately, thrives as a marketplace for this kind of stolen information, making it readily available to fraudsters.

Once these fraudulent accounts are set up, the criminals need to acquire checks. This can involve purchasing stolen or counterfeit checks on the black market or resorting to more direct methods like stealing mail. Thieves may "fish" envelopes out of post boxes or even steal mailbox keys, leading to a concerning rise in violence against mail carriers.

With checks in hand, the fraudsters employ various techniques to alter them for their gain. They might use chemicals to "wash" the ink off stolen checks and rewrite them with new payee information and inflated amounts. Alternatively, they might simply forge endorsements or use sophisticated printing methods to create convincing counterfeit checks.

The final stage involves depositing these fraudulent checks. Criminals exploit various channels, including ATMs, mobile banking apps, and even bank branches, to quickly convert the stolen checks into cash. This allows them to disappear with substantial sums of money, leaving behind a trail of financial losses and eroded trust in the banking system.

The complexity and evolving nature of check fraud pose a significant challenge for financial institutions and individuals alike. It demands a multi-faceted approach to prevention, including robust identity verification measures, advanced fraud detection systems, and increased awareness among consumers and businesses.

The Evolving Landscape of Check Fraud

Check fraud is far from fading into obsolescence. In fact, it's dynamically evolving, adapting to digital trends and finding new avenues to exploit. While the classic image of a counterfeiter meticulously forging signatures is still relevant, today's fraudsters are leveraging technology and sophisticated tactics to perpetrate their crimes.

One of the most striking trends is the rise of digital-enabled check fraud. The convenience of mobile banking and remote deposit capture, while a boon for consumers, has also created new vulnerabilities. Criminals are adept at manipulating check images, using software to alter payee information or even creating entirely synthetic checks. Double-presentment fraud, where the same check is deposited multiple times through different channels, is also on the rise.

The dark web has become a breeding ground for check fraud activity. Stolen check stock, personal information from data breaches, and even tutorials on check washing techniques are readily available, lowering the barrier of entry for aspiring fraudsters.

Another alarming trend is the increasing sophistication of synthetic identity fraud. Criminals combine fragments of real and fabricated information to create entirely new identities, which they then use to open accounts, deposit fraudulent checks, and build credit before ultimately cashing out. This type of fraud is particularly challenging to detect as it often bypasses traditional identity verification methods.

The convergence of physical and digital tactics is also evident in the rise of mail theft and check washing. Criminals are increasingly targeting mailboxes to steal checks, often resorting to violence against mail carriers. They then use readily available chemicals to "wash" the ink off these stolen checks, rewriting them with fraudulent details. 

Let’s look at some of these trends in more detail:

Check Fraud Trends in 2025

Mail Theft and Check Washing:

• The Rise of Mail Theft: In 2023, the U.S. Postal Inspection Service (USPIS) reported a significant increase in mail theft incidents, many targeting checks. Criminals steal checks from mailboxes, wash the ink off using chemicals, and rewrite them for fraudulent purposes. 
• FinCEN Advisory: In September 2023, the Financial Crimes Enforcement Network (FinCEN) issued an alert highlighting the surge in mail theft-related check fraud, which amounted to over $688 million in losses between February and August 2023.

Counterfeit Checks and Check Stock Theft:

• Sophisticated Forgeries: Fraudsters are using advanced printing techniques to create counterfeit checks that closely resemble legitimate ones. They may obtain blank check stock through theft or purchase it on the dark web.
• Business Email Compromise (BEC): Criminals use BEC scams to trick businesses into issuing checks to fraudulent accounts. They may impersonate vendors or executives to authorize payments. The FBI explains this in more detail in their Internet Crime Report.

Mobile Deposit Fraud:

• Check Image Manipulation: Fraudsters use mobile banking apps to deposit altered or counterfeit checks. They may manipulate check images to change the payee or amount.
• Duplicate Deposits: Criminals attempt to deposit the same check multiple times using different accounts or mobile devices.

Social Engineering Scams:

• Romance Scams: Fraudsters develop relationships with victims online and then convince them to write checks for fraudulent purposes.
• Lottery and Sweepstakes Scams: Victims are told they have won a prize but need to send a check to cover fees or taxes.

These are just a few examples of the types of check fraud that have been prevalent in recent years. It's important for banks to stay informed about the latest trends and adapt their fraud prevention strategies accordingly.

The Anatomy of Check Fraud: A Step-by-Step Breakdown

Check fraud is a multi-stage process that exploits vulnerabilities in both the physical and digital worlds. Here's how it typically unfolds:

1. Creating "Mule Accounts"

To conceal their true identities, criminals establish numerous fake bank accounts, often referred to as "mule accounts." This involves either:

• Stolen Identities: Using personal information stolen from data breaches or other sources to open accounts in the names of real individuals.
• Synthetic Identities: Combining fragments of real and fabricated information to create entirely new, fictional identities.

The dark web provides a readily available marketplace for stolen data, making this step relatively easy for fraudsters.

2. Obtaining Checks

Criminals acquire checks through various illicit means, including:

• Dark Web Purchases: Buying stolen or counterfeit checks on online black markets.
• Mail Theft: Stealing checks directly from mailboxes, often resorting to "fishing" envelopes out of post boxes or even stealing mailbox keys. This has led to a disturbing increase in violence against mail carriers.

3. Altering and Depositing Checks

Once the checks are in hand, criminals employ several tactics:

• Check Washing: Using chemicals to erase the ink on stolen checks and rewriting them with fraudulent details.
• Forging Endorsements: Adding their own names as payees to stolen checks.
• Creating Counterfeit Checks: Using sophisticated printing techniques to produce fake checks that closely resemble legitimate ones.

The fraudulent checks are then deposited through various channels, such as ATMs, mobile banking apps, or even in person at bank branches. This allows criminals to quickly convert stolen checks into cash.

Check fraud results in significant financial losses for individuals and businesses, erodes trust in the banking system, and fuels criminal activity. It's crucial for financial institutions and consumers to be vigilant and take proactive steps to protect themselves from this evolving threat.

Check Fraud Challenges for Technical Decision-Makers

For fraud, identity verification, and compliance teams, all of this presents a unique set of challenges. How do you strike the right balance between robust security measures and a seamless customer experience? How do you stay ahead of emerging threats and adapt your solutions accordingly? And how can you effectively leverage advanced technologies to combat this evolving crime? Here’s what these challenges look like, in more detail:

• Balancing Security and User Experience: Implementing robust fraud prevention measures without introducing excessive friction into the customer journey is a critical challenge.
• Staying Ahead of Emerging Threats: Fraudsters are constantly developing new tactics. Technical decision-makers need to stay informed about the latest trends and adapt their solutions accordingly.
• Leveraging Advanced Technologies: Solutions like AI-powered fraud detection, machine learning, and real-time identity verification are crucial for effectively combating check fraud.

To address these and other challenges, financial institutions need to adopt a multi-layered approach that incorporates:

• Advanced Analytics: Utilizing data analytics and machine learning to identify suspicious patterns and anomalies in check transactions.
• Identity Verification: Implementing robust identity verification solutions to ensure the authenticity of check writers and payees.
• Real-time Fraud Monitoring: Employing real-time fraud monitoring systems to detect and prevent fraudulent activities as they occur.
• Collaboration and Information Sharing: Sharing fraud intelligence with other institutions and law enforcement agencies to stay ahead of emerging threats.

By investing in advanced fraud prevention and identity verification solutions, financial institutions can effectively mitigate the risks associated with check fraud and protect their customers and their bottom line.

How Can Banks Eliminate Check Fraud?

To effectively combat the persistent threat of check fraud, banks must adopt a multi-layered strategy that addresses vulnerabilities at every stage of the process. This requires a proactive approach that goes beyond traditional methods and embraces innovative technologies.

First and foremost, strengthening identity verification during the account onboarding process is crucial. Fraudsters rely heavily on "mule" or synthetic accounts to carry out their schemes. By implementing robust digital identity-proofing solutions, banks can significantly reduce the proliferation of fake accounts. This involves verifying the identity of new customers through multiple factors, such as mobile phone verification and document authentication, making it much harder for criminals to open accounts under false pretenses.

Secondly, banks should leverage risk behavioral models to assess the trustworthiness of transactions. Instead of simply trusting or not trusting a user, these models allow banks to analyze patterns and behaviors over time, limiting high-risk transactions until a customer has established a history of legitimate activity. This dynamic approach helps prevent fraud without unduly hindering genuine customers.

Building comprehensive "trust files" is another essential step. By collecting and analyzing data on check transactions, banks can develop sophisticated algorithms that identify suspicious patterns. This includes payee analysis, which flags unusual recipients, and out-of-pattern detection, which identifies checks that deviate from a customer's typical behavior. These tools provide valuable insights that help distinguish legitimate checks from fraudulent ones.

While hold strategies can temporarily delay fraud, they are not a long-term solution and can negatively impact customer experience. Instead, banks should prioritize improving their onboarding controls and investing in real-time fraud detection technologies. Artificial intelligence, for example, can play a crucial role in visually inspecting checks for alterations, counterfeits, and signature mismatches, enabling banks to identify and prevent fraud more effectively.

Finally, equipping bank tellers with advanced tools like driver's license scanning and fingerprinting technology can further enhance their ability to detect and prevent fraud at the point of transaction.

Deploying identity verification platforms like the Prove Identity^® solution is critical because fraudsters are always on the search for institutions that don't have proper digital identity-proofing in place and they even compare notes on Telegram and Reddit to let other criminals know where they've seen success or failure.

By embracing these strategies and investing in cutting-edge technologies, banks can significantly mitigate the risks associated with check fraud, protecting both their customers and their bottom line.

Want to share these tips with colleagues? Here’s a TL;DR version:

Check fraud continues to pose a significant threat to financial institutions, demanding a proactive and comprehensive approach to prevention. Here's how banks can strengthen their defenses:

Strengthen Identity Verification:

• Implement robust digital identity verification during account onboarding.
• Utilize multi-factor authentication to verify customer identities.
• Deploy identity verification platforms like the Prove Identity^® solution.

Implement Risk-Based Behavioral Models:

• Analyze customer transaction patterns to identify suspicious activity.
• Limit high-risk transactions until trust is established over time (e.g., 60-90 days).
• Dynamically adjust risk assessments based on ongoing behavior.

Build Comprehensive Trust Files:

• Collect and analyze data to create trust profiles for each customer.
• Utilize payee analysis to identify unusual or suspicious recipients.
• Flag out-of-pattern checks and transactions for review.

Re-evaluate Hold Strategies:

• While hold strategies can provide temporary protection, they can negatively impact customer experience.
• Prioritize improving onboarding controls and real-time fraud detection instead of relying solely on holds.

Embrace Emerging Technologies:

• Invest in AI-powered fraud detection solutions to analyze check images.
• Utilize machine learning to identify patterns and anomalies in check transactions.
• Implement real-time fraud monitoring to prevent fraudulent checks from being cashed.

While some may view paper checks as a fading payment method, the reality is that check fraud remains a significant challenge. However, this presents an opportunity for banks to take a proactive approach to fraud prevention. By investing in comprehensive identity proofing solutions, financial institutions can not only mitigate check fraud but also address a wider range of fraud vectors. This forward-thinking approach strengthens security for all banking channels and protects both the institution and its customers.

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