Fighting check fraud in 2025: Key strategies for financial institutions

In our modern age of direct deposit, digital wallets and peer-to-peer payment apps, paper checks can seem almost obsolete. But despite the proliferation of newer payment methods, check fraud still poses a major threat to financial institutions—and it’s on the rise.

While the overall volume of checks continues to decline, their average value remains significant. Additionally, checks are often preferred for high-value transactions, making them an attractive target for fraud. Banks and credit unions need to leverage modern fraud detection tools to address these persistent threats, prevent losses and protect account holders.

Criminal activity related to check fraud is on the rise

According to the Association for Financial Professionals (AFP), 65% of respondents to the 2024 AFP Payments Fraud and Control Survey Report said their organizations faced check-related fraud attacks in 2023. AFP’s survey also found that 80% of organizations were victims of payments fraud attacks or attempts in 2023, a 15 percentage-point increase over the previous year.

Unlike current digital payment methods, checks typically rely on older, less-secure technologies, including signatures—which are easier to forge or manipulate than other forms of verification. Fraudsters increasingly gain access to paper checks by stealing envelopes containing them from U.S. Postal Service (USPS) mailboxes or postal workers.

Cases of serious crime against postal workers and property doubled between 2019 and 2023, from about 600 to nearly 1,200 cases per fiscal year, according to a GAO analysis of U.S. Postal Inspection Service data. Robbery of postal workers, including letter carriers, grew nearly sevenfold in this time. In addition, AFP’s report found that fraud due to interference with the USPS was up 10 percentage points over the previous year, with 20% of respondents reporting this type of fraud.

After stealing checks, fraudsters typically do one of three things: chemically alter the original information through check washing, produce counterfeit checks that replicate genuine ones, or forge signatures to deposit checks fraudulently.

How financial institutions can fight back against fraud

With bad actors constantly devising new ways to exploit vulnerabilities, financial institutions need layered, proactive defense strategies to safeguard account holders. The following tools and tactics can help banks and credit unions combat check fraud:

• When a financial institution implements Payee Positive Pay, checks are inspected against the issuance file to ensure that the payee’s name matches the check presented. This highly effective measure provides an additional layer of security, helping financial institutions prevent fraudulent transactions before they clear. Teller line validation of on-us checks (a check that is deposited or cashed at the same financial institution from where it was written) also plays a critical role in catching fraudulent checks presented to be cashed at the branch.
• Check Positive Pay operates by verifying each check presented for payment against a list of checks previously authorized and issued by the company (a.k.a an issuance file). This issuance list or file includes essential details such as check number, account number, dollar amount, and payee name and is also available for teller line validation of on-us checks presented to be cashed.
• Reverse Positive Pay presents a report of checks that are clearing the account to validate the check number, dollar amount and payee.
• Banks and credit unions need educational messaging for both staff and account holders about security risks. For example, financial institutions should advise their business accounts to avoid sending checks through the mail and to avoid using dye-based pens for any handwriting on the check, such as the payee name, amount, or authorized signature. Encouraging the use of alternative, more secure payment methods, such as those available through digital banking, can significantly reduce fraud exposure. In a similar vein, financial institutions must be up to speed on the relevant regulations and timelines for recovering losses, as acting quickly can make a difference in mitigating the impact of fraud.

To tackle the pervasive problem of payments fraud, financial institutions must use a comprehensive, layered approach to fraud prevention to avoid reputational damage, financial losses, and regulatory consequences. Each type of positive pay—payee positive pay, check positive pay, and reverse positive pay—offers tailored solutions that enable institutions to address the unique fraud prevention needs of businesses, regardless of their size or complexity.

By deploying early detection and prevention tools, investing in education, and continuously adapting strategies to address evolving fraud schemes, financial institutions can more effectively mitigate fraud attempts before funds are moved. This proactive layered security approach is essential to safeguarding the financial ecosystem from check fraud and maintaining account holders’ trust.

Brad Cranford is Director of Product Management at Alkami.