How to Stop Check and Deposit Fraud with AI

Check and deposit fraud attacks are on the rise again. Reports of these attacks nearly doubled in 2022, fueled by the same methods fraudsters have been using for years. It may seem strange to hear that, as check usage has been in decline for decades. But while checks have taken a back seat to cards and real-time payments, check and deposit fraud still looms as a multi-million-dollar threat to financial institutions.

But unlike years ago, fraud fighters have an advanced tool that can catch check and deposit frauds in real-time—AI. To understand how it stops these frauds, we first need to look at how check and deposit scams happen today, and how AI catches and prevents fraud as a whole.

The Rise of Check and Deposit Fraud

The start of the check fraud revival came in 2020, during the height of the COVID-19 pandemic. Millions of US citizens received government relief checks in the mail, and fraudsters pounced on the chance to steal them. Using check fraud techniques like check washing and check kiting, fraud rings began lucrative deposit fraud rackets. The rise in check fraud also meant a rise in identity theft, as fraudsters needed to create synthetic identities to cover their tracks.

As the years have gone on, check fraud has only increased, first by 23% from 2020 to 2021, then close to 50% from 2021 to 2022, according to FinCEN. Things have gotten so out of hand that USPS has advised against mailing checks at all unless it’s absolutely necessary.

Fraud rings have taken to check and deposit frauds in large part because they exploit traditional shortfalls in the banking system as a whole. It’s difficult to track down check fraudsters, and the check itself gives the fraudster access to a lot of valuable customer information, all right there on the check.

How Check and Deposit Frauds Happen

Stealing checks is just the start of a check and deposit fraud scam. Here are the most common methods fraudsters use to commit both check and deposit fraud.

Counterfeiting

Counterfeiters use high-quality printers and specialty paper to create fake checks that closely resemble legitimate ones. These counterfeit checks, if convincing enough, are used for unauthorized purchases or bank withdrawals.

While the FTC offers a guide on how to spot, avoid, and report fake checks, the scams that surround them can be especially convincing. These usually rely on social engineering, like offering a job in exchange for depositing a check, or claiming the check is a contest prize. In every case, the fraudster will convince the victim to deposit this fake check and transfer some or all of the funds to them. Once the bank realizes the check is fake, the victim is often on the hook for the fraud losses.

Check Washing

To “wash” a check, criminals erase the ink on it using chemicals like acetone or bleach. Then, they can write in any new amount and payee. Because fraudsters only need a check with a signature on it to complete this scam, they will steal them from mailboxes and, in some cases, outright assault mailpersons delivering checks.

Check Kiting or Paperhanging

Check kiting takes advantage of the “float” time between writing the check and its deposit. Scammers write a check from an account lacking funds but artificially increase the amount before deposit to cover the shortfall. Once the check clears, the fraudster can get away with real money before the bank realizes the check will actually bounce due to insufficient funds.

Why Check and Deposit Fraud are Hard to Detect

Modern Technology Makes Checks Easier to Fake

High-resolution color printers, advanced graphics software, and easy access to specialty paper have all empowered criminals to craft convincing counterfeit checks. Combine that with access to stolen information from data leaks and fraudsters have the account details and signatures they need to forge checks.

Mobile check deposits are another exploitable technology fueling more check fraud. This means fraudsters don’t need to get actual checks. They can simply deposit the forged ones using digitally altered images or high-quality fakes.

Solutions can be Resource-Intensive

Combatting check and deposit fraud means adding safeguards in places checks move through. That could mean retrofitting USPS collection boxes in high-risk areas. It can mean better tracking of stimulus checks and other checks delivered by mail. Often it means training bank personnel to spot counterfeit checks. But today’s fraudulent checks are often so convincing that they can briefly deceive even seasoned professionals. As these detection methods work to catch up, fraudsters only improve their sophisticated methods.

Lack of Public Awareness

In the battle against check and deposit fraud, public awareness is a formidable weapon. FIs and law enforcement are spreading the word about check fraud’s rapid rise, and news outlets are helping amplify the message. But the sophistication of both fake checks and fraudsters’ social engineering schemes means that victims can still be tricked.

Detecting Check and Deposit Fraud with AI and Machine Learning

AI and machine learning play pivotal roles in the fight against check fraud. These technologies analyze vast amounts of transaction data in real time, identify patterns, and recognize anomalies. By learning from historical data, AI systems can swiftly detect suspicious activities and trigger alerts for further investigation. Unsupervised machine learning models can adapt and evolve to stay ahead of fraudsters, providing early warning systems for financial institutions. To detect deposit fraud, AI can analyze account behavior, transaction patterns, and even device data to identify potential irregularities.

Among AI-powered fraud prevention platforms, DataVisor stands out as the industry leader with the most robust solution for check and deposit fraud prevention. With its advanced AI and machine learning capabilities, DataVisor’s platform offers an effective shield against fraudsters. It utilizes a multi-dimensional approach, examining transaction behavior, device and account fingerprints, and network connections to uncover even the most sophisticated fraudulent activities. Real-time detection and adaptive learning make DataVisor an invaluable asset to financial institutions seeking comprehensive protection.

If you want to see the power of DataVisor’s award-winning platform for yourself, set up a personalized demo with our team today.