Positive Pay Can Reduce Fraud, So Why Are Adoption Rates Low?

Renowned Canadian magician Dai Vernon was so skilled in sleight of hand that he once fooled the legendary Harry Houdini, who could not detect how the trick was accomplished, even after watching Vernon perform it multiple times. Vernon and other magicians perfected the art of misdirection, making coins vanish or cards appear in impossible places — all while the audience’s eyes were fixed on the wrong thing. Their tricks relied on one crucial insight: if you control where people look, you can convince them that reality is something entirely different.Unfortunately, today’s fraudsters are just as clever, but their audience is far less entertained. Instead of dazzling with illusion, they use tactics like check washing, playing on distraction and trust to make money disappear from business accounts. Payment fraud has become an especially big problem in the last several years, according to Nasdaq Verafin’s 2024 Global Financial Crime Report, resulting in losses of $21B across the Americas in 2023. Meanwhile, 94% of bank executives reported being impacted by check fraud within the past 18 months.Defining Positive PayOne of the tragedies of these statistics is that technology exists to virtually eliminate the opportunity for thieves to commit check fraud against businesses. We’re talking, of course, about Positive Pay. Positive Pay is a fraud prevention system wherein a business sends its financial institution the details of recently issued checks to be compared against any checks being deposited or cashed against the business’ account. Despite its proven effectiveness, just 29% of financial institutions say they are satisfied with their business clients’ positive pay adoption rate. The overall adoption rate is only about 35%. This low adoption rate has led to hundreds of thousands of dollars in losses for community financial institutions (CFIs).

Source: Datos Insights, Q4 2023
Consider check washing, the most common type of check fraud. Here, thieves steal legitimate checks and use chemicals to “wash” them by erasing the payee's name and changing it to themselves. Positive Pay makes check washing almost impossible to pull off by comparing the check number, dollar amount, and payee name on the check presented for payment to the information that’s on the check issuance file submitted by the business to the financial institution. If there are any discrepancies, the check is flagged for further inspection.Causes of Low Positive Pay AdoptionSo, why are Positive Pay adoption rates so low? According to the latest report from Datos Insights, the main reasons are the following:

Strategies To Boost Adoption RatesHere are four strategies to increase adoption of Positive Pay at your CFI before businesses become fraud victims:

Be Proactive in Combatting Check FraudThe problem of check fraud isn’t going away — if anything, it will only get worse as thieves devise more technologically sophisticated ways to steal money from businesses. This makes it critical that CFIs be proactive in helping businesses reduce or eliminate check fraud by adopting technology tools like Positive Pay and making the offering more widely available and known to business customers.