Why Check Fraud Costs Banks and Credit Unions Millions—and 8 Reasons to Invest in Prevention Today
Check fraud remains one of the most persistent and costly forms of payment fraud. For banks and credit unions, delaying investment in a modern fraud prevention strategy can lead to significant risk exposure.
Fraud schemes targeting checks are often seen as an entry point by fraudsters who have become more sophisticated, leveraging artificial intelligence (AI) across all points of capture. As faster funds availability and remote deposit capture continue to grow and transform the banking industry, the question isn’t if fraud will happen, but when and how much it will cost to recover.
These key insights demonstrate why proactive, real-time fraud prevention—integrated across all deposit channels—is critical in today’s payments environment.
With check fraud on the rise and AI-driven schemes targeting every deposit channel, banks and credit unions can’t afford to wait—here’s why proactive prevention matters.
1. Checks Dominate B2B and Federal Payments
Despite the surge of electronic payments, checks remain a primary payment method for business and government transactions, such as IRS tax refunds and social security benefits. According to the 2024 AFP Payments Fraud and Control Survey, 70% of organizations have no plans to stop using checks – even as fraud attempts increase.
Why? Checks provide detailed audit trails and remittance data that businesses need to manage cash flow. Fraudsters know that checks are a prominent fixture in the payments ecosystem and capitalize on exploiting outdated image-based processing systems that lack real-time detection, advanced image analysis, and shared industry intelligence.
2. Fraudsters are Using AI to Their Advantage—So Should You
Artificial intelligence isn’t just innovative; it’s a weapon for fraud. Sophisticated fraudsters use AI to digitally alter or wash checks and create counterfeits, especially through remote deposit channels. These fraudulent items often bypass traditional workflows at the point of capture and aren’t flagged until Day 2 processing, after funds may have already been released.
3. $1 of Fraud Costs $5 to Mitigate
According to the LexisNexis® True Cost of Fraud™ Study 2025 North America, for every dollar lost to fraud, institutions spend $5 to mitigate the damage – up 25% since 2021. With the average check valued at approximately $2,500 according to the Federal Reserve, one fraudulent transaction may cost more than $12,500 to resolve when factoring in investigation, recovery, account holder support, and reputational damage. Multiply that across multiple incidents, and the ROI of a modern fraud prevention solution becomes clear.
4. Legacy Systems are Costly and Inefficient
Legacy fraud detection and deposit processing may “get the job done,” but are inefficient by today’s standards. Fragmented and batch-based systems increase the possibility of false positives, slowing operations and tying up staff with manual reviews rather than serving account holders. Modern fraud prevention solutions leverage real-time analytics, machine learning (ML), and scoring models to reduce false positives and streamline operations.
5. Siloed Data Creates Blind Spots
When teller, ATM/ITM, and remote deposit capture (RDC) channels operate with different business rules and within various consoles, inconsistencies in deposit data can create blind spots. They can also slow down detection, causing reviewers to toggle between portals, generate duplicate manual reviews, and increase operational costs. A centralized solution consolidates data across channels, providing a more robust and unified view of risk, helping institutions detect anomalies before they enter downstream workflows or impact the bottom line.
6. Consortiums Allow for Better Insight and May Catch Fraud Faster
Cross-referencing images against an internal database of on-us items is no longer sufficient. Fraudsters operate across multiple institutions, making it essential to leverage consortium data and industry-wide intelligence. By participating in a consortium, banks and credit unions can compare all items against a network of peers in real-time, identifying emerging fraud patterns and flagging suspicious items earlier. Leveraging these shared networks helps tackle sophisticated fraud schemes more proactively and with a wider lens, reducing losses.
7. Trust and Reputation are Everything
Account holders trust their bank or credit union to safeguard their money and personal information. A single breach or fraud incident can erode trust, attract negative publicity, and lead to attrition.
Real-time fraud detection helps protect the brand identity of a financial institution by preventing losses before they occur.
8. Industry Regulations are Tightening
Regulators are tightening oversight around Bank Secrecy Act (BSA), Anti-Money Laundering (AML), Know Your Customer (KYC), and other security standards. Financial institutions must be able to demonstrate compliance and transparency.
Modern check fraud prevention solutions offer detailed audit trails, real-time reporting, and comprehensive documentation of all deposit activity – ensuring banks and credit unions can meet regulatory expectations and reduce exposure to risk.
The Future of Fraud Prevention is Proactive
Check fraud isn’t going away, it’s evolving. Financial institutions must take a proactive approach, combining real-time processing, intelligent automation, and shared industry intelligence. By investing in modern fraud prevention solutions, banks and credit unions can reduce losses, improve operational efficiency, and build long-term trust with their account holders.
Alogent’s award-winning deposit automation platform, Unify, tackles check fraud across all full- and self-service deposit channels. With Alogent Shield and Alogent Shield+* seamlessly embedded, financial institutions gain AI and computer-vision-based detection, consortium-backed insights, and cloud-hosted scalability within a single platform.
Is your institution ready to tackle today’s check fraud challenges?
How Robust is your Check Fraud Defense? Download this Checklist to find out
Read more: Centralized Check Fraud Prevention: Reduce Consoles, Boost Efficiency
access additional on-demand fraud prevention resources & articles
Be the first to know! Click below to follow us on LinkedIn for news and content updates!
*Alogent Shield+ is powered by Mitek