The CheckAlt Blog

In today’s fast-paced business environment, organizations across the country are facing significant operational disruptions due to issues within the U.S. Postal Service (USPS). Widespread mail delays, coupled with increased fraud risks, are affecting businesses of all sizes, particularly those that rely on traditional check-based payments. The inefficiencies of the national postal system have created an urgent need for reliable, alternative payment processing methods to help businesses maintain their financial stability.

The latest Financial Trend Analysis (FTA) from FinCEN sheds light on a growing issue that has caused significant financial losses across the United States: check fraud linked to mail theft. Financial institutions reported more than $688 million in suspicious activity, primarily stemming from stolen checks, between February and August 2023. This staggering figure highlights a critical vulnerability in the payment ecosystem—one that affects businesses, individuals, and financial institutions alike.

Security and reliability are paramount for businesses that receive and process payments—and the businesses that rely on those payments to survive. Unfortunately, traditional bill payment methods, like paper checks, have seen a significant uptick in fraud. And increasing delays in mail delivery further compound the problem by directly impacting a business’ bottom line—no payment, no cash flow. 

Even when someone chooses to pay their bills through their financial institution’s online banking bill pay service, those payments drop to a paper check if the business is not in the biller network. The payments are then managed the traditional way—they are printed to a check and sent through the mail, which exposes those payments to fraud and delivery delays. (So much for paying online!) 

Enter CheckAlt's Catch! electronic lockbox solution, which modernizes bill payment processing and significantly enhances reliability and security. Catch! connects businesses to the biller networks, so online payments stay online where they are intended, which mitigates fraud risk and ensures payments are delivered quickly and efficiently.

In an age dominated by digital transactions, the idea of check fraud might seem antiquated. However, despite the rise of electronic payments, check fraud is a persistent and significant threat to financial institutions worldwide. This ongoing problem can be attributed to the continued reliance on checks, particularly in B2B transactions. To combat this evolving problem, understanding the current state of check fraud and its impact is crucial.

In today’s fast-paced digital world, the conversation around online payments is not new. However, despite the clear advantages of digital transactions, many businesses with invoiced billing still rely heavily on traditional check payments. This article addresses the importance of offering a holistic payment solution that includes both traditional checks and efficient, secure online bill payments.   

In the world of small business invoicing, efficiency and speed are critical. However, despite the rise of digital payment methods, many small businesses still find themselves dealing with the hassle and delays associated with getting paid by paper checks - even when they think they're paying their bills online. This leakage of online customer payments turning into offline checks can strain cash flow, increase manual workloads, and pose security risks. Our recent partnership with Hiveage, a digital invoicing application, leverages our innovative Catch! electronic lockbox solution and aims to address these issues head-on, providing a seamless and secure digital payment option for small businesses.

Compared to other industries with higher adoption of online payment options, community association management often suffers sluggish paper-based processes. As a result, back office staff members spend countless hours each month reconciling check payments with those received electronically.

The association management industry faces unique obstacles in managing all of their resident payments. These consist primarily of various types of dues and assessments paid by homeowners on a monthly, quarterly, or yearly basis. While homeowners’ payment preferences are shifting toward digital methods, many continue to mail checks with paper payment coupons to an association’s designated lockbox provider.

Change happens daily, even hourly, within the financial services industry. Newer technology overtakes a predecessor, electronic payments continue trying to edge out paper, mistakes still happen, questions still arise, and the greater majority of companies are working at thin staffing margins as there is more and more automation. 

Credit unions have transformed over the past decade, greatly expanding their focus on the types of members they serve beyond serving a particular segment of workers, such as employees of a specific government or private enterprise. Because credit union members were traditionally all consumers, the services credit unions provided were targeted to specific consumer needs. However, as segment-focused charters have more recently been converted to community-based charters, broadening new member opportunities for credit unions and expectations, so too have credit union services—and treasury management services are a must.

Many small- to medium-sized businesses (SMBs) can effectively use services are similar to those a credit union makes available to consumers, but larger business customers have a higher level of need for treasury than most credit unions can provide. Moreover, because credit unions do not have a history of providing treasury services, they are often not well-versed in marketing and operating the systems larger business members would expect and demand of their financial institution.

If a credit union wants to be serious about treasury services, then services such as integrated electronic payment acquisition and lockbox processing must be components of their member relationship analysis system. While total check volume across the entire U.S. banking system has declined, business members still receive checks for payment, particularly from other business clients. These payments are significantly higher in average dollar value, making the secure, quick posting of these payments critical to any business. The fact that total check volume has declined may mean business members who used to process their own check payments are looking for a cost-effective outsourced solution. Yet, most credit unions do not have the resources and expertise to start their own in-house lockbox operations and the associated work operating a lockbox entails.

Serving hundreds of credit unions across the U.S., CheckAlt has a strong track record providing the resources and expertise to meet the growing demand of credit union business members for treasury management solutions. Our outsourced lockbox solution allows a credit union to offer full lockbox services, completely branded as the credit union while the actual lockbox work is processed at any one of CheckAlt’s 13 nationally distributed processing centers. CheckAlt provides marketing support, including branded presentations and marketing collateral for the credit union to market lockbox services to its business members. Plus, partnering with CheckAlt for electronic payments processing including ACH, debit card, and credit card, a credit union can offer a complete payments processing suite of services for even the largest commercial member it may service.

Where costs are concerned to establish such a payments processing solution suite at a business, consider that business members pay for the valuable treasury services provided by their credit unions. The lockbox services we deliver for your business members becomes a source for generating significant non-interest income (NII) via fees. While it may not be the primary reason for offering this strategic service, for those credit unions that pay attention to NII, business member fees can make up a positively disproportionate percentage of total NII and lockbox services can also significantly add to total NII.

Remember, there is a cost to business members today for processing check payments, either within their internal operations for processing accounts receivable or they might already be outsourcing this to a third-party provider. Don’t let the opportunity to deepen business member relationships through valuable and strategic lockbox services pass your credit union by!

Let’s admit that we all just went through an incredibly challenging year. In discussing mental health issues recently with a good friend who I met when we both worked at a top 10 bank, he made the point that people are rethinking large swaths of their lives. They are rethinking where they live, their relationships, career paths, and what is important to them in general.

If you are a credit union leader, you might be stymied by contemplating the delivery of cost reductions while still satisfying member demands. You must also figure out the most important costs to tackle keeping in mind the unrelenting competition from other traditional credit unions and banks as well as new digital banks.

Big data analytics (BDA) and artificial intelligence (AI) are about understanding patterns, predicting outcomes, and improving processes. These revelations can improve customer experiences as well as reduce costs for financial institutions in myriad ways.

Almost all of us already have AI in our everyday lives. There are two ghosts that live in our home, and our little dog, Pietro, is absolutely terrified of them. Their names are Alexa and Siri. Every time Alexa or Siri respond to one of our questions or commands, Pietro gets out of his comfy bed and runs into the other room. What he doesn’t realize, of course, is that they become more powerful with each passing month. Today Alexa controls not just some of our deliveries, the front doorbell, news and weather reports in addition to music in our home, but the lights, too! Try saying, “Goodnight Alexa” and listen to what happens.

As the Internet of Things and AI become even more of a presence in our lives, it is also affecting the neobank and challenger financial services industry in a very positive and exciting way. Challenger banks are small retail banks that compete with legacy banks and credit unions. A neobank is a bank that only exists online. Digital banks are the online counterparts of an existing financial institution, or legacy bank.

In the years leading up to 2020, divestment in automated teller machines (ATMs) ran parallel to the waning belief in the continued use of check payments as mobile deposit, digital wallet, and card use continued to mount. Then the unexpected happened—a public health crisis and social unrest drove businesses including bank and credit union branches to shut down either temporarily or permanently, reinvigorating the long-established method of interacting with one’s bank via ATM.

Banks have a need for enhanced security and risk mitigation across the new customer journey, but this should be a frictionless experience with the ability to access payment tools 24/7 across various channels. This experience is important for both financial institutions and customers be they consumers or businesses.

Several years ago, my 20-year-old daughter visited a friend in New York City. After a week of fun and merrymaking, she took a cab to the airport only to find that her debit card (her only non-cash method of payment) didn’t work to pay the driver, and she didn’t have any cash. The cabbie became increasingly upset. It was early in the morning in New York, so calling her Los Angeles-based bank wasn’t an option. To her credit, she tried everything even offering the driver a gift card that she received for Christmas in lieu of the amount due. Her cab ride that cost about $65 wasn’t even close to her $200 gift card so in theory it was a good deal for the cabbie. The only problem is that it was from Victoria’s Secret. He was not amused. He drove her back to the city where her friend’s father paid the bill to and from JFK. She missed her flight. It was expensive to re-book, and frustrating to her that the bank, in all its careful wisdom, shut her debit card down to prevent fraud—not very customer friendly. When I called the bank to complain they said she should call customer service before she travels to let them know. This was not a frictionless customer journey. Literally. The good news is, things have improved a lot since then.

Clearly there are factors driving the need for enhanced security and risk mitigation across the customer journey, including expectations for a frictionless experience and the ability to access payment tools 24/7 across various channels including IVR, text, mobile app, website, office, or branches. Solutions for ensuring end-to-end security must be able to: address a variety of fraud scenarios from those most commonly known to ones specific to an organization; be able to integrate with existing systems; and provide robust data reporting for compliance purposes as well as bolstering the security of the overall business by mitigating risk.

One of the most important components in anti-fraud measures is authentication. Joris Lochy in a recent article in Finextra puts it best: “For the financial services industry, having a secure but user-friendly authentication process is no longer a nice-to-have, but a necessity. The current authentication methods, which are typically based on passwords, meet however neither of these objectives, i.e. passwords give a poor user experience and are not at all secure.” A large part of authentication involves technology and its increasingly important impact on the problem.

The Fraud Landscape Today

Current legacy bank solutions for fraud detection can often lead to high false positives, friction, and operational inefficiencies. And, they don’t really do a great job at fighting fraud. According to Arkose Labs Q3 Fraud and Abuse Report, one in every 10 transactions is an attack.

Moreover, an Aite Group survey has revealed that fraud rates for financial institutions are eight times higher in the digital channels compared to the branch. My recent article for CheckAlt, “Connecting In-Person and Digital Experiences at the Branch” states, “Although many customers still bank in branches, the majority of these individuals still use online banking.” Digital security is paramount.

Another critical area to be mitigated is application fraud. When an applicant applies for a new financial relationship with a bank or credit union, there are three general types of fraud that can be used:

• Identity theft. The attacker steals and uses the full identity of a victim;
• Synthetic identity fraud. Fraudsters either create a new identity from scratch or with bits and pieces of stolen data;
• First-party fraud. An individual has no intention to repay his or her obligations.

It has become vital for financial institutions to authenticate across all channels. By implementing more advanced technology and methods to fight fraud, banks and credit unions can realize three important advantages: maximizing revenue, reducing fraud loss, and reducing operational costs.

Solution Ideas

1. Set triggers with alerts.

The world is ready for real-time payments and CheckAlt is ready to lead this transition. The acquisition of U.S. Dataworks in September 2020 sets CheckAlt apart with a technology platform proven to accept any of the existing real-time payments options or the ones soon to be announced.