Check deposits have been a constant focus for fraudsters, but during the pandemic we saw a significant decrease in check fraud as government stimulus programs were targeted. By the middle of 2021 however, check fraud was back with a vengeance and the water level has seemingly risen to historic heights. To mitigate risk and  losses, financial institutions should consider partnering with third-party companies, like Fiserv, to help manage and safeguard against rising fraud exposure.

A recent webinar from PaymentsJournal features industry leaders in check deposit solutions, who discuss how they can help financial institutions reduce fraud losses through new technology and insight. The webinar features Brian Riley, Director of Credit at Javelin Strategy and Research; Jeff Burton, VP of Deposit Solutions at Fiserv; and Rodney Drake, Chief Strategy Officer at Valid Systems.

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The three speakers provided important insights into check fraud, which are summarized below.

Financial Institution’s without Check Deposits Fraud Tools Are an Easy Mark for Fraudsters

With the increasing risk of check fraud and the migration of transactions to mobile channels, institutions must provide efficient and secure services to customers while managing risk.

“Clients are looking for less friction and faster availability of funds once they deposit a check,” Drake said. “Yet in providing that, the bank is obviously leaving itself exposed to more risk, particularly in mobile.”

Traditionally, there was a significant period between when a check was deposited and the funds were made available. Customer expectations continue to grow around instant payments and availability. But shortening that period can drastically increase risk, making it easier for crooks to commit check fraud.

After the onset of the COVID-19 pandemic, the government injected an unprecedented amount of stimulus money into the economy, much of which was distributed through checks.

“Those checks became easy targets for fraudsters, who took advantage of the lack of investment in fraud prevention in the check business,” Burton said. “Additionally, with more people working from home, more checks were sitting in the mail, which led to an increase in check fraud.”

Checks are obviously not top of mind for many banks as the emphasis shifts toward digital payments. However,

As the world increasingly becomes digital, digital wallets continue to grow in popularity. As a preferred method of payment for many customers, they offer a host of benefits. These include the ability to simply tap a smartphone to purchase goods and services, the capability to store numerous debit and credit cards, as well as to house loyalty program information. What’s not to like?

The PaymentsJournal podcast was joined by Damany Abernathy, Executive Director of Solution Engineering at CSG Forte, and Christopher Miller, Lead Analyst in Emerging Payments at Javelin Strategy & Research, to discuss the expanding popularity of digital wallets, as well as the security challenges and inherent risks of their growing use.

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What Has Driven the Growth of Digital Wallets?

Amid widespread fear of contracting COVID-19 during the start of the pandemic, contactless payments became increasingly important for consumers. According to Abernathy, the pandemic contributed to the disruption of payments, bringing about a new normal. Paying with cash was no longer desired, and anything that provided a cashless environment reigned superior.  

“From a U.S. perspective, I don’t believe there was a singular event, but rather it seems there was a trifecta of sorts that aided in its surge—that being EMV (Europay, Mastercard and Visa, an embedded-chip technology designed to limit fraud), COVID-19, and Millennials, including those generations after,” Abernathy said.

“I do recognize that the weights of the aforementioned aren’t equal, but each played their respective part. EMV was the primer that forced the shift in tendering behavior.

“Then we moved from swiping to inserting and tapping. But it was the cost and complexity of integrating EMV that caused many merchants to seek alternative acceptance methods that aided in digital wallet normalization.”

On the merchant side, Abernathy added, digital wallets presented many benefits, including a faster checkout experience, a reduction in cart abandonment, and enhanced levels of security that nearly eradicate the risk of fraud.

“One thing that we have seen is a reemergence in some cases of cash transactions, at least even in younger generations,” Miller said.

“The notion of envelope budgeting as a way of controlling expenditures had,

Traditional banks are struggling to make the pivots necessary to keep up with the latest technological trends while still delivering on customers’ needs. With many depending on legacy systems to conduct daily operations, it has been difficult for these long-established players to be nimble, and they often lose out to competitors that can launch the newest technology.

During the PaymentsJournal podcast, Tom Kleinsorge, Vice President of Global Software Sales at Euronet Worldwide, and Brian Riley, Director of Credit/Co-Head of Payments at Javelin Strategy & Research, explored the delicate balance traditional banks must strike to attract the new generation of banking consumers while keeping longtime loyal customers happy.

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Neobanks Continue to Scoop Up Traditional Bank Profit Margins

Neobanks have been disrupting the traditional banking system for some time. Without the time and costs allocated to staffing and maintaining physical branch offices, these new online banks are freed up to be agile and pour their efforts into delivering top-notch customer service, using the latest in innovation to enhance the overall consumer experience.

Where are traditional banks missing the mark?

“Banks are challenged with understanding who their customers are and how they can serve this wide variety of customers that they have to deal with,” Kleinsorge said. “Traditional financial institutions are in business to make money, and they need to provide the services that their customers are going to use.”

He added: “What FIs around the world are grappling with: How do they provide this, maintain the stability, and offer the services their clients need? The next challenge is: How do they expand for the next generation of customers coming in? They’re challenged with this in a lot of different ways. They need to be able to adapt quickly.”

A banking customer’s lifecycle, Riley said, is the key to unlocking what a customer needs.

“People go through cycles,” Riley said. “You have different needs as you go through financing. That’s why it’s important to capture this segment because it’s like your first date. You always remember it. And you remember that first relationship you have with a bank. And people go through this lifecycle, they start coming out with college loans, which was not something that was prevalent a few decades ago to the extent that it is now.”

For businesses, regardless of size, not all payments partners are equal. Finding the right partner to manage payments can be a key to improving cash flow and simplifying the payments experience, as well as making cross-border payment a piece of cake.

In a PaymentsJournal podcast, Rupert French, Product Lead at Worldpay from FIS, and Daniel Keyes, Head of Merchant Services at Javelin Strategy & Research, discussed what businesses can expect from a high-quality payments partner and how they can differentiate the best from the rest.

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Differentiators in Payments Partners

Businesses barely have enough time to manage the core functions of providing products and services, so partnering with a third party to manage and optimize their payments is a wise move. It’s an opportunity to outsource a level of complexity to a third party and make sure that there’s as little friction as possible in payments.

“Your payments partner should be specializing in fund flow and simplifying the payments experience,” French said. “And there’s a huge amount of trust that business offloads to their payments partner, which has to be respected. We’re empowered with managing the primary revenue source in most cases for a lot of small, large, and medium businesses.”

A payments partner, such as Worldpay from FIS, can help with transaction data and cash liquidity in a bank account. As French notes, those two are key drivers behind the success or failure of businesses, particularly smaller ones.

In particular, improved transaction data enables a high percentage of payment acceptance with lower risk.

Payment Flexibility is Prime for Gig Economy

Gig workers often have to wait to get paid, sometimes as long as weeks after they’ve completed their work. The ability to pay gig workers any time, particularly on the weekend, is an important differentiator small businesses should look for in a payments partner.

“The possible competitive advantage presented by being able to pay those gig economy workers on non-business days with funds from online commerce could be enough of a competitive advantage to help keep that business above the waterline,” French said. “For example, consider competition for takeaway drivers on a Friday night. If you’re able to guarantee that you’ve got cash in your bank account to be able to pay that delivery right driver on the Saturday morning o...

Gen Z, Millennials, and Gen X prefer frictionless experiences in all areas of their lives and have embraced contactless payments. Baby Boomers also prefer this payment method in many circumstances, but are often bamboozled by a lack of standardization in contactless payment technology.

Unlike credit card terminals, contactless payment experiences are not as standardized, which creates friction and confusion. And as merchants continue to elevate the consumer experience, and meet their customers where and how they want, they’ll need to prioritize accepting payment methods such as Apple Pay and Google Pay—ensuring their use in-store is as frictionless as possible.

During a recent PaymentsJournal podcast, Suresh Dakshina, Co-Founder of Chargeback Gurus, and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, discussed how the pandemic pushed more consumers to try contactless payments, as well as the security benefits they present for consumers and merchants.

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How Contactless Payments Work

Contactless payments are a popular way to make purchases without physically touching a card or exchanging cash. There are several ways to make a contactless payment, among them tapping a card, scanning a QR code, and using a mobile device to access digital wallets, such as Apple Pay or Google Pay.

Although contactless payments have been around for a while, the pandemic accelerated adoption as many consumers avoided touching payment terminals. “Contactless payments became even more prevalent during the pandemic and transactions really skyrocketed,” Dakshina said. “Now, it’s become a way of life.”

Keyes agreed that the pandemic sped up the inevitable.

“Just before the pandemic, contactless payments were starting to gain a little bit of steam in the U.S., but they were not as popular as overseas,” Keyes said. “People didn’t want to change how they were paying because they were very set in their ways. I remember thinking and writing at the time that something significant would need to happen to drive adoption. The pandemic did that because it forced people to consider this option that’s convenient.”

Security and Comfort Drive Adoption

As with any payment method, security is of the most importance. With contactless payments—unlike swiping a card or entering a card number a...

Real-time payments adoption has become widespread, and as a result, financial services companies need to be better equipped to overcome any operational challenges that may come up.

During a recent PaymentsJournal podcast, Reed Luhtanen, Executive Director of the U.S. Faster Payments Council, Tony Cook, EVP of Payment Operations & Real-Time Payments at FirstBank, and Cheryl Fitzgarrald, Program Director at BHMI, delve into what is needed to get an organization up and ready to support real-time payments.

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Current State of Real-Time Payments

Payments have undergone a massive shift in just a few years, with real-time, remote, and digital forms of payments becoming the norm. “Lots of folks are getting engaged through the Fed, The Clearing House, and the Faster Payments Council to learn about what faster payments are and how it might affect them,” said Luhtanen.

“We recently conducted a Faster Payments Barometer survey and about 90% of our respondents said that they are either in the process of implementing [real-time payments], they’ve already implemented, or they’ll be implementing in the next two years.”

According to Luhtanen, businesses are looking to leverage this new technology for payroll, funding loans in real-time, and to pay bills.

The main benefit of real-time payments, according to Cook, is to get funds into customers’ hands faster. “At FirstBank, we’re starting with the ability to receive real-time payments only, but we see enormous benefit just from starting at that point alone.”

“If you think about all the great opportunities, especially in areas like payroll or the gig economy—as well as the ability to defund wallets—we’re excited about the opportunities there and for our customers to get paid faster. Some of the other core benefits that we get really excited about is just the overall 24/7 availability,” he said.

“Most of BHMI’s clients are large processors and financial institutions that are processing on behalf of banks, credit unions, and merchants, said Fitzgarrald.  “Over the last five years, we have seen the use of real-time payments grow dramatically.  Our clients are offering a wide range of new real-time payment services to their retail, business, and corporate customers.  This has ranged from simple account-to-account payments to more complex business payments.

Economic conditions have a way of shaking up the marketplace and the ability of e-commerce to produce goods and services for end customers. Factors such as inflation, interest rates, and layoffs are powerful economic forces to be reckoned with. In a recent discussion, Sunny Thakkar, Director, Head of Merchant Fraud Solutions at Worldpay from FIS, and Daniel Keyes, Senior Analyst for Merchant Services at Javelin Strategy & Research, discussed another economic force that needs to be confronted, the increased incidence of fraud. They expound upon some concerning stats, explore why fraud tends to increase during a macroeconomic impact, and examine the solutions to mitigate fraud.

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Macroeconomics and Its Impact on Merchants

As today’s world becomes increasingly interconnected, the macroeconomic impact of events, which deal with the economy at a global level, can be felt down to everyday merchants and their businesses.

Instability within the economy seems to create the perfect breeding ground for fraud, and bad actors stand ready, willing, and able to target the weakest links and take advantage by using the latest technology and sophisticated fraudulent tactics.

“I apologize for leading with all these scary stats,” Thakkar said, “but I wanted to highlight the current macroeconomic state because it not only plays a role in impacting merchant sales and growth, but as we’ve found from history, macroeconomic factors are also known to amplify fraudulent activity. Recession or not, when it comes to the current global macroeconomic climate, things are looking far from ideal.

“The UK right now is experiencing very high inflation. Their customer price index is at over 10% right now. Many of us know that two U.S. banks were recently shut down by regulators. That created two of the largest bank failures in modern history, and the only one larger than that was in 2008. That was at the height of the financial crisis.”

All these looming microeconomic factors are also requiring businesses to make difficult cost-cutting decisions such as mass reduction in forces. And that’s evidenced by the large number of layoffs already reported by corporations. A website called Layoffs.FYI that tracks layoffs has reported over 150,000 layoffs in 2023 alone. That almost surpasses all of 2022 combined.

“All this is leading to impacts on the overall global economic growth,

Help is on the way for merchants that are swamped with friendly-fraud chargebacks. Friendly fraud occurs when a customer makes a legitimate purchase, then requests a refund, often because the consumer has forgotten the transaction took place.

Visa is introducing its Compelling Evidence 3.0 rule set, which allows merchants to submit historical purchase evidence to prove a legitimate cardholder was behind an order. The rules are based on the assumption that if a cardholder has engaged in previous transactions with a business and those transactions were not disputed, then the current transaction is not fraudulent.

The new rules require the same data elements to match across undisputed and disputed transactions, with transactions using the same payment method and settled at least 120 days prior to the dispute. Importantly, the new system allows evidence to be submitted before a chargeback is filed. If certain elements are decisively proved, the fraud claim will be denied.

For merchants, this is all good news that is likely to reduce their chargebacks dramatically, but it also means they must get their data collection in tip-top shape to meet the standards of Visa’s new rules.

In a recent podcast, Navin Sequeira, VP Global Chargeback Operations at Chargeback Gurus, and Brian Riley, Head of Credit at Javelin Strategy & Research, discussed the size of the friendly fraud problem for merchants, how VISA CE 3.0 rules are going to change the lives of merchants, and how merchants can best prepare. This article provides some of the key highlights.

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Friendly Fraud: The Nemesis of Merchants?

Friendly fraud is a growing issue for merchants, causing significant financial losses and reputational damage. This occurs when a cardholder disputes a legitimate transaction, often because of confusion or forgetfulness, but such disputes can also result from deliberate misuse of the chargeback system.

From the merchant’s perspective, if the same cardholder has made similar purchases in the past without disputing them, there is a good chance that the transaction in question is also legitimate. However, current Visa regulations don’t require banks to consider this evidence, making it easier for customers to commit friendly fraud.

“Estimates suggest that friendly fraud accounts for 60 to 80% of all chargebacks, which cost merchants approximately $40 billion annually,” Sequeira said.

With exceptional customer experiences they have derived from giants such as Apple and Amazon, consumers expect choice, speed, and control in the methods they use to pay. And they’re looking for these very features from their financial institutions.

FIs, steeped in legacy systems, are simply not geared up to offer these features, which should be table stakes. Not offering these features could mean a loss of customers and an impaired ability to attract new ones. This discussion—between Marcell King, Product Innovation Officer of Banking and Fintech Solutions at Paymentus, and Brian Riley, Director of Credit and Co-Director of Payments at Javelin Strategy & Research—delves deeper into what FIs can do to give customers more convenience and control with a modern loan experience for customers.

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What Customers Want: Convenience, Control, and Speed

Payment innovation and consumer demand drive the need for choice, speed, and efficiency of payments. Businesses and FIs alike must continually keep their finger on the pulse of what is happening within the payment landscape. This will ensure that banks offer what consumers want when it comes to payments.

Millennials, for example, expect more when it comes to their digital experiences. They’re less patient with organizations that don’t give them the control, convenience, and autonomy to make their own decisions.

“It is about giving consumers control over how, when, and what they pay with,” King said. “Millennials are entering their prime spending and borrowing years. The demographic studies show they’re less patient. They want more convenience. They want more control, and so they have different expectations than an older demographic.

“It’s about how do you give them what they want. They’re really looking for the payment options that they prefer, whether that’s their debit card, their PayPal account, or paying it through a retail store. It’s about giving consumers more human optionality and the ability to pay through whatever channel they choose, giving them the convenience to control that experience as much as possible.”

Payment options should match what everyday consumers deal with, such as when they get paid and when their bill payments are actually due. Therefore, flexibility is a key.

Digital payments continue to evolve, and consumers are here for it. If businesses or financial institutions are not equipped to deliver embedded payments, today’s customers will simply seek the ease and convenience of a seamless payment experience elsewhere.

A recent discussion between Hal Ramakers, SVP of Global Solutions at Brightwell, and Brian Riley, Director of Credit and Co-Director of Payments at Javelin Strategy & Research, probes deeper into embedded payments and what businesses can do to meet evolving needs in the global digital payment landscape, how to facilitate cross-border payments amid myriad regulatory infrastructures, and how to gear up their businesses for new user expectations in cross-border payments.

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The Importance of Integrating Global Payments Solutions into Business Product Lines

The secret to building retention and loyalty is to innovate the consumer experience. As more consumers choose digital payments to conduct their everyday business, they want something that is seamless and streamlined, rather than having to jump from one platform to another.

“If you look at the industry today, most consumers work with third parties,” Ramakers said. “They’re leaving their banking app to send money, which is not an optimal experience.”

Embedded payment solutions allow customers to purchase items directly from their TV, pay for a cab ride, and even send and receive funds from all over the world, all without taking out their wallet. This trend will only continue to grow.

“There are over a billion people today that send or receive international money transfers. That’s about 30% of the global (consumer) population.”

“Globally, checks are still being sent across borders for vendor payments and consumer payouts. The pandemic shifted the world and moved us five years forward. As a result, consumers changed how they interact with companies and their financial institutions. They’re looking for embedded solutions when they conduct business whether in their bank accounts, through their banks, or through a program managed using a digital solution.”