Why is there such a big difference between check fraud in the US and the UK?
Check fraud continues to grow in the US. Meanwhile, in the UK, it is not a common concern.
When was the last time you wrote a check? For those of us used to paying bills online, this is a head-scratcher. So, you might be surprised to know that while check use is still dwindling in the US, the average value of US checks grew after COVID-19 lockdowns.
In Alloy’s State of Fraud Benchmark Report, 10% of US respondents said that check fraud is the type they see most frequently by case volume. They also noted that it causes significant financial losses. (US consumers experienced $815 million in check fraud loss as recently as 2022.) On the other hand, according to UK decision-makers, check fraud is not registering as a common concern for fraud prevention teams.
The stark difference between the two countries could have something to do with governmental support for faster payment rails and the way this shifted the cultural mindset around checks.
Download Alloy’s free State of Fraud Benchmark Report.
The UK is more comfortable using faster payment rails than the US.
Historically, checks were related to higher transactions. (In 2015, a US billionaire wrote a check for $975 million, and his ex-wife did cash it!) If you wanted to move a large amount of money, you needed to use a check. But now, US residents and businesses can use an Automated Clearing House (ACH) same-day transfer to move up to $1,000,000 per day, and those in the UK can use the Clearing House Automated Payment System (CHAPS) to do the same.
While these faster payment rails are available in both countries, payment trends show that those in the UK use them for higher payment amounts and much higher transaction volumes than in the US. According to the Bank of England, “In March 2024, CHAPS processed 4.2 million payments worth £6.8 trillion over 20 settlement processing days…the average daily value was £339 billion.” Meanwhile, the ACH Network handled 8.2 million payments in the first 90 days of 2024 with a total value of $719 billion. In other words, within two days, CHAPS surpassed the value of US payments for its entire first quarter.
Why the disparity? One key reason could be that the UK was quicker to adopt more efficient payment systems and promote digital payments than the US. This shift not only reduced UK consumers’ reliance on checks, but repositioned the country’s cultural mindset about checks in general.
The UK’s Payments Council has heavily disincentivized check use since 2009.
In 2005, Shell UK was the first major UK retailer to stop accepting checks as a form of payment. By 2006, checks accounted for only 2% of retail turnover. The Faster Payment System was also launched in 2008 to introduce real-time payments to the UK. (Comparatively, the Clearing House launched its RTP® network in the US in 2017, almost a decade later.)
The UK’s attempt to close its check-clearing system
Due to the check’s decline, the UK Payments Council announced in 2008 that they would seek to close the country’s check clearing system, hoping to generate cost savings for banks and large businesses. A year later, they followed up with a target closure date of October 2018.
But the Payments Council did not anticipate the public backlash, spearheaded by groups like Age UK and the Federation for Small Businesses. UK residents expressed concern about how the absence of checks would affect certain demographics — like older and underbanked populations, charities, and small businesses who could gain a competitive edge over larger corporations by accepting checks — without some kind of alternative. Following a period of public inquiry, the Payments Council eventually rescinded its decision in July 2011, announcing that checks would remain a part of the UK’s financial system.
Checks continued to decline in the UK
While it is unlikely that the Payments Council will make another attempt to abolish checks altogether, they probably do not need to try. In June 2011, the Check Guarantee Card Scheme (CGCS) officially closed, preventing consumers from using a specialized debit card to guarantee a check-up to £250. Several years later, check imaging was introduced in the Small Business, Enterprise, and Employment Act of 2015 to promote faster business cycles. This quite possibly pushed more reluctant UK businesses and consumers towards the acceptance of digital payment models, their familiarity with checks serving as an entry point to more modern payment methods.
In a January 2022 Pay.UK report, UK residents did not seem to think checks would be around for much longer:
- 3 out of 5 UK consumers/businesses wrote fewer checks than in the prior 3 years.
- 27% did not believe checks would exist as a payment method in the future.
- Another 23% said they were unsure if checks would continue.
- 50% of businesses either did not believe or did not know if customers would be able to continue using checks for as long as they wanted.
In the same report, only half of UK consumers over 65 reported still occasionally using a check, a 21% decrease from 2014. In comparison, approximately 75% of retirement-age Americans still use checks as of September 2023.
Read more about the similarities and differences in the US and UK’s financial landscapes.
More checks = more check fraud
There is no simpler way to put it. Since the US uses more checks than the UK, the US experiences more check fraud. In February 2023, the US Financial Crimes Enforcement Network (FinCEN) had to issue an alert, warning financial institutions about continued mail theft-related check fraud.
Fraudsters learned how easy it was to commit check fraud on a widespread scale during the height of COVID-19. Economic impact payments authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act were being sent out to US residents in the form of checks. Fraudsters targeted USPS collection boxes and unsecured residential mailboxes or box units to steal the checks. Mail theft complaints increased by 161%, and the number of suspicious activity reports (SARs) related to check fraud nearly doubled in 2022.
According to the FinCEN alert, fraudsters have now identified paper checks sent via USPS as a vulnerability that is worth their time and effort. So, they continue to target this vulnerability in hopes of stealing checks “related to [other] government assistance programs, such as Social Security payments and unemployment benefits.” Meanwhile, US consumers are still writing checks to certain businesses — like contractors, charities, taxes, and landlords — while in the UK, checks are projected to account for only 0.2% of payments by 2031.
No more checks doesn’t necessarily mean no more fraud.
While the US struggled with a steep increase in check fraud during COVID-19, 86% of all UK adults continued using at least one method of remote banking during 2021. So, did fraud in the UK decrease overall as a result? The short answer is no.
Alloy’s Annual State of Fraud Benchmark Report still showed that 98% of the total respondents experienced fraud in 2023, even though fraud increased at a slower rate than the year prior. They also were not able to recover as many financial losses compared to 2022. UK respondents were less likely to discover fraud during onboarding than US respondents (18% versus 33%). UK respondents also saw authorized push payment (APP) fraud the most frequently by case volume.
Instant payment platforms, like the UK’s Faster Payments System, can be more susceptible to APP fraud. Bad actors like to exploit the speed and convenience of instant payments. They deceive consumers into quickly authorizing fraudulent transactions, so the funds will be transferred immediately and stay out of reach.
It is important to remember: fraudsters do not stop if their tactics are blocked in one channel. Instead, they move on to the next channel and continue searching for vulnerabilities. Just because the UK has moved further and further away from checks does not mean that fraudsters stopped looking for new, more sophisticated ways to commit fraud.
How Alloy’s omnichannel solution can help
To effectively address all types of fraud, including check fraud, you must catch it quickly, before it has the chance to turn into a significant loss for your organization. You need a holistic fraud prevention approach that covers all channels, from in-branch services to remote deposits.
In Alloy’s Fraud Report, 75% of organizations said that they plan to invest in an Identity Risk Solution in the next 12 months to combat fraud.
An Identity Risk Solution like Alloy provides:
- More holistic visibility into identity to help prevent fraud from occurring before transactions take place
- A singular view of data to better identify and track when fraud moves from one channel to another
- Unified customer profiles that can be continuously reviewed
- A comprehensive testing hub where the projected outcomes of new policies or changes can be viewed prior to implementation
In short, Alloy helps you better identify fraud and prioritizes early detection.
Alloy is an omnichannel solution that integrates seamlessly into your platform to manage identity, fraud, credit, and compliance risks throughout the customer lifecycle.
KJ McAlpin is a content marketing manager at Alloy. They research and write about trends in the fintech and banking space. In their free time, KJ enjoys traveling, cuddling their two black cats, and journaling.
