Too often banking customers are asking about positive pay fraud protection only after a violation has occurred. The hesitancy persists despite the fact that 80% of organizations reported attempted or actual payment fraud in 2023 and an estimated $21 billion lost to check fraud that same year. Still, the adoption rate of positive pay is still only 35%.
Instead, banks and credit unions should step up their education efforts to work with retail and business customers and members on a proactive approach for check and ACH positive pay solutions to help identify and stop fraud before it happens. With positive pay, companies provide their bank with a list of checks actions they issue, including details like check number, account number and amount. Positive pay can also be used to track ACH transactions.
Not surprisingly, only 1 in 3 financial institutions are satisfied or very satisfied with their current positive pay adoption rates, but there’s a lot financial institutions can do to increase their adoption rate along with their revenue.
Here are six essential actions to get started.
- Roll out check and ACH positive pay if your FI hasn’t already done so
This may sound like a no-brainer. Both check and positive pay products are critical capabilities that should be offered to business customers. Check fraud is the single largest threat vector and, while overall check use is declining, 80% of businesses still use checks. As check use declines, automatic payments are ramping up, with 60% of businesses planning to increase their usage of ACH payments over the next 12 months and 31% planning to increase their use of same-day ACH.
- Sell positive pay more proactively
The role of financial institutions in a community can’t be overstated. They help business customers compete, who in turn support other businesses, and it’s all based on relationships. A fraud event ripples through a community, damaging reputations as it goes, so being proactive in helping business customers understand what protections are available to them is crucial. Some 12% percent of banks offer positive pay only after a customer is a victim of fraud, which can obviously have a very negative impact on that relationship and others downstream.
Financial institutions need to educate their business customers on two fronts: Only 34% of businesses describe themselves as extremely concerned or very concerned about fraud, and nearly 40% don’t know what positive pay is. This is remarkable given that nearly 60% of banks, fintechs, and credit unions lost over $500,000 in direct fraud losses in 2023. But the damage isn’t just monetary, it’s reputational and the consequences can be devastating and long-lasting. Positive pay is the best tool we have to prevent fraud as well as reputational damage.
- Communicate a broader value proposition
The value proposition of any fraud solution, including positive pay, is that it’s reputational first and foremost. Though there’s an ROI aspect as well, it’s very difficult to measure prevention. Easier to measure are other benefits, including real-time monitoring, automation of a manual process for greater accuracy and efficiency, simplified reconciliation processes and greater control over the overall payment process. These should all be promoted as value props along with preventing payment fraud.
- Make positive pay easier to use
Larger and more sophisticated businesses use an ERP platform, which eliminates or greatly reduces the hassle of providing a daily file of every ACH and check issued to the bank. The same process can be laborious for a small business owner not accustomed to it, or who doesn’t have the capability to send in an issue file or to review it. To combat this, FIs need to continue to look for ways to add integrations to more systems. For example, an API that would allow someone to generate an issue file much more easily or make it more seamless to facilitate the positive pay process so users can review what’s been exceptioned and decide whether to release it or not.
- Don’t leave money on the table
Aside from preventing fraud and strengthening relationships with business clients, financial institutions can realize additional revenue by charging for positive pay. More than 30% of institutions do not charge for positive pay, many perhaps fearing that they’ll lose customers if they do, but among businesses currently using positive pay for free, 61% would be willing to pay for it. Financial institutions, including those that already charge a fee for positive pay, can further increase revenue by extending their target markets.
Remember, the adoption rate currently stands at 35%. There’s plenty of room for growth.
Jeff Scott is VP of Product Management for Q2.
