Banks Under Pressure to Move Away from Checks Amid Fraud Concerns
By Cheryl Winokur Munk | May 05, 2025
In recent developments, banks are grappling with mounting pressure to phase out paper checks as a payment method following President Donald Trump’s directive to halt the issuance of paper checks for federal disbursements. With paper check usage already in decline, this shift presents an opportunity for banks to further diminish reliance on what some experts consider an outdated payment system fraught with fraud risks.
Reassessing Payment Methods
According to data from the Federal Reserve, checks have become the second most frequently reported type of fraud, with attempts rising by 10% from the previous year. Experts believe that Trump’s order may accelerate the trend away from checks, urging financial institutions to rethink their approach to payments. Bob Meara, a principal analyst with Celent’s banking practice, emphasizes the need for banks to explore alternative electronic options that can replace the traditional check system, stating, "Now might be the right time to revisit [phasing out] checks when there are more electronic options than ever before that provide very clear benefits to all parties involved."
Raising Customer Awareness
One of the primary steps banks can take is to improve customer education about the risks associated with checks and the advantages of electronic payment methods. Many consumers and small businesses remain unaware of the potential for fraud linked to checks or the efficiencies offered by quicker payment alternatives. In October, the American Bankers Association launched the #PracticeSafeChecks campaign, targeting consumers with information that encourages the use of digital banking options to facilitate transactions.
Promoting Alternative Payment Options
Despite the benefits of electronic payments, many small businesses continue to accept checks at significantly higher rates than other options. A 2024 Federal Reserve survey reported that 80% of small businesses still accept checks, while only 56% accept Automated Clearing House (ACH) payments, and an even smaller 34% incorporate digital mobile payments.
To stimulate a shift toward these more secure methods, banks are exploring various strategies. Offering invoicing services that encourage digital payments, like credit or debit card transactions and ACH, is one approach. Additionally, integrating electronic payment links directly on invoices could increase adoption rates of these methods. Zelle for Business has also emerged as a potential tool, with approximately 7 million small businesses enrolled in the service.
Incentivizing Digital Transitions
Banks are advised to consider promotions aimed at motivating customers to embrace alternative payment channels. For instance, offering a limited number of free electronic transactions per month for business checking accounts could incentivize uses. On the consumer front, offering a one-time credit for setting up online bill pay could stimulate interest and engagement in electronic payments.
Understanding Customer Needs
Some businesses remain hesitant to abandon checks due to their familiarity with the method. Erika Baumann, director of commercial banking and payments at Datos Insights, indicates that businesses need practical guidance on implementing electronic payments. "They want to be able to know how to utilize these things, not just that they exist," she noted.
Melio, a digital B2B payment platform, has taken steps to address these concerns by alerting customers about mailed checks while inviting them to opt into faster payment methods. Such initiatives exemplify how companies can drive behavioral change in payment methods.
Addressing Fraud Risks
With the rise in check fraud, some banks are proactively communicating that customers opting for paper checks must take additional precautions. Informing clients about tools like Positive Pay to mitigate these risks can enhance security. Additionally, banks might adjust monthly fees to deter check use, making electronic payment methods more appealing.
However, banks must tread cautiously. If perceived as overly stringent, these anti-check measures could lead to customer dissatisfaction. Meara recalls that past strategies, such as charging fees for in-person transactions, resulted in adverse customer reactions.
Conclusion
As banks navigate an evolving landscape marked by mounting fraud risks and changing consumer expectations, the push to eliminate paper checks intensifies. By focusing on education, promoting electronic payment options, and reevaluating customer incentives, financial institutions can successfully transition away from checks, aligning with broader digital trends in the payment industry.
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