There are more than five benefits of Positive Pay services to your business customers. But in this blog, I focus on the top reasons community banks and credit unions must offer this important service. Let’s start by defining what is the Positive Pay service.
What is Positive Pay?
Simply put, Positive Pay is like the fire insurance on your home you hope you never have to use. For businesses, it’s their assurance that only the checks they write and only Automated Clearing House (ACH) transactions they initiate will be paid by their institutions. Any checks or ACH transactions not authorized by the company return unpaid. The financial institution then files a “Suspicious Activity Report” (SAR) to alert government officials about the fraudulent transactions.
Technically, the business uploads a file with the list of checks to the financial institution. The institution matches items clearing against the authorized list and alerts the business of any discrepancies. The business then decides which items to pay or return. That is Regular Check Positive Pay. The Reversed Positive Pay, the institution initiates the list of items clearing that day. The business then tells the institution which ones to pay or return.
Below are five benefits of “Positive Pay” services and how they benefit both the businesses and institutions:
Check and ACH fraud is significantly lower.
The Financial Crimes Enforcement Network (FinCEN) issued an alert to financial institutions in February 2023 about the alarming increase of “mail theft-related check fraud.” (FIN-2023-Allert003) Financial institutions must be vigilant in identifying and reporting any activity related to check fraud. And it’s happening the old fashion way—checks stolen from the U.S. Mail!
In talking with our clients, they are also experiencing an increase in fraudulent ACH transactions. The good news is that there is help! Financial institutions can offer the Positive Pay and ACH Positive Pay services for businesses to protect them from both check and ACH fraud.
Positive Pay protects both the businesses as well as the financial institutions.
As one can imagine, implementing this service on business checking accounts can save businesses millions of dollars. In addition, one fraudulent transaction can cost a business a monumental amount of time researching and closing old accounts. Once a business experiences fraud, the institutions require them to close the affected accounts and open new ones. This creates a huge amount of work for both the business and the institution. Implementing Check and ACH Positive Pay services on the main business operating account always pays off.
Increased internal controls for businesses.
A bank client once shared that a business customer used to “pre-sign” checks and leave them with his bookkeeper. During his vacation, the owner called the bookkeeper and asked her to issue a check as a matter of urgency. The bookkeeper happened to also be out of the office. She asked her assistant to “go to her desk and open the drawer where she would find several pre-signed checks.” The bookkeeper’s assistant issued the urgent check as requested. But she also issued a check payable to herself for $3,500.00!
When the check cleared and the customer found out about the fraudulent check, he contacted the bank in a panic. Guess what? The bank was not liable for this fraud and the customer had to absorb the entire loss. The bank offered this business customer the Positive Pay service and he declined it. The business owner pre-signed a legitimate check. Therefore, although the check was not fraudulent, the employee committee check fraud. If this customer had Positive Pay, he would have found out the very next morning and the check would not have been cashed. Small Businesses are notorious for not having internal controls in place and Positive Pay forces them to implement minimal controls.
Increased non-interest fee income for financial institutions.
Financial institutions are starving for additional non-interest income and Treasury Management (TM) services precisely bring that! Positive Pay is one of many TM services that businesses can benefit from. But all these services cost money to implement and to support. Therefore, institutions should charge business customers appropriately. Unfortunately, that is not the case. Most community banks and credit unions give it away for free. They should ask their business customers if they give away some of their products to their customers. I guarantee they would say “no, of course not”!
An opportunity for financial institutions to partner with businesses in the fight against crime.
The goal for business bankers should be to become partners with their business customers. Community banks and credit unions have an incredible opportunity to do so by offering Treasury Management services to their business customers. However, bankers must receive training to understand and value each service that helps businesses succeed. TM services allow businesses to accelerate their receivables, control their disbursements optimizing their cash flow management. In addition, TM services like Positive Pay protects businesses from losing money and time due to check and ACH fraud.
There are more than five benefits of “Positive Pay” services to business customers. I hope these top five benefits encourage your institution to share the value of Positive Pay with your business clients. They will then consider you a valuable partner in their business.