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Cover Story continued Insights and Expertise

At the time, many of us in the payments space thought Nontraditional
it was a dumb idea to replace one piece of paper with
another. But as industry experts David Walker and
Phyllis Meyerson wrote in a 2023 book on Check 21 financing helps
"it worked amazingly well as a transition vehicle from
paper to electronics." mitigate digital

(Walker and Meyerson had run the Electronic Check
Clearing House Organization which established rules payments fraud
for check image exchange in much the same way that
Nacha establishes rules for ACH payments. ECCHO is
now part of The Clearing House.)

From paper to mobile images
Eventually, financial institutions stopped exchanging
paper checks completely, replacing the process with
image exchanges. "Together Check 21 and image
exchange transformed the largest payments system, by
volume, in the world from paper-based to electronic-
based, and it did so in record time," Walker and
Meyerson wrote in Check 21 – a Blockbuster Story.

The Check 21 Act also led to remote deposit capture
(RDC). While originally developed for large businesses,
especially those that received high volumes of check
payments (and could afford high-priced check
scanners), it didn't take long before low-cost desktop
scanners made RDC practical for smaller businesses
and consumers.
The COVID-19 pandemic effectively made RDC a By Chad Otar
necessity. These days, most small businesses and Lending Valley
consumers use their smartphone cameras to capture
check images to make deposits to their FIs. ontraditional financing, often referred to
as alternative lending, has expanded rap-
Checks no longer dominate the payments landscape, idly over the past decade. Online lenders,
but they are far from gone. Instead, they’ve evolved. N fintech platforms and buy now, pay later
What was once a paper-driven system dependent on (BNPL) providers have made it easier for consumers
trucks and airplanes is now largely an image-based and small businesses to obtain funding quickly, often
network moving data electronically between financial without the lengthy approval processes associated with
institutions. Far fewer checks are written these days, traditional banks.
but the value of payments made by check remains
significant especially for businesses. Checks didn’t Speed and convenience, however, come with risk.
disappear. Like the payments industry itself, they Because many nontraditional lending platforms operate
simply adapted to the digital age. digitally and approve loans quickly, they can become
attractive targets for fraud. Protecting digital payments
and borrower data has therefore become one of the most
Patti Murphy is senior editor at The Green Sheet, president of important priorities for alternative lenders seeking
ProScribes Ink (www.proscribes.net) and self-described payments long-term stability.
maven of the fourth estate. Her Today in Payments reports are a
regular feature of the Merchant Sales Podcast. Fraud risks in digital lending
Digital lending platforms face a range of fraud threats.
According to research published by Trustfull, a fraud-
prevention technology provider, the rapid growth
of online lending has created opportunities for
increasingly sophisticated attacks targeting lenders and
borrowers alike.

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