Everything’s digital now, and paper check fraud hails from a bygone age, right?
Wrong.
Data finds the exact opposite, as the glaring problem with remote check capture is that it leaves the actual paper instrument still out there to be altered or able to be cashed a second time.
It’s a problem needing more than one company or approach. That was the theme of a panel discussion where PYMNTS’ Karen Webster was joined by H&R Block Chief Financial Services Officer Les Whiting, Urban FT Executive Chairman Richard Steggall and Ingo Money CEO Drew Edwards to discuss their tripartite partnership to curtail remote capture check fraud.
Recent PYMNTS data finds that fraud losses run about 2% of revenues — $51 million annually for the average FinTech. Before adding a new mobile check deposit feature this fall, H&R Block teamed up with industry experts in check fraud prevention and mitigation.
“When we look at where our deposits are coming from, obviously we see a large inflow at tax time. But we’re also seeing strong deposit volume coming from other sources, like linking an external bank account and transferring money into the account, and direct deposits,” Whiting said.
While remote check deposit is crucial as “many of our customers … don’t have the ability to get paid by electronic check deposit. Many of these customers are getting paid by check,” he said, it leaves a window unlocked for fraudsters. That’s why the three joined forces.
With Urban FT providing the remote check capture tech for mobile banking app Spruce, Steggall said, “it’s about adding value to the Spruce product. Most importantly, and I think this is why H&R Block also brought Ingo and Urban FT together, is that you’ve got to combat fraud constantly.”
Get the Study: The FinTech Fraud Ripple Effect
Paper Cuts
An acknowledged paper check fraud Jedi, Edwards said FinTechs mistakenly believe they can rely on the same data as banks when it doesn’t work the same with remote capture fraud.
“We see the same bad actors and we see them outside of the traditional data sources,” he said. “They’re hitting everybody from PayPal and Venmo to Green Dot, NetSpend, to the challengers.”
Ingo and H&R Block have a long history in check processing, hence this latest project.
Edwards noted, “When they came to us this time, they had decided they needed a more traditional check deposit experience, but wanted to leverage the same rigor, methodology and data that [Ingo has] been using for check cashing,” with options to hold funds for the all-clear.
And because paper check fraud is a different animal than most digital fraud, “partnering with Urban FT and their turnkey remote deposit capture solution and our nationwide footprint on risk management was the best solution for H&R Block,” he said.
Whiting was part of the team that built Wave Financial, later acquired by H&R Block. He said much of Wave’s original check fraud tech was built “in a legacy way” that couldn’t leverage data and technology sufficiently to combat check fraud.
“We found real challenges with that,” he said, knowing as they built Spruce for great customer experience that bad actors would find a way to “get access to a Spruce account and get money into it.” That’s when he turned to Ingo’s data expertise and Urban FT’s technical chops.
Whiting added, “I’ve been bugging Drew for years about getting access to Ingo’s incredible data set and a level of expertise around understanding unique risks that checks bring, and how we could couple that with the technology from Urban FT and wrap it in a Spruce experience.”
A Lesson in Fraud for Neobanks
On one level, the success of this partnership reveals chinks in the armor of neobanks and nonbank entities that believe the key to stopping fraud is sitting in their first-party data and traditional bank data sources.
“I think most of what I would call neobanks are newbies to check fraud and believe the way they can control risk is because they know their customers and limit access to only their best customers,” Edwards said, noting that these FinTechs will restrict access to accounts they don’t know well and they consider high risk while letting others pass.
Edwards’ counterpoint is this: “What we’ve proven over time is that this method alone doesn’t work in part because there’s a lot of friendly fraud when it comes to the paper check.”
Steggall said pairing traditional and nontraditional data from Ingo with Urban FT’s back end is a “one plus one equals three” equation. “What H&R Block has solved by leveraging these different data elements” fixes their problem, he said, “but it’s an industry-wide problem that neo and challenger banks are quickly awakening to.”
The moral of the story goes something like this: fraud partnerships are necessary now.
“The entire industry is seeing unprecedented levels of fraud,” Whiting said. “If you’re not making investments in both fraud management and customer experience, you’re just not going to win.”
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