For banks and for the FinTechs, the first moments of engagement are among the most critical.
A customer — individual consumer or business — logs in, sets up an account and makes the move to deposit money.
Accepting money means that the financial institution (FI) where the account is held must be sure that they are doing business with legitimate clients.
Thus begins the oft-laborious process of authentication, of checks and balances that, in effect, winnow down the would-be customer base. After all, in the absence of iron-clad verification, the FI or FinTech has no choice but to turn away business, lest it run afoul of regulations.
The fraudsters are proving especially creative — as they open mule accounts online and transfer funds across the digital universe, disappearing with their ill-gotten gains. The FIs and FinTechs are left holding the bag. And in some cases, the bad actors “double deposit” checks, which is also a form of fraud.
The issue has some urgency, given the groundswell of banking activity that has lasted through the pandemic. PYMNTS’ data shows that 59% of United States consumers opened at least one new account with a financial services provider — bank or nonbank — in 2021, as detailed in a recent Money Mobility playbook.
Get the playbook: The FinTech’s Guide to Making Accounts Money Mobility-Ready
And across at least some payment types — notably checks, to name but one example — the friction in the system is cutting customers off from services, and FIs from optimizing their customer rosters.
As detailed in an interview with Karen Webster, Ingo Money CEO Drew Edwards said waiting even 10 days to make funds available doesn’t stop the risk on check deposits. In Ingo Money’s experience, about 12% of check returns occur after 10 days.
Proceeding With Caution
In many cases, an issuer may decide to only make check services available to direct deposit customers who have been through at least two pay cycles with the FI. That demographic tends to be less than 30% to 40% of the account base, according to Edwards. By extension then, a majority of potential consumers are kept from accessing those services.
The implications are clear for the FinTechs that must support the money-in capabilities for the paper-based deposits (and in some cases might aspire to be full-service nonbanks). At the same time, they must be able to allow this activity without leaving themselves open to fraud. In one way of responding to the problem, FinTechs boost their “filters” to be so conservative that they accept as few as 10% of eligible transactions — leaving a lot of business on the table.
And, with the inexorable rise of digital banking, a range of apps and platforms have account opening capabilities in the mix, with a broader range of what we might term “attack vectors” for the fraudsters in place too. There’s been a 41% increase in attempted fraud year over year across the board, with the highest increase occurring in mobile channels at 61%.
Money mobility becomes a fraught endeavor, as protocols for authentication and fraud monitoring are varied and fragmented in an age where money moves ever faster — and, indeed, is moving in real time.
The convergence of advanced technologies — at a platform and device level, taking in and analyzing reams of data — can do much to streamline and improve the authentication processes.
In one example, Ingo Money announced the availability of its Inbound Digital Transfer and Risk Services to market in May. The application programming interface (API)-focused offering is designed to protect issuers from fraud risk associated with inbound debit, digital wallet and bank account transfers, without introducing friction to the customer experience.
The service examines device-related attributes spanning the location in which a transaction is happening, the consumer’s behavior when they’re interacting with the site or the app, and account-related details.
Ingo is also offering a fraud guarantee as part of the service, for an incremental fee, which in turn might give some peace of mind to the enterprises embracing digital and check deposits, especially across real-time channels.