Paper Checks, COVID-19 And The Flaw With Analog Relief Payments

This week after what has felt like a steady drumbeat of bad news, American workers who’ve seen their employment either greatly truncated or completely evaporate in the face of the global COVID-19 outbreak finally got a piece of good news. Government relief is reportedly on the way.

During a White House press conference Tuesday, (March 17), Treasury Secretary Steven Mnuchin told reporters of the administration’s intention to get relief funds into consumers’ hands as quickly as possible.

“We’re looking at sending checks to Americans immediately. What we’ve heard from hard-working Americans is many companies have shut down, whether it’s bars or restaurants,” Mnuchin said. “Americans need cash now and the President wants to get cash now. And I mean now as in the next two weeks.”

It’s a bold proclamation and one whose details are still being worked out — who exactly will receive checks (early reports indicate there will be income capping); how much the disbursement will be for ($1,000 is the most common estimate, but Mnuchin indicated the final dollar amount could be higher); and when exactly they will be available remain to be resolved.

What is almost certain, however, Ingo Money CEO Drew Edwards and Karen Webster noted in a recent conversation, is how those payments will go out — which is by check.  The government has digital disbursements — for tax refunds, for Social Security payments and the like — but those all require a registration process for consumers that gives the government both access to an email account to reach them and a mechanism to authenticate them and the accounts they want their funds deposited to.

“From the government point of view, the check is their most effective ad hoc payment method because at least with a check, they can throw it in the mail and be done with it,” he noted.

The problem for the citizen who receives that check, however, is that they can’t just receive it and be done with it. Checks and their slow processing time, he said, means the workers who need the funds the most will be waiting the longest to get them, even if they all go out in the mail promptly 14 days from today.

The Great Hold

That people are going to absolutely need the $1,000 or however much the disbursement ends up being, Edwards noted, is because the economic situation in the U.S. has turned critical nearly overnight for almost half of all American workers who live paycheck to paycheck. In a world of social distancing, or sheltering in place, many of those workers are working far fewer hours or not working at all — meaning those paychecks just fell dramatically in amount or stopped.

Further, many of these paycheck-to-paycheck workers have spent their sparse funds stocking up for social isolation like everyone else, meaning they’ve also likely just laid out more money than usual in a week picking up a two-month supply of essentials over fears of not being to get access to them later.

Now, add that to bills like rent, power, and cell phone are still going to come due on the first of next month; the reduced (or no pay); and forced overspending on staples, suggests that they are likely to be more overdrawn bank accounts among workers in the next few weeks. And that means, Edwards said, when those workers walk into their bank with a “weird-looking government check that no bank employee has ever seen before they are, under no circumstances, walking out of there with that money.”

Edwards described what is banks and paper check protocol 101: If there aren’t enough funds in the receiver’s account to cover the amount of the check, the bank will hold at least some portion of the funds for between three and 10 days. And that he noted, is a best-case. Banks’ fraud guidelines are even stricter when consumers use things like mobile check capture — which means the waits are even longer.

In fact, he noted, one can only expect the risk aversion to go up because times are far from normal. Once the government announced it would be sending out some 200 million $1,000 checks, that was also a clarion call for thieves and fraudsters.

“Mobile deposit fraud was a $2 billion a year problem for banks before we were in a crisis where everybody’s desperate and people are fighting over bottles of water and toilet paper in the supermarket lanes,” Edwards remarked. “What do you think happens to people when they get desperate? When they haven’t been paid in a few weeks? They steal checks. So the fraud goes up, not down. The risk aversion goes up, not down.”

A fact that holds particularly true for government checks given the perception that they are guaranteed funds. Amateurs and criminal gangs, he noted, will pinch checks directly from mailboxes. Professionals will set up advanced printing shops to create scores of professional looking counterfeit checks. Banks know that, Edwards said, and banks are bracing for it, which means there will likely be a lot of Uber drivers, restaurant workers and others who will be holding a $1,000 check in their hands — and find that trying to cash those funds and then use them will take twice as long as they thought.

The Lesson To Learn

This crisis is here, the need is great and consumers, Edwards said, will get clever in a hurry to shorten the distance between that check and funds available to use. Digital consumers won’t have to wait, and there are a number of digital endpoints and wallets that can accept such a check and receive money into their bank accounts instantly after a couple of clicks. Edwards pointed to a number of players, powered by Ingo’s platform, that can accept those checks. In less than a minute, they use the data on the check, the data the customer supplies, some third-party databases and its artificial intelligence (AI) to marry all that data together and authenticate the customer. From there, he said, those players can push funds instantly to the customer.

The time is now, he said, for everyone, including the federal government, to lay plans for a better, digital way of moving money to citizens in times of a crisis. Being analog in a digital world isn’t merely an inconvenience. In a crisis, it has the potential to create severe unintended consequences for the very people the government is trying to help. And although there is something unbelievable in talking about the next pandemic while the early days of the current one seem to be a long way from being sorted out, Edwards noted, the reality is that there will always be something coming next.

“It’s too late to do anything about what is happening now. But this is absolutely a lesson going forward.”