Long live the digital transformation — given that it’s secure.
Ignoring stock market gyrations and macroeconomics, the fact is that we are far from finished applying new digital approaches to solving intractable payments problems, namely fraud.
Money mobility, for example, is dogged at every step by fraud and risk despite billions of dollars in investment because fraudsters have big resources too. There’s a constant need to put money in transit and enable new transfers and payments while managing the risk.
To that end, FinTech Ingo Money is bringing its new Inbound Digital Transfer and Risk Services to market in May, taking a novel approach to fraud and risk management. It’s an application programming interface (API) with some interesting new capabilities.
In a conversation with PYMNTS’ Karen Webster, Ingo Money CEO Drew Edwards and Executive Vice President and Chief Product Officer Lisa McFarland talked up the new offering, designed to protect issuers from fraud risk associated with inbound debit, digital wallet and bank account transfers, without introducing friction to the customer experience.
Why now? Edwards said demand is coming from basically every bank-like entity.
“Traditional banks that are moving into the digital realm and are opening new accounts online, the neobanks or the challenger banks or the issuers of all types in that space that are opening new accounts and looking to fund those accounts safely and experiencing fraud,” he said.
Giving a somewhat grim assessment, McFarland said that when issuers are confronted with fraud, they can’t adequately control their answer.
“Unfortunately for them and for their customers, [their answer] has been to restrict access to this type of funds transfer capability,” she said. “They don’t have a way to manage it, so they’ve just … cut it off entirely.”
That’s money immobility, which is anathema to payments. Inbound Digital Transfer and Risk Services aims to quell issuers’ fears in this area by taking on the responsibility for risk itself.
Calling the new service “very similar to what we’ve done historically,” Ingo’s specialization in paper check fraud and related forms is over a decade old, well-practiced and data rich.
That’s because Ingo cut its teeth on the paper check — “a very risky instrument,” she said.
As neobanks and legacy financial institutions (FIs) all came knocking for risk expertise, “[w]e really set about applying our techniques, our experts to solving this problem for inbound transfers from accounts, from debit cards and so forth,” she said. “That’s really what led us to the launch.”
See also: What is a Money Mobility Network?
Telltale Data and a New Zero Fraud Guarantee
McFarland explained that when Ingo Money processes transactions for clients, it collects customer risk attributes from the client and, in the background, watches for telltale signs of fraud.
Predictive customer data is enhanced with transactional data collected real time.
“We are collecting device-related attributes … 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 attributes,” she said.
By amassing as much data as possible and supplementing it with additional third-party data that assists in risk modeling, “we’re able to go through this process of scoring a transaction,” she added.
“We have the added advantage that we manage risk holistically across our network,” she said, referring to Ingo Money’s strong footprint in the digital financial services space and its ability to identify fraudulent activity with one client and systemically reduce or eliminate the risk for all others, a technique that has proven effective with check risk management.
However, as Edwards said, perhaps the major differentiator is that Ingo Money is “offering a fraud guarantee as part of this package of services.”
“Our gateway can process these inbound transactions,” he said. “We’re adding risk management for a small incremental fee … leveraging all of our data, our machine learning and our expertise.”
He added: “We’re offering the zero fraud guarantee for an incremental fee for those that just can’t stomach it or are scared of it, but also to make sure people understand we eat what we kill. We’re willing to put our balance sheet and our name behind these transactions.”
Edwards likened a FinTech trying to manage this risk on its own to being on an island. With its visibility across all of its clients, Ingo is better able to control bad actors. Its clients benefit from the broader market’s experiences.
Said another way, island-hopping FinTechs have the advantage of more data and overall experience with more types of fraud.
Edwards said the company’s core focus is not on building a customer base, marketing, customer acquisition, robo-advising or “any of that stuff… we [move money for our clients, which means that we] deal with bad actors [trying to game the system] every day, all day. We’re good at that.”
Calling checks and digital transfers two of the primary methods of funding accounts, Edwards said: “We’re making [our expertise and what we have learned over the years in managing check fraud] available to the broader market to help solve the inbound money problem.”
Read also: Meeting Consumers’ Money-in Mobility Needs
With Speed Comes Risk; Some Verticals Worse Than Others
McFarland said the new solution supports straight processing at a base level. It adds a risk-managed funds transfer service for “a small incremental fee, but it provides risk-scoring associated with every transaction where we’re returning a risk score to our client and giving them the ability to determine whether they want to move forward with processing.”
Also, there’s a zero fraud guarantee funds transfer service. Clients can “choose to guarantee all customer transactions, or classes of customers like all new users, or all customers who are transferring funds from a new source account,” she said.
Edwards added that “if we decline a transfer or decline to guarantee a transfer, our client can still override and process that transaction, which we also understand to be a differentiator in the marketplace.”
Asked the scope of the inbound transfers problem for FinTechs, Edwards said: “It’s as big as this new issuing universe.” He marveled at the meteoric growth of nonbanks and the magnitude of the difficulties they face in safely funding many new digital account types.
Of the nonbanks, he said, picture that “they’ve now opened a brand-new account, which they can do faster than anybody else. They’re really good at acquiring customers,” but bad actors gravitate to these new players and models, and they are gaming them as fast as they can.
Making funding an account as frictionless and speedy as opening an account is critical. And yet with speed comes a greater risk of fraud.
Accounts without money are of no practical use to anyone, and more than two years into the digital shift, the industry is still grappling with this complex issue.
Calling it a “monumental problem for everybody,” Edwards told Webster that “it just doesn’t work to have this awesome customer acquisition strategy and be able to open an account, KYC, the customer, do the whole thing in 15 minutes … and then move to a trial deposit on an ACH before you make funds available in a week or mail a check in.”
“It comes to a screeching halt, and they lose a lot of customers that they’ve now incurred acquisition costs for,” he said.
He admitted that “there will be riskier verticals.” But that’s baked into the new solution.
Risk management requires “a market-wide view and being able to spot patterns and being able to apply the tools to make judgment decisions, not unlike loaning money,” he said.
“What’s the likelihood that this is going to go bad on you?” he said. “It’s not a perfect science. But we wholeheartedly believe that you can’t solve for this effectively on an island.”