Clearing Up Instant Payments No ‘Stop Payment’ Confusion

Consumers love the opportunity to get paid instantly when they can. After all, who doesn’t want to get their money faster?

But with innovation comes risk — and anything that consumers use will always attract fraudsters looking to steal a cut of the action.

Ingo Money CEO Drew Edwards told Karen Webster that instant payments pose just such an attraction to fraudsters who hope to not only exploit security holes to get paid, but to get paid faster than ever before.

“I think fraud will go up as awareness goes up,” he said. “We’re living in nirvana right now with push-to-card and corporate disbursements and P2P [peer-to-peer] payments going instant because it hasn’t become high profile enough for the real bad actors to start showing up.”

But Edwards said the bad guys eventually would — and in fact, they’re already starting to creep in on the margins. And while instant payments done right offer lots of safety advantages over traditional paper-based counterparts (and bring lots of new authentication power to the table), they’re also irrevocable when done right. Edwards said that creates an opportunity for fraudsters of which users must be aware.

“There is nothing Venmo can do to stop a consumer from willingly sending their money to a crook,” Edwards said.

A New Application For Smart Social Engineering

Edwards said consumers reared on writing checks are used to three- or four-day hold periods that act as a cushion between the time they write a check and the time they discover they didn’t mean to send the funds. The institution of the check-hold gives consumers a claw-back cushion in the event of an error.

But clawbacks don’t exist in the world of instant payments. There’s no hold period; once a consumer presses the send button, those funds flow instantly, and the money goes into the recipients’ hands.

“In our experience, doing a digital transaction gives you more room to build in authentication and make sure you know whom you’re paying,” Edwards said. “But if you’re paying a crook and you let them trick you into doing that, then all instant is going to do is make sure the crook gets to keep the money.”

Consider the enterprising social engineering fraudster who convinces an unsophisticated Venmo or Zelle user with a clever scam and gets the person to voluntarily send money into a crook’s account. Instant payments technology won’t spot that, and if the consumer doesn’t recognize they’re sending someone they don’t know large sums of money on vague promises, an instant payments platform isn’t going to help.

But Edwards said he doesn’t believe the fact that fraudsters can leverage instant payments is a point against the idea. He said instant payments clean up many other fraud wellsprings in the world of disbursements, including everyone’s low-tech favorite: mailbox fraud. A fraudster waiting patiently on the curb for the mailman to come by can’t steal a payment pushed directly into a consumer’s account.

Moreover, instant payment authentication technology also stands as a bulwark against the modern equivalent of mailbox fraud — fraudsters who attempt to slip into accounts masquerading as someone else to re-route payments to themselves.

Sender Beware

As the pandemic has pushed the use of P2P payment vehicles like Venmo and Zelle to the forefront, fraudsters have predictably followed and made use of scams to convince the unwitting to pay.

Edwards said it’s a problem that P2P players are taking increasingly seriously. For instance, when he recently attempted to send his daughter money using a P2P service, a big pop-up window appeared and asked if he really knew the person and wanted to give them money.

“Well, if you’re in the payments business and you’re paranoid like I am, when I saw that message, I said, ‘Hey, honey, I’m just going to send you a $5 test payment first,’” Edwards said.

He did, it went through, then he sent the full amount. Edwards got another warning pop-up that he ignored, but he appreciated the lengths the firm took to prevent him from making an error.

“This is not a reversible instrument a customer is getting ready to use, and I think that’s an education thing for people,” Edwards said. “And I think they get misled with this cool, friendly relationship they have with whatever provider and think, ‘Well, if I make a mistake, they’ll get my money back.’”

But instant payments aren’t reversible, and consumers can’t get their money back, which means senders need to make sure they know to whom they’re sending money.

And when they aren’t sure? Well, Edwards joked: “You should probably write them a check.”