Tinder Swindler, RTP, and Fraud

I watched Tinder Swindler last night on Netflix and was appalled at how this man managed to Ponzi Scheme women into paying for his other dates and adventures, yet is still a free man walking around. And the women are still paying off their 6 figure debts!

Besides my utter lack of faith in the justice system, fraud is one of the biggest problems in payments - managing chargebacks is critical.

Also, real time payments (RTP) has been on the rise, and I am totally for it. Payments are slow as hell, and has been for a very long time, so any development to make things faster has me excited. But obviously this comes with risk - as RTP has really high fraud rates!

It is so easy, as we saw from Tinder Swindler, to scam someone into sending money, and then banks not be able to prove that it was never 'approved', and thus the person is stuck with lost money and potentially debt. There are no consequences.

As neobanks have exploded in recent years, that has also contributed to fraud because to fraudsters, it looks like a new game with few rules and ways to catch their scams.

Zelle, started in 2017 by banks, and last year had almost $500 billion sent through its systems, is one of the pioneer RTP methods and recently we saw on the NYT that Zelle fraud is frankly fucking crazy, and consumers are the ones who are the ones getting dicked. I use Zelle only to send money to those I trust, which is usually the case, but if someone stole my phone and hacked my account, it would be SO easy for them to send money around.

Banks view Zelle as cash. Once the money is gone, it's gone. And it's very fast.

There is no 1 or 2 day delay, so retrieval is impossible once it is sent. Their argument is that you can't "catch intention", aka if you intentionally send money to someone else.

Real time P2P payments is also really popular in the UK, and it was introduced much earlier, around ~2010. Europe in general is faster with payments and is a role model for many nations around the world trying to build faster payment rails. But I guess what is overlooked is also that their fraud is insane - people can lose 6 digits or more as well with no way of saving their money!

And fraud isn't just RTP, it's card present, card not present, account opening, and more. There are many ways to commit fraud.

Obviously no one wants to bear this huge risk of fraud.

So startups usually use a third party service, such as a BaaS partner to help manage. Larger fintech companies might want to build in house but obviously that is a huge lift and might not be the best strategic move. Or they might just accept the large amounts of fraud in the chase for high growth and exit opportunity. For banks, they pass along the risk to customers - so if you make a mistake or get scammed, that's on you, no matter how much it is.

Fraud management thus has always been rather collaborative between originating banks, merchants, receiving banks, and consumers.

Those like Visa or Mastercard or Amex have invested billions to create reliable fraud systems such as Early Warning (owns Zelle). Everyone has to work together because banks can block merchants or consumers with fraud-like patterns and develop a set of rules for active reporting and enforcement. Trust is built over time.

Zelle is very much a consumer product right now - not really a rule maker.

It needs to set some rules to help reduce fraud, and not wait for others to dictate the rules and in the meantime, because a product with a horrendous reputation. Aka be more proactive and less passive. Early Warning, same things. It should work to build trust amongst merchants, consumers, and banks to help establish rules and become an actually more standardized, safer, and centralized way to manage payments fraud. Just like how Visa / Mastercard / Amex have.

TL;DR there needs to be better checks and balances and reporting from these new products themselves amongst big payments players, as well as consequences / penalties.