Fintechs Need to Catch Up: Traditional Banks Still Better Protect Against Human Mistakes

Last fall, I paid out $90 to each of my roommates for ‘new apartment’-related costs via a popular digital wallet. A few days later, one of my roommates mentioned that she never received her share. I took out my phone and logged into the app. Turns out, I sent $90 to the wrong person.

Messages to the recipient for the return of my cash went unanswered.

Consumers lost more than $16 billion to fraud and identity theft in 2016. That’s up 16 percent from the year before. But what about those transactions when customers make an honest mistake, like I did?

While peer-to-peer money transferring services are popular because of their convenience—transferred funds are made available to you immediately (albeit it takes a few days to transfer any funds to your personal bank account)—many of these services aren’t legally held accountable for consumer deposit protection in the same way your traditional bank is.

For example, if a Venmo customer sends money to the wrong person, customers are first directed to contact the other user. Whether you get your money back is pretty much dependent on the other user accepting your request. Or whether you won’t. (Did I mention, as a student, that $90 meant a lot?)

So here’s the rub. These apps are built to focus more purely on cost, needs and great service. If you lose your money, they will do their “best to help”. But doing the “best to help” is different than the up-to-$100,000 in savings of your dollars mandated to be protected by the U.S. government when held in accredited financial institutions.

A report found that fraud against deposit accounts cost banks $1.9 billion in losses in 2014, but banks also prevented $11 billion in fraud.

By law, banks have 10 days to give customers provisional credit. That’s temporary credit if you have any unresolved disputed transactions. The same isn’t true for many of the cash transacting applications you can download for your mobile.

Some players in the fintech space have already better protected against fraud or user error better than others. On social media platforms like Snapchat and Facebook Messenger, where you can send cash between consumers who already have a verified relationship, it’s more challenging to send money to the wrong person when the transacting function is built into an existing relationship and channel of communication. Venmo’s new QR codes would have been a nice feature to have last fall.

But, ultimately, sending money to the wrong person is a human mistake. One that is especially shaping up to be more ubiquitous now that our drunken selves can swipe away money on ‘gamified‘ money transferring apps and platforms.

Going forward, fintechs in the peer-to-peer payments space would do well to enhance measures to help protect customers against fraud as well as make it more challenging to make those human mistakes to begin with. Even when—no, especially when—we’re a bit tipsy.

Cadence is a fintech reporter and writer at Fintech Unltd, where she covers the changing landscape of financial technologies. Previously, Cadence interned at Psychology Today, Business Insider and the Wisconsin State Journal. Cadence is interested in how science and technology intersect with power and culture and is curious about the world we are creating for tomorrow, consciously or not. She graduated from the University of Wisconsin–Madison in 2017 with degrees in Journalism and Chinese. Send tips and story ideas to Cadence at [email protected] You can also follow her on Twitter @cadencebambenek.