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Ask HN: Why can't banking practices change to prevent money-forwarding scams?

• vanusa 6y ago
  Maybe there's a business model here?
  • criddell 6y ago
    Or maybe a need for regulation. Make it so the banks can't recoup the money from customers and the problem would get fixed quickly.
    • vanusa 6y ago
      That was basically what I meant (and got downvoted for). "A business model of supplying banks with certain technologies to meet regulatory constraints (which could perhaps be easier to realize with the promise of said in place) and stop this from being so much of a problem."
• ev1 6y ago
  > is it more because of logistical reasons? In the US, ACH/cheque cashing with the number on the bottom is a FTP-based legacy system. Your bank floats you the amount as a credit within a few days or a week, depending on the funding source. For example, business cheques usually "clear" faster because they are less risky. But they haven't actually cleared yet, it's a multi day (probably weeks, tbh) situation where you have to download ACH return/error files every day and hope none contain that transaction.
• javajosh 6y ago
  Banking is, from a software perspective, a graph of connected, double-entry ledgers. On the back end, state changes propagate electronically over old and hoary roads (FTP, as another poster mentioned). The businesses that operate these strange constructs are old and powerful, and jealous of their position of authority. And the modern information age has vastly increased their power, as never before has so much information been available for so many transactions! Money is action is state, so the banks know, modulo cash spending, what literally everyone in the world is doing. If regulation and old tech wasn't there to protect their entrenched interests, the banks would have to invent it.
  • anuila 6y ago
    Why was this comment downvoted without reason? Is it incorrect? Edit: downvoted for asking a question. Classic HN
    • ev1 6y ago
      HN probably expects a somewhat technical explanation, not a rant about Big Banking being overlords. Even if it might be correct..
      • muzani 6y ago
        It has a bit of both.
  • haltingproblem 6y ago
    I loved this comment for the first two lines. The third line went off the rail in that it transitioned from mapping banking structures to other well known structures to a emotional rant to finally a conspiracy theory. But it has this strange psychedelic quality to it, like a Matt Taibbi article on acid. I could not bring myself to downvote it.
    • javajosh 6y ago
      I was going for a more Lovecraftian "cosmic horror" vibe, but thanks.
      • haltingproblem 6y ago
        You are welcome, reminder to self - read HP Lovecraft :)
        • javajosh 6y ago
          Do yourself a great favor and read it at night, during a storm, by candle-light.
• patio11 6y ago
  There are many varieties of “money-forwarding scams” and many of them illicitly forward good funds, some with the knowledge of the money mules (a term of art) and some without. With regards to the exact scenario you outline, the core problem is that ACH payments in the US cannot, at the receiving bank, be guaranteed to represent good funds except probabalistically after the ACH return window has passed, and may not be good funds even then. There are both legacy reasons why this is true, dating to the clearinghouse system for paper checks, and UX reasons why it remains true. Many remediations against this and similar attacks create winners and losers in the legitimate economy. For example, increasing the friction to receive a transfer from a novel source impacts the ability of family members to help relatives in event of emergency, hits the cash flow of semi-formal businesses severely (many sole props operate out of personal accounts and may take dozens or hundreds of first-time payments a month), affects new clients in the onboarding window (who you can’t usefully exclude because they make up a large chunk of accounts which will participate in this fraud), etc. Note that another way to phrase “Ensure customers don’t end up holding the bag” is “Banks should be less willing to extend credit to poor people” and that there are non-trivial policy and justice implications of that proposal. It is not widely understood by consumers that a US checking account is a credit product, but it is, and the operation of many households assumes this fact of the status quo.
  • javajosh 6y ago
    Have you ever considered what a banking solution from first principles would look like? Ignoring cash for the moment, consider that banks are properly characterized as a connected graph of double-entry ledgers, where the edges are network connections. As such, it should be trivial to a) assign a public/private keypair to each bank node, b) encrypt and/or sign outbound messages, and c) have it work in real time. We could even impose serializability on the whole network, and still operate in real time. Perhaps it is impossibly naive to think that centrally controlled bank systems could be so straight-forward and simple, free of precedent and regulation, but I'd like to understand why.
    • mywittyname 6y ago
      The banking industry is capable of near real-time, international, encrypted, irreversible transactions in which the identities of persons on both sides of the transaction are confirmed. It's just a more expensive system which requires more hoops than is necessary for the bulk of bank transactions. I'm sure we could build a better banking system if we scrapped everything and started over. But what we have is really good enough for most people.
• jyu 6y ago
  The answer to the categorical "why do scams exist" is based on current systems which have misaligned incentives. Banks do not view the problem of money forwarding scams large enough to fix. If there were added regulatory burden of getting fines, class action lawsuits, pressure from the media or Congress, then the economics may change enough to fix their operational deficiency. Look at other dark patterns that used to exist but no longer do, like suppressed salary collusion between Google, Microsoft, Apple 15 years ago vs now. As technology and society changes though, more opportunities for new dark patterns emerge. It takes a lot of dead bodies and time before politics and policies take notice and build up enough outrage to catalyze a change.
• chrisgoman 6y ago
  This is why a lot of places don't accept personal checks. This has been around for decades "bounced checks" - NSF (not sufficient funds), REFER TO MAKER, STOP PAYMENT, etc. Not only do you not receive the funds, you are fined by your own bank. It is a crime in most states (keep the returned check handy) https://oag.ca.gov/consumers/general/bad-checks https://oag.ca.gov/consumers/general/bad-checks but kind of hard to enforce
• mike_d 6y ago
  The same reason any type of financial fraud continues to exist. The costs associated with fixing the last 1% exceed the total liabilities of that last 1%.
• el_don_almighty 6y ago
  Because fools are so ingenious
• mcv 6y ago
  But banks do prevent old-fashioned check scams. By providing better payment options. I frankly don't know anyone who still uses checks for anything, and that's probably with good reason. Instead of sending a check, the payer could simply transfer money. Though it would be nice if you could pay by having the bank hold the money in escrow and releasing it upon proof of delivery. That would be a really nice improvement that I haven't seen yet (at least not for small payments).
• chrisgoman 6y ago
  Here's a business model https://techcrunch.com/2020/10/06/nivelo-nabs-2-5m-seed-to-reduce-risk-in-digital-ach-payments https://techcrunch.com/2020/10/06/nivelo-nabs-2-5m-seed-to-r...