4 ms·

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) a

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.
  - haltingproblem 6y ago
    The last sentence is a pithy summary of the state of the banking industry. Having worked with the banking industry for over two decades, the banking industry is capable of a lot. They have infinite capital and they hire some of the best people on the planet. Fundamentally Banking is risk-averse conservative culture. Their primary focus is "good enough for most people" then don't break it. Absent government regulations from a major catastrophe or an existential competitive threat, they will not change.
  - PeterisP 6y ago
    It's not necessarily a more expensive system, such systems are used for the bulk of bank transactions in many places. It's just that there are some minor disadvantages (a bit of profitability back when higher interest rates meant that any delay brings interest revenue to the bank, but mostly customer habits - no single institution wants to be the one to try and change them) so USA banks won't make such a change unless forced to.
    - mywittyname 6y ago
      Are wire transfers free in Europe? I've only used them a handful of times, but each time the cost was not insignificant, like $30 or so. A quick look around online suggests that price is consistent. This suggests to me that there's a intrinsic cost to supplying the guarantees that a person gets with a wire transfer over something like an ACH. And that's probably why ACH has the shortcomings that it does.

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.
- haltingproblem 6y ago
  The last sentence is a pithy summary of the state of the banking industry. Having worked with the banking industry for over two decades, the banking industry is capable of a lot. They have infinite capital and they hire some of the best people on the planet. Fundamentally Banking is risk-averse conservative culture. Their primary focus is "good enough for most people" then don't break it. Absent government regulations from a major catastrophe or an existential competitive threat, they will not change.
- PeterisP 6y ago
  It's not necessarily a more expensive system, such systems are used for the bulk of bank transactions in many places. It's just that there are some minor disadvantages (a bit of profitability back when higher interest rates meant that any delay brings interest revenue to the bank, but mostly customer habits - no single institution wants to be the one to try and change them) so USA banks won't make such a change unless forced to.
  - mywittyname 6y ago
    Are wire transfers free in Europe? I've only used them a handful of times, but each time the cost was not insignificant, like $30 or so. A quick look around online suggests that price is consistent. This suggests to me that there's a intrinsic cost to supplying the guarantees that a person gets with a wire transfer over something like an ACH. And that's probably why ACH has the shortcomings that it does.