Robinhood was alarmed by the rising fraud cases, as fraudsters improve their tactics to exploit customers and steal money. Robinhood becomes the latest fintech to block consumers from transferring money from certain banks.
Fintech company, Robinhood has blocked consumers from transferring money from certain banks to prevent fraudsters from siphoning off money.
The fintech company said in a statement to Forbes that Robinhood prevents the transfer from routing numbers that display a high pattern of return and fraud rates. “It is a standard practice to prevent transfers from institutions that are sources of sustained levels of fraudulent activity, whether digital banks or traditional banks.”
“When Robinhood and other financial institutions take the step to prevent transfers from a particular routing number, it’s because the fraud problem originates at that institution,” it added.
Tommy Nicholas CEO of Alloy noticed this ban when he tried to move money from his bank account to Robinhood. The brokerage app declined the transaction even though he has been utilising the same bank account for Robinhood transfers for years.
It affected investment service Betterment while digital banks, HMBradley and One also temporarily banned money transfers from other digital banks.
Robinhood has declined to comment on the specific list of banned institutions, but sources confirmed that the list was huge and it includes neobanks. However, Forbes has named some institutions, which include Lending Club, Sutton Bank, First Century Bank, Green Dot, Metropolitan Commercial Bank, Lincoln Savings Bank, PNC Bank and BBVA USA.
Ease of blocking accounts
According to the security company, OneSpan, 85% of financial institutions witnessed fraud in the process of account opening in 2020.
Nicholas said that new challenger banks are growing fast and have a higher mix of new accounts. For example, Chime has about 13 million users which increased by over 30% last year. “We have never, ever seen purely digital new accounts opened at this rate,” Nicholas said.
Fintechs find it easy to block accounts from certain companies compared to establishing a high-end approach to fraud detection.
“A lot of institutions are saying, we wish we could do a more nuanced, customer-forward thing, but we're getting slammed,” Nicholas said. “So, we’ve got to do something. It's pretty easy to write a little bit of code: If this bank, do not process. They're taking a very simple route to try to reduce fraud losses and exposure in an environment where there's a lot of fraud going around.”
Increased use and ease of opening digital bank accounts put consumers at risk of getting scammed
A lot of fintechs allow a frictionless sign-up process which is convenient and easy for users, and they can sign up for a bank account within minutes. However, this easy process has made it difficult for companies to determine potential fraud and consumers become a quick and easy target for scammers.