Ingo’s Nifty Niche

How do you combine mobile check deposit with prepaid cards to offer immediate funds to customers without bank accounts? Ingo Money says its mobile app is the answer.

Mobile deposit capture technology has made it easier than ever for consumers with bank accounts to deposit a check. Simply open the app, click a photo of the check, submit it to the bank, and wait for verification from the bank that the check has been deposited. No more running to the ATM or a branch to make a deposit.

For consumers without bank accounts, however, mobile deposit capture has not been a practical solution. To answer that need, companies have launched services that allow these consumers to use mobile deposit technology to load checks directly into prepaid cards.

That can be a high-risk business, though, since these consumers, like all consumers, want to use their cards right away. So now a movement is afoot to combine mobile deposit with immediate funding on prepaid products while controlling risk.

Out in front of this movement is Roswell, Ga.-based Ingo Money Inc., a provider of mobile check cashing and digital payments technologies, which has partnered with several leading prepaid card networks, such as NetSpend, to distribute its nearly 3-year-old mobile deposit capture app.

The target audience for the app is the underbanked and unbanked. In 2013, 20% of households in the United States were underbanked, while 7.7% were unbanked, according to the Federal Deposit Insurance Corp.

General-purpose reloadable prepaid cards, which totaled $99 billion in value in 2014, according to Maynard, Mass.-based Mercator Advisory Group, are a popular payment vehicle among these two demographic groups because they allow access to the Visa and MasterCard networks. This means these prepaid card holders can use their cards to make purchases or pay bills online, get cash at ATMs, rent a car, or book a hotel room.

When the cardholders are ready to load funds into their cards, Ingo Money gives them two options. They can pay a fee and receive immediate access to the funds. Or they can forgo the fee and wait 10 days for funds to become available. More than 500,000 unique customers have downloaded the app, registered as a user, and linked a funding account.

“Immediate access to funds is a value-added service for this market segment, because there are a lot of consumers within this segment that need and want immediate access to funds,” says John Leekley, founder and chief executive of Remote DepositCapture.com, a Web site that follows mobile deposit capture.

Indeed, in the mobile channel, consumers cashing a check through Ingo Money to fund a prepaid card choose immediate funding 92% of the time.

‘Disruptive Price’

The potential adoption and use of Ingo Money’s app is sizable. The company cites a study conducted earlier this year by the Chicago-based Center for Financial Services Innovation that showed there are 138 million “financially unhealthy” consumers in the United States.

That group includes consumers who struggle to meet routine financial needs and live paycheck to paycheck. These so-called just-in-time consumers typically need fast access to their money to meet their financial obligations and avoid late-payment fees.

“Consumers that want instant, irreversible funds deposited onto a prepaid card are going to want to use our service,” says Drew Edwards, a former banker who founded the company in 2001 and serves as its chief executive.

As part of its strategy to attract these consumers, Ingo Money has developed an aggressive pricing structure for immediate funds availability. The company’s fee for cashing a payroll or government check with a preprinted signature is 1% of the amount. Consumers depositing all other types of checks, such as personal checks, cashier’s checks, money orders, and handwritten payroll checks, are charged 4% of the amount. Regardless of the size of the check, a $5 minimum applies.

By comparison, check-cashing services charge between 1.5% and 2% for payroll or government checks, according to Edwards. The cost to cash a personal check can be as much as 10% of the amount, even if the check is cashed at the bank on which it is drawn, Edwards says.

“Thirty-eight percent of checks written are two-party [personal] checks, which a lot of tradesmen and household workers are paid with for their services,” says Edwards, who adds about $1.4 trillion in two-party checks are written annually. Another $3.6 trillion in checks comes from the consumer-to-business category, which includes bill payments and checks from consumers to micro-merchants/small-business service providers.

“Without a bank account, it can be expensive to cash those checks,” Edwards says. “What we offer is remote check cashing with the ability to push funds onto a prepaid card through a prepaid network and have those funds immediately available at a competitive, if not disruptive, price.”

‘Two Elements of Risk’

While Ingo Money is attempting to distance itself from competitors using a combination of aggressive pricing and immediate availability of funds, the real key to the app’s success will be the company’s ability to manage fraud.

In 2014, a study by Jacksonville, Fla.-based Fidelity National Information Services Inc. (FIS) found that the risk of fraud for checks loaded into prepaid cards using mobile devices is 33 times greater than for mobile deposits into bank accounts.

FIS reported that about 10% of consumers who used mobile deposit technology from October 2012 to September 2013 to load a prepaid card or mobile wallet triggered a fraudulent return, most often resulting from counterfeit or duplicate items. By contrast, the return percentage for mobile deposits into bank accounts was 0.3%, FIS says.

“There are two elements of risk with these types of transactions,” says Leekley. “The first is the person who is initiating the transaction. The second is the type of check being cashed. Fraudsters trying to game the system are more prone to do it with a payroll and government check because they are typically made out for larger sums than personal checks.”

The most common form of payroll check fraud, according to Ingo Money, is forgery, while cashing a stolen check is the most common form of fraud for government checks. “Although fraud attempts on payroll and Treasury checks are common, with proper systematic screening and validation, fraud can be detected quite effectively, yielding low losses,” Edwards says.

To manage risk, Ingo Money uses a proprietary algorithm built in part with information collected from its 5,000 check-cashing outlets, the first of which opened in 2001. The company counts more than 3.5 million customers with transaction histories in its database.

In addition, it uses IP-address verification to determine how many prepaid accounts are linked to the device initiating the transaction and whether the device has been tied to a fraudulent transaction.

Ingo Money, which will cash checks for mobile users up to $2,500, also uses geolocation technology to identify where the transaction is originating from, such as a city or country known to be a hotbed of fraud.

The average amount for payroll checks cashed using the app is $352.67, Edwards says. Overall the company makes check-cashing decisions on $2 billion in transactions annually, with the mobile channel growing 70% per quarter.

Not every Ingo Money client uses the guarantee service. Instead, some clients will only use the company’s risk-management service and choose to self-guarantee the check.

“If we can’t approve a check using our risk-management technology, we can put it in front of a risk analyst that can make a real-time decision on acceptance 24/7,” Edwards says.

“Micro-merchants and small businesses value our funds guarantee the most because they often receive several checks a day from their customers, making the incidence of check return more frequent and costly,” Edwards continues. “Ingo Money protects them from that risk and alleviates any need for them to contact their customer to recover returned check funds and fees.”

While payments experts say that fraud detection in the mobile deposit capture space is effective and continually improving, it is not foolproof. In the event a check is deemed to be fraudulent after it has been cashed, Ingo Money will cancel the customer’s account and may attempt to recover funds directly from the customer.

Should a check be returned for non-sufficient funds in the check writer’s account, Ingo Money will resubmit the check for deposit. If the check fails to clear a second time, the company will contact the check writer in an effort to recover the funds.

“While remote deposit capture makes it harder to validate a check, Ingo Money is betting its technology is good enough to overcome those obstacles and minimize the risk, other?wise they would not be taking on the liability,” says Ben Jackson, director of prepaid advisory services for Mercator Advisory Group.

As part of its plans to dig deeper into mobile deposit capture, Ingo Money is making its app, and corresponding risk-management services, available to banks that do not offer mobile deposit capture. Consumers can use the app, which banks can brand, to deposit funds directly to a checking or savings account and receive immediate availability of funds for a fee.

Currently, banks do not offer immediate availability of funds for checks deposited remotely through mobile devices, or at the ATM or through a teller for that matter. Typically, the bank places a hold on the funds while the check clears, which can take 24 hours to a few days. Some banks, however, will release a small portion of the deposit for immediate use.

“Regions Bank is using our app and one-third of their customers that use it opt for immediate availability of funds,” says Edwards, who adds the company plans to add bill payment to its mobile deposit service this year.

As with the adoption of any technology, consumers have to be confident it works. One marketing strategy that may prove effective for enticing consumers to try mobile deposit capture is to offer a $5 incentive check, for example, to download the app and deposit the check, Jackson says.

“Most of the marketing for these applications will come from the prepaid network manager or the bank,” Jackson says. “Ingo Money’s role is to take on the risk of guaranteeing the funds.”

By managing the risk around checks deposited remotely through mobile devices onto prepaid cards, and into back accounts, Ingo Money is carving out a unique niche in a burgeoning market, payments experts say.

“Check cashing is expensive and can be inconvenient,” says Leekley. “Solutions like Ingo Money help protect prepaid networks and banks by managing the liability of offering consumers access to good funds immediately.”