How Micro-Deposits Are Increasingly Harming Fintech Companies

Micro-deposits are small sums sent to a fintech customer's account for verification. Unsecured micro-deposits expose the firm to potentially damaging fraud.
By 

Daniël de Jager

 on October 26, 2022. 
Reviewed by 

Joshua Genuth

Micro-deposits are small amounts of money (usually less than $1) sent from one financial institution to another to verify the account's ownership or other information. Once the payment is sent, the receiver is asked to verify the micro-deposit amount. This is a common practice when linking a deposit account to another account at a fintech company, like an investment firm or payment platform.

What Is Micro-Deposit Fraud?

Criminals use micro-deposit fraud to gain unauthorized access to brokerage accounts and withdraw funds. They do this by entering many random account numbers into a brokerage system in an attempt to link with a legitimate bank account. Once such a link is achieved, usually with an unwitting confirmation by the account holder, the fraudster can access money in the account.

Another way fraudsters exploit micro-deposits is by creating accounts en masse and pocketing the micro-deposits before they can be reversed. Though each deposit is worth only a few cents, they eventually add up, with potentially thousands of dollars in accumulated losses for the firm.

Impact of Micro-Deposit Fraud on Fintech Companies

Since micro-deposits are most often made by legitimate fintech businesses, the victims of such fraud will often blame these organizations when it happens. This can damage the fintech's reputation and take a lot of time to fix. If left unchecked, fraudsters can easily steal large amounts of money through micro-deposits before the firm notices what's happening.

It's due time that fintech businesses solidly secure their micro-deposits or change to a different way of verifying accounts. If they cannot evolve away from micro-deposits just yet, they stand to benefit a great deal by implementing an advanced AI platform like nSure.ai, which can detect and block such fraud in real-time.