Bank account linking does not equal tenant fraud detection in multifamily real estate and here’s why from Daniel Berlind.
Tenant fraud in multifamily real estate is an increasingly pervasive problem, putting property owners, operators, and leasing managers on high alert.
The fraud issue has been exacerbated by COVID-19, necessitating the need for property management companies to think outside normal processes and procedures to take new and proactive precautions in managing and operating safely.
Capitalizing on this shift in operational behavior, there is the emergence of new “proptech” companies, which promise to assist industry pros in mitigating COVID-driven risks by using technology to improve and streamline business operations —including stemming the issue of tenant fraud.
New to the proptech party is bank-account linking. A bevy of companies are now offering bank-account linking solutions that provide renters and property managers with a convenient, efficient, and digital way of providing identity and financial information, along with supposed proof of leasing and month-to-month rent-payment assurance.
Property managers may find bank linking a safety measure in identifying good tenants, but this category of fintech/proptech can have pitfalls.
What is bank account linking?
Bank account linking, typically powered by financial services or “fintech” solution providers, is increasingly being offered as a proptech solution for the multifamily property sector.
It is a digital technology where consumers provide property owners with direct access to personal and financial banking information for the purpose of securing apartment-rental application verification through the leasing process and for rent payment.
At first glance, a property manager could see enormous value in this technology. With it, they gain full identity and financial transparency of a potential tenant’s banking/financial/personal information needed in the leasing process.
Does Bank Account Linking Help with Tenant Fraud Detection and Protection?
The answer is…not really. Maybe a better answer is…no.
At face value, bank account linking technology seems promising. For property owners, having access to a potential renter’s financial information seems reassuring, responsible, and a way to potentially mitigate eviction-prone, cost-inducing tenants.
It is the lowest common denominator in business management. And the nice thing is that it never has to be a source of contention with the tenant.
However, owners and operators should always be aware of potential land mines:
- Online identity theft is rampant, and many consumers, no matter what demographic they target, (baby boomers, Gen X, millennials, etc.), are all wary of bank account linking to some degree.
- For consumers new to the concept of bank account linking, there is an inherent fear of sharing highly personal information with a landlord who could have access to log-in and password details. Residents could be subject to invasive online hacking of their financial information. Clearly, owners and property management companies need to be cognizant of the negative side effects of bank-account linking. Negative-reputation risk is a real thing and management of negative information related to the technology should be actively managed.
- What happens when an applicant says, “I don’t feel comfortable using my bank account information and/or linking as a part of my leasing agreement”? If they decline, there is no legal precedent for property owners to now reject the applicant.
- EVEN if a potential tenant is truly a fraudster, now the property owner has no recourse to reject the applicant, only to double, triple, and quadruple their applicant screening. This is costly and exhaustive.
- Flip the switch. For fraudsters, bank account linking can be an open door to falsified and fake tenant identities.
- Bank account linking does not provide a full screen to ensure a potential renter has not hacked into someone else’s account and is pretending to be that person, using their personal and financial information. This scenario becomes a rabbit hole of countless ways fraudsters can juke a property owner.
- There is no proof of identity, true bank accounts, financial statements, and the like. The door to fraud success is open, and the potential costs here for multifamily owners are immense.
As a Multifamily Property Owner, Invest in Assured Fraud-Detection PropTech
The proliferation of new proptech for commercial real estate is exploding. To provide context, the number of real estate technology startups has increased 300 percent over the past decade and over $9.7 billion of funding activity was reported in the first half of 202, according to real estate services specialist JLL. Proptech across the entire real estate management life cycle is here to stay.
Specific to tenant fraud detection and the technologies that offer bank account linking as a measure to mitigate fraudulent renters, multifamily owners and operators must be aware and educated.
Use bank account linking as a step in assessing potential new tenants. But know that if someone doesn’t want to use it as a part of your leasing process, including scheduling regular month-to-month payments, you can’t legally force them to do so.
If you are requesting bank account linking within your leasing process, and a prospect refuses to engage, you are now committed to engaging with that prospective tenant under the fair housing law, at which point you lose the option to decline the applicant as a potential resident.
Bank account linking surely has its place and can be a convenience feature for consumers and property owners, but it is not a replacement for fraud-detection technologies.
About the author:
Daniel Berlind is the founder and chief executive officer of Snappt, a San Francisco-based software company that helps multifamily housing companies prevent tenant and financial fraud. A former real estate executive, innovator and entrepreneur, Dan founded Snappt in 2017 after running his own property management company where he recognized a significant, industry-wide financial issue in the billion-dollar apartment rental industry. Previously, Dan was a professional baseball player for the Chicago Cubs and Minnesota Twins after attending California Polytechnic State University- San Luis Obispo.