How can people sell high-value items when bank drafts cannot be trusted?

Question

Someone deposited a bank draft and had the bank manager clear it, but later, the bank draft was reversed. Other people have reported similar incidents many years ago.

Since bank drafts are proven to be an insecure and unreliable payment method, what alternatives exist for people selling high-value items? Would this protocol work?

1. Buyer B and seller S meet at a bank that they both use.
2. B gets the teller to withdraw the money as cash from his account.
3. B gives the cash to S.
4. S gets the teller to deposit the cash into his account.
5. S gives item to B.

Would this work, or would even this possibly result in a reversal later? If this protocol is flawed, what protocol can be used to sell a high-value item?

Also, while I'm mainly interested in an answer for canada, I also wonder about the same question for other countries.

Assuming that the buyer and seller move at the same speed and become tired after moving the same amount of distance (neither can outrun the other and escape), what methods would allow them to meet up and have the buyer transfer X dollars to the seller and the seller transfer Y item to the buyer within the time limit T of being together? X would be above 5,000, and T would be 10 minutes (using bitcoin seems to work if T is increased above 1 hour and if the seller accepts the risk of volatile exchange rates).

Answer 1

Since bank drafts are proven to be an insecure and unreliable payment method…"

The vast majority of bank drafts are not fraudulent, they are fairly secure, but it's true they are not perfect.

The linked article mentions a teller confirming authenticity at the seller's bank, not sure what that means, but they could not have determined if it would clear. They should have instructed their customer that only the issuing bank could validate the bank draft.

Alternatives include cash, and there are also escrow services or attorneys that can be the middlemen in transactions.

The scenario you describe is just a cash transaction happening at a bank, that works, but the withdrawal/depositing part would likely require that both parties were customers at that bank. Meeting at buyer's bank and getting a bank draft verified on the spot is low risk.

When dealing with high value transactions verifying identity is also a reasonable precaution, not guaranteed to prevent fraud, but helpful.

Answer 2

The situation in the news story you linked sounds very unusual to me. Bank drafts/cashier's checks are not supposed to be handled sloppily like that.

For a recent high-value transfer I made via cashier's check, we met at the recipient's bank, and their bank called my bank on the phone to verify the authenticity of the cashier's check. They did this only because the system they normally use to verify it electronically with the issuing bank was not working, probably because it had only just been issued and was not in the system yet, and it actually ended up taking a good while, maybe 30-45 minutes, to get it sorted out. They did not just say "oh, it's fine", but handled everything meticulously so that both parties could be sure the transaction went as expected.

I don't see any reason your protocol would not work, but it should not be necessary.

Answer 3

If you want to get technical, all transactions carry some non-zero risk. The cash could be counterfeit. The gold could be a fake. The bank teller could be bribed. Normal people treat "impossible" and "very very small" as interchangeable in transactional risk (as well as many other things). Therefore it is enough to simply get the risk down to a reasonably low level to deem it "safe".

Cashier's checks are generally considered safe because the issuing bank will put a hold on the money before creating the check. You cannot easily do scams like write a check that won't cash due to lack of funds. Ultimately, there are ways to interfere with a cashier's check as well, but they are harder and rarer. In your anecdote, the cashier's check turned out to be counterfeit.

If your level of risk tolerance is so stringent that even a cashier's check is not good enough, there are other ways to perform the transaction.

• You can meet the person at their bank and have them withdraw cash in front of you and hand it to them, similar to your protocol. The cash came from the bank, and cannot be reversed. However, the seller could bring some counterfeit money and use sleight of hand to switch it with the real bills as he hands them over. Or the teller could be an accomplice, and pass out fake bills.
• You could purchase the thing with a loan. This brings a large lender into the game, who will have a bit more capacity to do due diligence than you. For example, credit cards. Of course the lender is not so concerned with protecting you, but rather protecting themselves, which is not necessarily the same thing. And their services are not free.
• You can employ an escrow, which will act as a neutral guarantor of the exchange. This will probably cost money. This service will also often be bundled with insurance against any fraud.
• You can create and sign a contract of sale clearly stating what is being sold and for how much and what constitutes proof of payment. If you do not receive the funds (or the goods) you can then sue the counterparty and demand they provide proof of payment. Their proof will be scrutinized by the court so it will be harder to falsify. However, you may have to pay a lot in legal fees, and you could lose the case anyway.
• You can choose to do business only with major, well known actors (frequent buyers, auction houses, jewelers) whose reputation is too valuable to risk on scamming you. But given their lower risk, those people like to ask for lower prices.
• You can take payment in cryptocurrency, which is not reversible. However, there are other risks here...

As you can see, none of these provide a theoretical risk of exactly zero. They are, however, getting into the "ridiculously paranoid" territory for a 10k watch.

The most expensive type of purchase familiar to ordinary people is the purchase of a house. This can be up to a million, so it's a good illustrative example. Firstly houses have a titles, legal documents unambiguously certifying the owner. Second, there will often be intermediaries that handle the transaction for a fee and also provide insurance against things like a forged and invalid title. Even here, some people feel the insurance isn't worth it and do the transaction directly, despite the immense capital at risk. The house purchase typically involves a contract, which clearly documents in writing that the house is being deliberately sold and a certain amount of payment will be provided in exchange.

I think, however, your problem is not inventing new ways of transacting business. Rather, you have seen one freak accident and fixated on it despite its low likelihood. In business, there are always risks. The solution is not to wage a Sisyphean war to eliminate them, but to hedge them. For small and occasional sales you can simply accept the risk of getting a forged cashier's check as cost of doing business. It's not something people do every day, and if they did, the banks would take note and make their checks harder to forge (as happened with cash). If you are doing this frequently, you can purchase an appropriate insurance against fraud.

Answer 4

You can use an escrow service.

They are a neutral third party that makes the exchange of property and payment between the parties in a secure way.

Answer 5

As mentioned in the comments, cashier's checks/bank drafts are one answer. In these the bank takes money from your account and writes a check in the bank's name rather than yours. If the transaction doesn't go through you can redeposit that check back into your own account; if it does go through you have already paid for that check and it can't be cancelled; if there was fraud you'd have to go through the courts to get money back.

There is usually a small fee for obtaining a cashier's check.

But, yes, I've seen the "hand over the money at the bank" suggestion before. As far as I can tell this is partly because the intimidation factor of performing the transaction under the bank's cameras may scare off scammers. And escrow services are another alternative.

I'd also say that you need to make a decision about how large a transaction needs to be, and how paranoid you are feeling, before an ordinary check isn't enough, since there is a fee involved and that essentially gets added to the item's cost. Plus the hassle factor.

For most transactions under US$1000, as the seller, if I thought I needed to ask for a bank check I'd just find another buyer... but as the buyer, I can respect a seller who wants the extra protection and if I didn't trust them I'd find another seller.

Remember all the other steps to make sure you know what you're buying, in what condition, if course.

Answer 6

The person in your story was tricked into going to the wrong bank.

No doubt the scammer asked the victim where they banked, who said <Bank X>… and the scammer said "oh good, I also bank at <Bank X>!" And X was HBC.

However, the forged draft was on TD.

HBC cannot realistically vouch for the authenticity of a TD check, and the victim (possibly prompted by the scammer) may have asked the wrong questions, e.g. "when will the money be available in my account?" Which is not the same thing at all as actually clearing. The right question was "when will this check be beyond any possibility of reversal"?

And the right move would have been to cross the street to TD, and cash it there and demand cash or a TD cashier's check. And I would not have presented ID or fingerprint, either, becuase the person whose check it is, is standing right there and is a allegedly a customer of TD. So TD's recourse should be against them.

However, it's also possible the scammer presented a check with a HBC logo but TD routing numbers, and the HBC teller just missed that.

The scammer might have had an envelope full of forged checks with every bank's logo, and after hearing HBC, picked that one to present.

Answer 7

In the netherlands, if you want to make a mid-size financial transaction (€1.000 to €50.000) for goods with a person you do not trust, the following approach is common:

1. Meet up in person at your local café.
2. Verify the goods.
3. Have the other party send you an iDeal payment request through their banking app.
4. Verify and accept the payment request through your banking app.
5. Accept the goods.

Steps 3 and 4 together take less than one minute to complete; simply have the other party enter your bank details in their banking app, and the desired amount. You will receive the request within a few seconds, and after verifying the details and accepting the request, the other party will receive a confirmation within seconds.

Of course, by the point you're exchanging over €50.000 with a stranger you do not trust, you may want to involve a notary.

Answer 8

In slovakia, you cannot legally use cash for payments over €15000 (this is actually a higher limit than it used to be). Usually, people would use bank transfer, since cash would be unreliable (if you do not trust the buyer, you cannot trust the bills are not counterfeit anyway - and if he/she/they hand the money to you in the bank and it is fake and you try to deposit it, you are an accomplice. At best, you will be detained and face a lengthy trial where the buyer will naturally try to blame you). Or the seller might just decide NOT to give the item if the money is already in his account.

If the mistrust is mutual or you want to protect yourself from unexpected situations (say, the seller dies after the buyer pays but before the seller delivers), the usual way is to restrict transferability (charge - vinkulácia), offered by majority of banks and usually used when buying real estate. You both sign the contract, meet at the bank, buyer makes a money transfer tied up to certain conditions being met (typically, his name is on the real estate title) and the money stays at the bank until the designated person (buyer, seller or a real estate agent) brings the proof. The fee is on the order of €250. This is quite foolproof, with one exception: if there is an attachment/sequestration process against the buyer, this money still could be seized while tied up in the bank and the seller will end up without the title and the money.

Other possibility, typically also used when buying real estate is to use a deposit at a notary public (who works as an escrow service) until the conditions (e.g. title transfer) are met. This is foolproof even against sequestration orders. But of course, if you are paranoid enough, the notary can be an accomplice and then you are in an even worse situation (this indeed happened and made nationwide news). This also costs up to €331 depending on the amount.

Answer 9

united-states

In the US, a wire transfer is both faster than most methods of bank-to-bank transfers, and reliable. A wire transfer cannot be reversed by the customer once sent, not even if they report it as fraudulent. The only thing that can allow a wire transfer to be reversed is if the bank, not the customer, made a mistake in sending it.

Note that some popular money transfer services and mobile apps may be commonly talked about as being used for "wiring money" to people, or similar terms, but they are not what I'm talking about. "Wire transfer" is an official banking term, and refers to a specific government-regulated system.

A wire transfer, in the official regulated meaning of the term, can only be initiated by the sender directly instructing their bank to send it. The bank will likely require the sender to show proof of their identity, especially if the amount to send is very large, and will need the account number and routing number of the recipient. Also note that many banks have a different routing number for wire transfers than for the more common ACH transfers, and attempting to use an ACH-only routing number for a wire transfer will make the transfer fail.

Wire transfers are processed in at most one business day, and if sent in the morning may arrive the same day. As the receiver of a wire transfer, once your own bank shows the incoming wire transfer in your account's records you can then be certain that you will in fact get and keep the money, and that it is safe to hand over the high value item to complete the sale. Alternatively, since you specify a time scale of minutes and suggest an in person meeting, the seller could meet the buyer at the buyer's bank and watch them do the paperwork to send the wire transfer. Unless the buyer's bank, including the physical offices and staff, is fake and part of the scam, once all the forms are filled out and signed and left with the banker, the transfer is fully committed and irreversible. Be careful to make certain that the account number and routing number of the recipient are 100% correct on the signed forms, though.

Side note: Many banks charge a fee for sending or receiving a wire transfer. Check your bank's terms for this. Such fees are typically a flat amount on the order of $10 to $30 per transfer, not a percentage, so it matters proportionately less the larger the transaction is.

Answer 10

BTC/Ethereum/LTC aren't really a good option since the value fluctuates so much, but there are cryptocurrencies (stablecoins) that are tightly tied to the USD and only vary in small fractions of pennies from moment to moment - two examples are Tether and USD Coin. Of course, this requires you both to have at least a basic understanding of how to buy and sell crypto.