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Don’t let real-time fraud ruin real-time payments

Fraud & Scams Banking & Finance

The adoption of an online-first mindset for virtually any transaction is continuing at pace, and on a global scale. Consumers expect and in fact demand speed, ease of use, and security and if a business can’t meet their expectations, they’ll be quick to switch to one that does.

This evolution has become particularly prevalent in the field of peer-to-peer payments. Real-time payments (RTP) have become incredibly popular. Initiated and settled virtually instantaneously, real-time payments potentially allow users to process transactions around the clock, quickly and easily.

The opportunities of real-time payments

RTP is growing rapidly internationally – the financial increase in transactions processed through RTP ranges from 32% in the UK right through to 80% and 89% in India and Australia respectively.

Opportunities are clearly evident. 45% of US consumers see access to real-time payment capabilities as an attractive driver for opening a new account with a bank, according to 451 Research’s 2022 Voice of the Connected User Landscape (VoCUL) survey.

The proliferation of services such as Zelle, Venmo and CashApp are clear indicators of the growing popularity of faster payments services. And that popularity extends beyond the private sector – the phased launch of FedNow in 2023 will expand access to instant payments features and use cases.

Real-time payments lead to real-time fraud

But every silver lining has a cloud, and the one that’s casting a shadow over RTP is something of a storm cell.

Fraudsters go where money is easily moved, and RTP is no exception. With RTP having been available in European and APAC markets for some time, data shows that the rise in popularity of RTP leads to a similar rise in scams and fraud. Established RTP markets such as the UK have seen financial crimes growing at an alarming rate with the rise of instant payments.

It’s important to remember that bad actors are not limited by borders and have had plenty of time to build strategies and tools that enable them to take full advantage of RTP. This is a particular concern for organizations and their customers based in territories where faster payment methods are growing as a preferred method of payment.

The speed and permanent nature of RTP makes it harder to stop fraud even with the right tools; and very often, FIs don’t have the right tools in place.

Conventional fraud controls are not sufficient to stop fraudsters acting on real-time rails. Static conventional controls operate in a batch environment and cannot handle the increased speed and complexity that comes with instant payments.

Authorized push payment fraud (APP) is the most prevalent approach used by scammers. Often masquerading as a bank, the police or another authority, fraudsters are adept at using social engineering techniques to persuade their victims into making transfers of large sums of money. Armed with a knowledge of banks’ transaction journeys, they’re often able to talk their victims through the static warning messages that are generally the sole line of defense against fraud. And once the payment is made, it’s all too late.

Managing the risks

In the US, banks are not currently liable for funds lost via real time payments to scams. And meeting the expectations of customers who are used to chargeback-like protections in card frameworks, while providing RTP services, could be an arduous task for banks.

But it’s a situation that is very likely to change soon. Customers are now demanding more protection from banks, and they are starting to take action. A number of banks and faster payment providers have faced class action suits from fraud victims. And regardless of the outcome – which could be expensive for the businesses in question – the repercussions of the ensuing reputational damage could be even bigger.

Worse, the impact of fraud and scams on the real-time payments space could vastly undermine confidence in the concept of faster payments itself. The consumer anxiety around the safety of direct transfers from their bank accounts was captured by the 451 Research’s VoCUL survey. Just 45% of consumers see payments via the Automated Clearing House as extremely secure, with that percentage dropping to 27% among Gen Z consumers.

Adding to the challenge, most consumers lack confidence in their banks’ existing fraud prevention capabilities – which, as outlined above, are highly unlikely to be fit for purpose when it comes to RTP fraud.

Fewer than three in five (58%) respondents in 451 Research’s VoCUL survey signaled high confidence in their bank’s ability to protect them from fraud. Again, Gen Z consumers were relatively more skeptical, with fewer than half (47%) ranking banks’ abilities highly. 

A modern solution for a modern problem

RTP is very much a forward-looking method of transacting, and combating the fraud and scam vectors that target it means taking a forward-looking approach. Yesterday’s technologies are simply not up to task.

Callsign is the only solution that provides Dynamic Interventions to Detect, Intervene and Prevent fraud.

With much of RTP fraud being driven by APP fraud, banks need to look to solutions that are built to prevent real-time fraud in real time.

The answer to the question of RTP fraud is to adopt a multi-layered approach such as Callsign, that layers threat and device intelligence with Muscle Memory Technology, Callsign’s best-in-class behavioral biometrics.

And importantly, Callsign is the only solution that provides Dynamic Interventions to Detect, Intervene and Prevent fraud. After recognizing signals of a scam-in-progress (such as suddenly attempting to make a high-value transfer to a new payee while the phone line is busy ), Callsign can then intervene in a way that effectively breaks the psychological hold scammers place on their victims.

In such instances, Callsign can provide a contextual message such as ‘Are you on the phone with someone claiming to be from your bank, asking you to make a transaction that you were not expecting to make today?’ The would-be scammer can’t predict or talk their victim through this message, and the fraudulent transaction can be stopped in its tracks.

Benefitting from the future of payments

Real-time payments are here to stay. Unfortunately, so is fraud.

For banks and FIs, RTP represents a great opportunity to drive greater engagement of customers, but they must first set the stage for payments to happen in a secure way. Enhancing consumer trust is critical to the growth of the RTP market, especially given the current low levels of confidence in the safety of direct bank transfers.

If left unchecked, and banks only look at RTP fraud through a traditional lens, the RTP opportunity could quickly turn into a nightmare. Fortunately, the solutions exist, and next-generation technologies such as Callsign provide a robust defense against next-generation fraudsters.

It’s no less than what customers demand. And it’s important not to forget that the success of an online-first world is underpinned by a customer-first approach.

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