Managing the risks and rewards of faster payments

Instant access to funds is the new nonnegotiable for today’s consumers and businesses.

Approximately 70% of consumers indicate that faster payment capabilities are an important factor in their satisfaction with financial institutions. Likewise, about 75% of medium- and large-sized businesses plan to incorporate faster payment capabilities into their future banking relationship commitments.

Various research shows that, for a large percentage of consumers, their decision on opening a new account will factor in the availability of real-time payments. Yet small and midmarket banking institutions’ adoption of RTP has been sluggish; for example, just 16% of surveyed credit unions currently offer RTP solutions, and 23% are uncertain about future plans to implement RTP capabilities. Hesitation to embrace RTP is often attributed to the intricacy of integrating new types of payments, the challenges of managing RTP rails and the absence of a federal mandate to implement those rails.

However, FIs that provide RTP capabilities can experience increasing transaction volumes. Within six weeks of connecting to a real-time payment rail network, one leading credit union witnessed a 45% rise in RTP network transactions and a 61% increase in the number of members receiving transactions.

Another primary concern regarding adoption of faster and real-time payment capabilities is vulnerability to fraud. RTP represents an efficient vehicle for fraudsters to cash out via fraud tactics such as account takeover, authorized push-payment scams, peer-to-peer fraud and synthetic identity fraud.

The scale and velocity of fraud attacks and the industrialization of fraud have exposed weaknesses in static fraud-prevention approaches, existing fraud controls and rules-based fraud-prevention systems.

Financial institutions must contend with a variety of fraud-prevention challenges posed by faster and real-time payments:

• They are exposing their infrastructures to third-party applications to facilitate payment initiations from different instant applications
• When customers use third-party applications, there’s no end-point detection
• There are obstacles to gaining sufficient data and information to ensure risk engines can perform effectively with the FI’s systems
• Fraudsters can coerce customers into using new platforms on which transactions are authenticated or initiated in the third-party application outside of the bank’s control

Small and midmarket FIs are under extreme pressure to modernize their fraud-prevention solutions. Data silos, lack of contextual insight and fragmented point solutions hinder decision-making and risk management, putting the organization and its customers at greater risk. Credit unions are particularly susceptible to online fraud as a result of vulnerabilities from manual reviewing processes, legacy fraud-prevention systems, insecure email networks and leaked personnel credentials.

Banks and credit unions should adopt a holistic, multidimensional approach to fraud management built on artificial intelligence, machine learning, high-quality data and behavioral analytics. These capabilities work in conjunction to:

• Derive patterns from copious quantities of diverse data and generate pertinent, real-time insights that improve business processes and operations, decision-making, and the customer experience
• Detect aberrant behaviors, enabling financial institutions to continuously update fraud-prevention approaches that align with the scale, complexity and pace of fraud
• Support the operational and technological convergence of measures to combat fraud and money laundering for enhanced cost efficiency and analytics insights
• Promote operational and business agility amid disruption, data breaches, the progression of digitalization and the evolving payments and threat landscape

Intelligent capabilities should be complemented by best practices, such as customer education on how RTP works and evolving fraud and scam tactics, and employee awareness of potentially fraudulent authorized push payments.

Fraudsters are investing in smart technologies and processes that perpetuate and expedite sophisticated fraud at scale. Community banks, regional banks and credit unions must respond with modern, layered approaches to fraud detection and prevention that simultaneously support a differentiated digital banking experience.

Eric Tran-Le is vice president and head of Actimize Premier at NICE Actimize.

Find out where things stand with fraud protection and how it can be done more efficiently and effectively in the BAI Executive Report, “Finding an edge in fraud’s cat-and-mouse game”.