Fraud is the leading risk for real-time payments. Learn how to protect your business with AI and machine learning.
With the release of the Federal Reserve’s real-time payments mechanism FedNow, in 2023, real-time payments will soon be available to most Americans. This means that people will soon be able to instantaneously send and receive payments at any time of day, any day of the week.
However, with the rise of these instant electronic payments comes an increase in fraud and financial crime. So, learning the players, the related risks, and the tools you can leverage to solve them is of the utmost importance to protecting your business from malicious actors.
How are Real-Time Payments Different from Traditional Models?
The standard for all payments in the U.S. until 2018 was a two-day settlement model. When a payment was made, it would typically take two business days for the funds to be transferred and made available to the recipient.
However, in March 2018, the Automated Clearing House (ACH) network started supporting same-day credit settlement between any two financial institutions in the United States for the first time. Subsequently, consumer fintechs like Venmo and Zelle began leveraging this payment innovation to make it seem like funds were being instantly transferred from account to account, but in fact, these payments were settled between the payer’s and payee’s banks at the end of the day.
Fraud is the Primary Risk for RTP
Fraud is the hands-down primary risk in real-time payments for several reasons. First, faster payments are processed almost instantly, which means that once a payment is initiated, it cannot be reversed or canceled. This can make detecting and preventing fraudulent charges difficult, as there is no time to conduct thorough checks or verify the sender’s identity before a transaction is completed.
Second, faster payments use digital channels, such as mobile phones and the internet, to initiate and settle transactions. These channels are vulnerable to various cyber threats, such as hacking and malware, which can be used to steal sensitive information and compromise payment systems.
Third, faster payments often rely on less secure authentication methods, such as passwords and PINs, to verify the sender’s identity. These methods can be easy to compromise, making it easier for fraudsters to impersonate legitimate users and make fraudulent transactions.
What is in the Future for RTP?
Moving to Secure, Anonymous Data Sharing
As real-time payment systems continue to grow, it is becoming increasingly important to ensure these systems are secure and protect user data.
One way is to move towards anonymous data sharing, where sensitive information is not tied to individual users. By anonymizing data, real-time payment systems can share information about known fraud schemes without exposing sensitive user data. This allows payment systems to quickly identify and block fraudulent transactions without waiting for users to report fraudulent activity.
In addition to anonymous data sharing, the future of real-time payments will involve using advanced technologies such as artificial intelligence and machine learning. These technologies can detect and prevent fraud in real-time, allowing for a more secure payment system overall.
The Inevitable Embrace of Anonymous Data Sharing by Regulators
For anonymous data sharing to be effective, financial regulators must further expand and update their regulations to ensure that this approach is used consistently and effectively across the industry. This will require collaboration between financial institutions, regulators, and other stakeholders to develop clear guidelines and standards for anonymous data sharing.
Real-Time Fraud Prevention with Fraud.net
Gain much-needed, relevant insight into the most sophisticated and hard-to-detect methods that stealthy cybercriminals use with real-time risk management platform Fraud.net.
Fraud.net provides fraud prevention and risk management services to financial institutions and digital commerce enterprises around the world. One of the key ways it helps its clients prevent fraud is through anonymous data sharing and global consortium data.
The platform collects data from billions of transactions, applications, and outcomes to identify patterns and trends that can indicate potential fraud. By sharing this data anonymously among its clients, the platform can provide real-time fraud prevention and risk management services with accuracy, speed, and scalability that were not possible even a few years ago.
Additionally, Fraud.net provides these features in their suite of products and services:
- Real-time, actionable alerts to proactively detect transaction fraud.
- Risk scores associated with individual transactions.
- Thousands of customizable risk-based rules and workflows specific to an organization’s industry.
- Fraud trend visualization and interpretation to optimize the risk management process.
Real-time payments require real-time fraud prevention. Schedule a demo with us to learn more about how Fraud.net’s real-time, actionable fraud management can help your business prepare for the next generation of payments.
Want to learn more about how your business can prevent the types of fraud that result from inflation, recession, and war? Download our free eBook: How Do Recessions, Inflation, And War Impact Fraud.