The rise of real-time payments comes with increased real-time risks, most prominently, fraud and financial crime.
Real-time payments (RTP) are becoming increasingly available, considering the Federal Reserve’s release of its RTP mechanism FedNow in 2023. Along with other established RTP rails, this allows more individuals and businesses to send and receive payments instantly, 24/7/365. It will dramatically improve the speed and efficiency of the US payment system.
However, the rise of instant electronic payments comes with increased real-time risks, most prominently, 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.
Fraud Is The Leading Risk In RTP
Fraud is the hands-down primary risk in RTP for three main reasons:
1. Speed of Transaction Causes Difficulty
RTP is processed almost instantly, which means that once a payment is initiated, it cannot be reversed or canceled. So, there is virtually no time to conduct thorough checks or verify the sender’s identity before a transaction is completed.
Additionally, issues with standardizing fraud taxonomy and classification make it harder to accurately identify types of fraud. This adds another layer of difficulty to quickly detecting and reviewing fraudulent transactions.
For example, different payment systems and institutions may use different terms and definitions to describe fraud, making it difficult to compare and analyze data across different systems. This makes it harder to identify commonalities, such as the types of fraud that are most frequent or the favored methods used by fraudsters to make fraudulent payments.
2. Digital Channels are Vulnerable
RTP uses digital channels, such as mobile phones and the internet, to initiate and settle transactions. These channels are vulnerable to various cyber threats, which can be used to steal sensitive information and compromise payment systems.
And, because companies may have siloed their fraud data based on payment types, fraud trends, and patterns are often harder to visualize. For example, a bank may have separate departments handling separate payment types, such as credit, wire transfers, and RTP. However, they may not be able to access each other’s fraud data, creating a vulnerability, as a fraudster that typically targets credit may attempt to target RTP, and the RTP-focused department wouldn’t recognize them.
3. Less Secure Authentication Methods
RTP often relies 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.
If a fraudster has installed spyware on a sender’s device, they can easily intercept a multi-factor authentication code. Even simpler, by phishing a user, fraudsters can learn passwords to verify the transaction.
With the rapid nature of real-time payments preventing more complex authentication methods, this adds another layer of risk to an already vulnerable payment type.
Real-time payments require robust security measures and strict authentication protocols to protect against fraud and ensure the safety of payment systems.
So, What’s the Solution for Real-Time Payments?
These risks, among many others, can be quickly and effectively mitigated using artificial intelligence-powered fraud prevention tools. With AI and Machine Learning, you can accurately risk-score transactions, applications, vendors, and other counterparties to reduce your exposure and review time, lightening the load on your fraud management teams.
Most importantly, with Fraud.net’s Transaction AI, you can efficiently and effectively risk score transactions in under 300ms. So, you can detect financial fraud in real-time, and mitigate the risks of fraud for RTP.
Additionally, you can isolate and investigate high-risk transactions, applications, customers, and counterparties, even if your organization has never encountered that particular entity or fraud vector.
AI-based fraud prevention tools can save you time and money, freeing your business to pursue revenue-generating activities and innovating your products and services.
Secure Your Business with Fraud.net
Fraud.net’s suite of AI-powered tools can help your business stop 600+ types of fraud, including those that commonly plague payment providers, financial institutions, and fintech platforms.
Fraud.net provides these features in its 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.
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.
Or, request a demo with our solutions consultants today to learn how AI can help you stop fraudsters in their tracks.