Globally, fraud poses a significant risk to the health and safety of payments. According to some of the latest research data, total losses of payments fraud have risen from USD 3.07 billion in 2021 to USD 4.61 billion in 2022. Fraud is channel-agnostic, impacting all forms of payment options: 34% of global fraud losses stem from online transactions, 28% from in-person transactions, 27% through mobile, and 11% via other forms. Its impact goes beyond just the monetary losses – the ramifications on the global economy are staggering, creating a lack of trust in payments, strain on legal systems, reputational damage, increased regulatory burdens, and so much more.
In the US, this combination of increased fraud and faster payments has presented a unique challenge for the payments ecosystem: as the volume of faster payments has grown, so has the anticipation of associated fraud. So, it is no surprise that the expectation of rising fraud on instant and real-time payments rails is a barrier to faster payments adoption in the US.
To combat this challenge and others, the U.S. Faster Payments Council (FPC), an industry-led membership organisation working to facilitate a world-class payment system where Americans can safely and securely pay anyone, anywhere, at any time, and with near-immediate funds availability, strives to ensure understanding of all aspects of faster payments. Speaking specifically on fraud considerations, the FPC recently published International Practices in Mitigating Faster Payments Fraud. Given that faster payments have had a longer foothold in many countries outside the US, examining the strategies employed internationally to combat fraud can provide learnings to support the US in ensuring the safety and security of the payment type.
Based on a thorough examination of international faster payments networks in Australia, Brazil, India, Nigeria, Singapore, South Africa, and the UK, the report identified six common fraud risk strategies. These include:
enhanced authentication, including multi-factor authentication and/or biometric verification;
transaction monitoring, including analytics and machine learning to detect anomalies;
Confirmation of Payee (CoP), including thorough due diligence to ensure the identity of customers;
pre-transaction collaboration and information sharing, including intelligence sharing among stakeholder institutions;
post-transaction collaboration and information sharing, including cooperation between parties after the completion of a transaction.
enhanced consumer protection, including practices to safeguard vigilant customers.
While the report indicates that none of the countries examined, except for the UK, are leveraging all these strategies, implementing a comprehensive approach that combines these capabilities could be essential for mitigating faster payments fraud, and drawing on the execution strategies of these other countries could be a strong first step in fighting fraud in the US.
For instance, when it comes to enhanced authentication, the US could look to the Nigeria Inter-Bank Settlement Service (NIBBS). In 2021, NIBSS launched a centralised address verification service which allows financial institutions to carry out know your customer (KYC) measures to verify customer identities.
Concerning CoP, South Africa’s BankservAfrica (BSA) employs an account verification service. This allows customers to verify the details of a beneficiary before sending the payment. Similar measures in the US could enhance CoP efforts.
Even when considering post-transaction collaboration and information sharing, the US could leverage Australia as an example of how to do this effectively. Australian banks can act on intelligence from the Australian Financial Crimes Exchange (AFCX), the primary channel through which the public and private sectors coordinate intelligence and data-sharing activities, to prevent financial and cybercrimes. Sharing suspicious accounts and transactions, analyses of those activities, and evidence-based insights, provides a powerhouse of information to make informed decisions about fraud and other financial crimes.
While the US faster payments ecosystem may not currently fully employ all the fraud risk mitigation strategies used by other countries, the US does implement varying degrees of some of these strategies. For instance, when it comes to transaction monitoring, the card networks, Zelle®, RTP®, and the FedNow® Service, require financial institutions to monitor transactions. For CoP, Zelle provides a name match (but not necessarily an account verification). Even for post-transaction collaboration and information sharing, US faster payments networks mandate reporting of fraud-related payments and cooperation in resolving them.
However, the International Practices in Mitigating Faster Payments Fraud report displayed that fraud prevention on instant and real-time systems cannot be a singular, siloed effort. To effectively reduce fraud risk, the US payments system stands to gain valuable insights from investigating outcomes of overseas practices and leveraging their results to create a robust US-based model. The comprehensive strategies, their continual evolution, and increased collaboration among stakeholders will be the key to ensuring safe faster payments transactions now and into the future.
Above all, in a developing fraud environment, where the impact of fraud can cost trillions of dollars, finding and implementing a strategic, inclusive mix of fraud prevention strategies will enable faster payments to grow and thrive in the US, for the betterment of domestic and global payments.
To download the International Practices in Mitigating Faster Payments Fraud report, visit FasterPaymentsCouncil.org.
Reed Luhtanen is the Executive Director of the US Faster Payments Council (FPC). Reed is responsible for managing the organisation’s daily operations and working with the FPC board and membership to execute the FPC’s strategic plan while ensuring inclusive and transparent dialogue with all FPC stakeholders. FPC members include business end-users, consumer organisations, financial institutions, payment network operators, technology providers, and others.
The FPC is an industry-led membership organisation whose vision is to facilitate a world-class payment system where Americans can safely and securely pay anyone, anywhere, at any time, and with near-immediate funds availability. The FPC encourages diverse perspectives and is open to all stakeholders in the US payment system. Guided by principles of fairness, inclusiveness, flexibility and transparency, the FPC uses collaborative approaches to resolve issues inhibiting faster payments adoption.
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