Voice of the Industry

Outpacing fraud: the instant payments security challenge

Friday 31 May 2024 14:22 CET | Editor: Mirela Ciobanu | Voice of the industry

Marie-Christine Diaz, Business Development Manager at Eastnets, discusses how to overcome challenges associated with instant payments security.


Following a global trend, the EU’s Instant Payments Regulation mandates the adoption of instant payments in Euros across the entire region within the next two years. This ambitious initiative promises instant and irrevocable money transfers and greater convenience for consumers and businesses on a 365/24/7 basis. Yet, these lightning-fast payments also create a critical challenge for financial institutions (FIs): outpacing fraudsters in a fraud sophistication race.

Fund transfers will now be initiated over unsecure digital channels and executed within 10 seconds, dramatically shrinking the window for fraud detection. The convenience, ubiquity and irrevocable nature of instant payments provide a perfect opportunity for fraudulent but legitimate transfers with minimum effort.

Conscious of the challenge, the EU regulation mandates FIs to secure instant payments by validating the beneficiary’s name and account. The growth of authorised payment fraud via scams, emails, or SMS, coupled with the September 2025 deadline to offer instant credit transfers in Euros, presents a significant challenge for the financial industry.

With the value of transactions using this technology set to grow worldwide by 289% between 2023 and 2030, the question of how banks will keep their customers and their money safe looms larger than ever.


The ever-growing fraud complexity

Although payments are well protected today by measures like Strong Customer Authentication and multi-factor authentication, fraud has moved from the payment stage to the purchase itself.

Traditional fraud detection systems must now adapt to handle larger data sets, rapid data processing and complex calculations. Siloed data, diverse data types and numerous data sources within and outside FIs are only making matters worse. These shortcomings give fraudsters opportunities to exploit weaknesses and potentially siphon off funds unnoticed.


The status quo impasse

For many, fraud detection relies on in-house expertise developed over the years, making the business case for new software integration challenging. Financial hurdles aside, retraining staff and changing existing operations is seen as too disruptive.

This complexity, along with a looming talent shortage and viewing legacy systems as a ‘sunk cost’  creates a status quo impasse. Yet, to preserve trust and retain customers, FIs must invest in modern, scalable solutions that attract young talent.

Modern solutions not only improve traditional rule-based fraud detection but also adapt faster to new fraud patterns and vast amounts of data, making them a necessary strategic investment.


The data challenge

To stay ahead of evolving fraud tactics, FIs adopting adaptive tools still face a common threat: data. It’s the lifeblood of any effective fraud prevention. Existing systems and data architecture stop FIs from getting the right data, with the right meaning at the right time in a centralised high-performance data lake.

First, FIs must not underestimate the effort required to structure and standardise data based on a common dictionary and make it available promptly. Newer fintech players also struggle to interpret and use customer banking data effectively.  Data standardisation, like ISO 20022 or LEI, is foundational for powerful analytics. Second, getting the data quickly and around the clock represents a real challenge for continuous fraud detection. 


Holistic fraud controls

With clean, standardised data, FIs can use AI-powered software to analyse vast amounts of data in real-time. These systems excel at recognising intricate and evolving fraud patterns or anomalies that might escape human scrutiny. They continuously learn and adapt to new fraud methods, far surpassing manual updates. Their efficiency and effectiveness grow as data volume and complexity increase and explainable AI models allow formal auditing by regulators. 

FIs would also need a layered defence strategy, combining diverse fraud controls to strengthen defences against fraudulent activities. This includes transaction limits monitoring, customer profiling, event sequence monitoring, behaviour anomalies, historical trend analysis and customer segmentation analysis.

By integrating these versatile controls and contextual data, FIs can get an overall risk score for each transaction, resulting in more accurate anomaly detection and the ability to detect hidden fraud patterns. This approach allows FIs to counteract various types of fraud attempts more effectively, while also minimising the risk of rejecting legitimate transactions.


Staying ahead of the curve

The instant payments initiatives worldwide create opportunities but also a sweet spot for fraudsters. Many FIs remain ill-prepared, burdened by technical debt, and struggle to keep pace with digital-native entrants or deter complex fraud. Yet, regulatory deadlines for additional security measures are approaching and consumer expectations for speed, convenience, and security, at no additional cost, are rising.

Modern AI-based fraud solutions are powerful tools against fraud. Combining explainable AI models with diverse contextual datasets allows FIs to create effective, scalable, and frictionless fraud risk strategies. However, a strong data foundation and 24/7 integration with existing systems are key to a successful transformation.

The time to act is now. The longer FIs wait, the more vulnerable they become to falling behind the competition, or worse, being outpaced by fraudsters.


About Maria Christina Diaz

Seasoned payments professional, Marie-Christine has been responsible for the development of the Payments business in Europe at Eastnets since January 2023. Previously, she had various Market and Product Manager and consulting roles at SWIFT, where she developed over the last 20 years the low-value and high-value payments business, including more recently the Instant Payment business, multi-network interfaces portfolio, and resiliency services.


About Eastnets

Eastnets is a global provider of compliance and payment solutions for the financial services sector. Through our experience, expertise, and technology we enable safe and secure participation in the global financial economy for over 800 financial institutions globally, including 15 of the top 50 banks, and 22 of the world’s Central Banks. For more than 40 years, we’ve worked to keep the world safe and secure from financial crime. We do this by helping our partners manage risk through Sanction Screening, Transaction Monitoring, analysis, and reporting, plus industry-leading consultancy and customer support.

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Keywords: fraud management, data, instant payments, online authentication, risk management, behavioural biometrics, banking, multi-factor authentication
Categories: Fraud & Financial Crime
Countries: World
This article is part of category

Fraud & Financial Crime