When it comes to payments, banks, corporates, and consumers have all demonstrated the expectation for speed. The growth of real-time payments (‘Faster’ in the UK, ‘Instant’ in Europe), is proof positive. The 70.3 billion transactions processed globally in 2020 represented a 41% increase over 2019, and it is estimated to be tracking on a 23.6% annual clip for the next five years. In 2025 it is estimated that Real-time Payments (RTP) will have a 17.4% share of global payments. The upside for RTP is massive. It is not only bringing speed to the table, but also delivering payments with unprecedented reliability, rich data, and security.
Many banks and FIs, however, are not keeping pace with corporate demand. But they do this at their own peril:
The amount of data and how you leverage the insights could be the difference between strengthening the customer experience and putting a customer at risk.
When you do the maths and take into account legacy upgrades, it’s apparent that RTP has gone from a “nice to have” investment to a “must have” in a very short period of time.
As FIs capitalise on the growth of real-time, they are rightly (38% in one study) concerned about fraud. But by upgrading legacy systems with real-time rails, they automatically create an additional anti-fraud platform that they can build on and easily add extra fraud prevention capability. A recent PYMNTS.com study showed that despite concerns about potential fraud, 78% of all FIs rate security and fraud controls as extremely valuable features of the platform.
A good example of how enriched data via ISO 20022 fights current fraud challenges is identity theft. This version of “authorised” fraud is tough to spot without the right dataset. In this case, the customer appears to be authenticating the payment. But the amount of data attached to the ISO 20022 format will allow FIs to automate finding these types of payment irregularities. Now with the addition of Artificial Intelligence (AI) and Machine Learning (ML), the data generated from ISO 20022 can be placed into patterns. When patterns are broken, a fraud alert is sent out.
Additionally, it will also help with secure cross-border payments. The interoperability and sheer volume of data contained in an ISO message (its usage is mandated by SWIFT for Nov 2022, and the end of the co-existence period set for 2025) will provide the transparency that has long been lacking. There is also a strong customer experience use case for ISO 20022 where fraud prevention isn’t seen as an unwelcome blocker. For example, if a bank that doesn’t use ISO 20022 receives an instruction to pay ‘Bar Cuba’, this will be blocked as Cuba is a sanctioned country. However, the expanded data within an ISO 20022 message will inform them that ‘Bar Cuba’ is actually based in the US. Therefore, the transaction will be processed.
Finally, we have Request to Pay (RtP) in UK and Europe, or Request for Payment (RfP) in the US, which is a secure messaging framework that is an open community digital overlay on top of existing payment infrastructure that provides flexibility across the payments ecosystem. According to Pay.UK “For each request message, the payer will be able to pay in full, pay in part, ask for more time or decline to pay and begin a dialogue with the requester. It gives more control to the person or organisation being asked to pay and gives the biller all of the information to reconcile a payment when it arrives”. In this regard, Request to Pay also works against fraud simply by including that checkpoint keeping business relationships honest.
Taken on its own, RTP and digital overlays like Request to Pay will be an upgrade in fraud defences. But it’s not enough. FIs will still need the data science, advanced analytics, and new technology solutions necessary to properly scale this effort.
In conclusion: Real-time Payments is not the future of payments. It is the present and future, and further proof that FIs must invest in upgrading their legacy systems sooner rather than later. The financial services sector has access to RTP fraud prevention tools that help support their corporate clients and prevent them from moving toward a situation that undermines confidence in the new payment platform. It’s an imperative to invest in fraud technology and in-house fraud data scientists which can be justified by the huge growth in volume and value of real-time payments transactions. It is now up to banks and FIs to ensure that ‘faster payments, faster fraud’ is a redundant phrase.
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About Ruud Grotens
Ruud Grotens, Certified Financial Crime Specialist (ACFCS), is Head of Solution Consulting, Fraud and Financial Crime, at Bottomline Technologies. With over 30 years’ experience internationally, advising banks (including central banks) and non-banks (including asset management firms, insurance firms, and MSBs) about financial crime risk management technology, covering anti-money laundering, counter terrorist financing, sanctions, tax evasion, internal/external fraud including payment fraud and cybercrime.
About Bottomline Technologies
Bottomline (NASDAQ:EPAY) makes complex business payments simple, smart, and secure. Global organisations rely on Bottomline for domestic and international payments, state of the art fraud detection, insider fraud protection, behavioural analytics, consolidated case management and regulatory compliance solutions. Bottomline offices are located across the US, Europe, and Asia-Pacific.
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