Fraudsters are constantly evolving, and a new threat of Authorised Push Payment (APP) fraud is growing. In this fraud pattern, a fraudster tricks victims into making substantial transfers to accounts under their control. To safeguard the finances and improve customer satisfaction, the new Instant Payment Regulation requires all payment service providers (banks) to enable payers to get the beneficiary’s IBAN and name checked before executing the payment.
The introduction of instant payment as an alternative to traditional credit transfers has created new types of fraud. Fraudsters can exploit the rapid transfer times to trick individuals into sending money to fraudulent accounts. Once the money is sent, it is difficult to recover because the transaction happens almost instantaneously. This is a noticeable fraud pattern especially in countries like the Netherlands and the UK, where instant payment systems are well-established. They include faked bills and requests to send money to fraudulent bank accounts. The Verification of Payee (VoP) helps mitigate these risks by allowing the payer to verify that the IBAN matches the beneficiary's name before the payment is executed. This instant feedback mechanism significantly reduces the likelihood of fraudulent transactions, as it prevents money from being sent to the wrong account.
Another benefit of VoP is the enhanced user experience. Entering an IBAN can be cumbersome and prone to errors due to the lengthy string of numbers. VoP reduces the risk of mistyping or entering incorrect details by verifying the payment information beforehand. By reliably validating payment details with the VoP tool, it leads to fewer fraudulent transactions, minimises errors with wrong IBANs, and lessens the costs associated with misdirected payments for all participants.
Additionally, the consumer may have to pay penalties if the money has not arrived on time. By fulfilling the regulatory obligation with Verification of Payee, we can increase the security and trust in this bank managed payments for all participants.
A payer must enter the payment details (mainly IBAN and name) like in the past. The payer’s bank will then transfer this data to the beneficiary bank in real time. The payee bank will check this data with the stored information of the account folder that was validated during the KYC process, and the result of the name matching will be sent back to the payers’ banks. If the transferred data matches the recipient's account, the payer will receive a confirmation to proceed with the payment. If there's a close match (not exact match), the payer will receive a response to confirm the account holder's name being presented the stored beneficiary name. In case of no match (they differ significantly), the payer is alerted to check the details before proceeding. However, the payer can initiate the planned payment for no-match and close-match at his own risk.
Challenges with Verification of Payee can be grouped into two main categories – organisational and technical.
The second challenge is the time frame to implement VoP. Given the large number of banks that need to be connected to this tool, the 18 months schedule is quite ambitious.
Finally, we can mention the costs of the new Verification of Payee service. According to the regulation, the service must be offered without additional costs for the payer. Since there is no positive business case for the banks to compensate for the costs incurred, the challenge will be to ensure that this does not affect the overall quality of the service.
Moreover, the regulation is not only limited to e-payments, but valid for all channels. Phone and paper-based credit transfer orders still exist, and this adds an extra layer of complexity.
The real-time requirement is also a technical challenge. The rulebook defines the maximum response time of three seconds. Since this is a two-way request that goes from the requesting bank to the responding bank and back, the short amount of time could be a challenge.
Banks should be aware of their dual roles. As a PSP taking the requesting role, banks must connect potentially with all the other European banks. We recommend the existing providers that offer this service as an international hub, with one API connection to all European banks.
As a bank taking the responding role, the main task is to provide the data and to execute the name-matching algorithm. We recommend considering the concept of a database in which the IBAN and the name are stored in the form of a copy. This database could then be stored in a private cloud environment and be responsible for real-time performance. Updates should be performed regularly and the real-time data should be uploaded to the node.
By choosing Worldline as your verification of payee partner, you can trust that you are getting a best-in-class solution that is backed by years of experience and technical expertise. We are committed to helping regulated financial institutions across the EU implement our technology quickly and seamlessly, so you can start reaping the benefits of enhanced payment security and accuracy without delay.
Henrik Hodam has been working for Worldline since 2001 and has experience in mobile and digital, as well as in the payments, banking and telecom industry. As Senior Product Manager in Open Banking, Henrik is responsible for Account-to-Account Payments, Verification of Payee and SEPA Proxy Lookup service.
Worldline [Euronext: WLN] helps businesses of all shapes and sizes to accelerate their growth journey – quickly, simply, and securely. With advanced payments technology, local expertise and solutions customised for hundreds of markets and industries, Worldline powers the growth of over one million businesses around the world. Worldline generated a 4.6 billion euros revenue in 2023. worldline.com
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