There is a need for the technologies behind the real-time payment systems to gain a march over the methods of fraudsters:
The term real-time payments is commonplace today. Yet, it connotes a whole lot of concepts, especially signifying the efficiency of today’s payments system. In fact, real-time payments have evolved in a number of ways, including in terms of technology (enabling it to be of universal operability), omnipresence (most countries have developed the real-time payment capabilities), increasing number of payment service providers (the latest to get on to the bandwagon are P2P payment providers and fintechs who have developed and operated mobile payment services), payment apps (the ubiquitous UPI of NPCI and the apps like Google Pay, PhonePe and Pockets by ICICI), cross-border payment systems (wire transfers, international credit card payments, global ACH payments, etc). They are faster and are acquiring significant importance in the payment landscape.
MULTI-BENEFITS
Real-time payments are described as electronic payment systems that ensure instantaneous settlements, regardless of time or day or geography, impacting the efficiency of the money management system. They bring in very immediate benefits like better and efficient cash flow management, lesser levels of risk of fraud and substantial benefits, including enhanced cash flow management, reduced risks, including risk of fraud (They use AI and ML algorithms to monitor and detect suspicious patterns instantly and use advanced encryption methods, tokenization and multi-factor authentication), and vastly improved customer experiences.
Some of the efficient real-time payment systems across the world are the US Clearing House RTP Network, Federal Reserve’s FedNow, the UK’s Faster Payments Service (FPS), the New Payments Platform, or NPP of Australia, the SWIFT Global Payment Innovation (GPI) Instant service, and of course India’s Unified Payments Interface, or UPI.
Real-time payments systems function basis several advanced technologies that facilitate instant transaction processing, high security and an efficient infrastructure. These include APIs, cloud computing, AI and ML and Distributed Ledger Technology, or DLT.
PREVAILING SECURITY SYSTEMS
One of the major challenges that regulators and organizations wanting to set up real-time payment systems is of course ensuring security. Even while it takes time for an entity to set up and operationalize a real-time payment system, it is equally difficult to identify and prevent fraudulent activity that goes with this system.
What is gratifying is that there has been a corresponding realization among the payments system practitioners that for the real-time payments to become universal and grow exponentially, there is a vital need for developing and implementing a variety of effective security measures to protect users from fraud and unauthorized transactions. These security measures include:
- Authentication system, where payer’s bank authenticates the payer’s identity using several security measures (passwords, biometrics, or two-factor authentication);
- Biometrics, where behavioral biometrics are increasingly being used in efficient authentication process to prevent frauds;
- Machine Learning and rules technologies, which have proven capabilities in preventing frauds;
- Real-time communication systems, which can help identification of frauds and informing the concerned and at the same time updating rules, models and strategies;
- Personalized notifications allowing customers to send notifications at any step in the process; and
- Encryption, which is a proven fraud prevention technology.
As in the case of any other system developed in the domain of payments, real-time payments system also encounters increased levels of fraud. More the ways that are created to make payments and more the ways that are designed to interact with payment processors, the greater is the scope for cybercrimes. Take for example how fast a kidnapper today can execute his act and how equally fast he can get the ransom paid – through instant bank transfers.
PREDICTIVE, PREVENTIVE
Any effective counter to the ever-refining methodologies of cybercrime should no longer be reactive to an event. Fortunately, today there are technologies developed using ML and AI, which can be combined with behavioral sciences and analytics to detect patterns and inconsistencies and develop real-time protective systems. Alarm systems are developed that facilitate a user to set an alarm code which goes off when an unexpected transaction occurs and the transaction is effectively blocked.
Real-time payment systems have come to stay and there is no going back, notwithstanding the fraudsters developing the proverbial ‘one-step ahead’ advantage. They are major boons to individual customers and businesses for they are convenient, faster and more customer-friendly.
FRAUDS – AN ACCOMPANIMENT
Real-time payments are synonymous with frauds. Some of the common frauds perpetrated are:
- Identity theft, when fraudsters steal personal information to impersonate someone and set up new accounts or take over existing accounts for fraudulent transactions;
- Phishing, where fraudsters use deception to scam individuals into revealing sensitive banking information;
- Account takeover, where a fraudster gains access to a user’s bank account details, and then makes unauthorized real-time transfers; and
- Transaction manipulation, where details or amounts are manipulated in real time.
Then, there are:
- Chargeback fraud, where a customer falsely claims a transaction was unauthorized or defective, leading to a chargeback from the merchant;
- Wire fraud where fraudsters target victims to make upfront payments for goods or services that do not materialize;
- Triangulation fraud, in which a criminal poses as an eCommerce merchant and uses stolen payment information to buy items from legitimate merchants; and
- Business email compromise, which is a cyberattack where cybercriminals steal money from an organization, damage its reputation, or exploit its business relationships.
PRECAUTIONS FOR USERS
Experts say it is always essential for a person initiating a real-time payment to verify the recipient, check the legitimate contact information for businesses and authenticity of websites and always to have multi-factor authentication.
US watchdog, the Federal Trade Commission, estimates that consumers lost over $10 billion to fraud in 2023, which is a 14% increase from 2022. And by 2027, financial crime and frauds are projected to cost banks and financial institutions over $40 billion globally on an annual basis.
Payments company ACI Worldwide and analytics firm GlobalData, in its latest report, Scamscope, say that losses from the most prevalent type of real-time payment fraud, which is Authorized Push Payment, or APP, are expected to touch $7 billion by 2026 across 6 major markets – US, UK, India, Brazil, Australia and Saudi Arabia. The report also says during the period, the overall value of real-time transactions would grow at a faster pace, reaching 25% CAGR.
APP frauds involve fraudsters tricking their victims into willingly making large bank transfers to them – most of the times through social engineering across social media networks or via telephone.
One noteworthy point in the report is that APP scam loss value in India are significantly lower than the real-time transaction value. It says Indian banks are ‘turning the tables on scams with proactive fraud management. For example, the Indian Banks Association suggested fixing a threshold limit of transactions for newly opened accounts. These efforts would be bolstered by a network intelligence framework to share vital data signals and by leveraging AI and machine learning to spot transaction abnormalities’.
Scamscope report lists APP fraud losses by country 2022-2027 – Australia: $793-$1523 million, Brazil: $247-$636 million, India: $394-$611 million, Saudi Arabia: $25-$82 million, U.K.: $587-$935 million, U.S.: $1940-$3031 million.
Recent Articles:
It’s a bank and a brokerage – FinecoBank
Bangladesh Finance: 25% faster customer service; 15% higher customer retention
