Different users using faster payments services, risking faster payments fraud

An unfortunate rule of the payments jungle is that fraudsters are usually the first to adopt new payments technology. And that’s just what we’re seeing with the expansion of faster real-time payment services. As more consumers adopt real-time payment systems, banks need to act now to stop faster payments from becoming faster fraud.

The Future of Faster Payments and Faster Payments Fraud

Faster payments means many things to different people. It includes Real-Time Payments (RTP), Same Day ACH, push-to-card services, faster payment schemes, and digital wallet apps like Zelle and PayPal. These services promise to be cheaper than traditional payment rails and deliver money in a matter of seconds. 

These services are also already poised for widespread consumer adoption. A recent report by the Federal Reserve found 62% of survey respondents are planning to use faster payment options in the future. The survey also noted that consumers are especially interested in faster payment options with “robust” fraud prevention controls. 

That last part will be critical for banks as they offer new faster payment options to their customers. To provide fraud protection for the faster payment landscape, financial institutions should first understand the types of fraud and scams poised to increase in this environment.

4 Types of Faster Payments Fraud to Worry About

Uncertain economic times like these are perfect for fraudsters to exploit faster payment solutions. When people find themselves out of work or unsure about their company’s future, they become more susceptible to scams. “Too good to be true” scenarios in which bad actors pretend to offer attractive jobs or fast cash opportunities become all too common for people who are hard-pressed for work or financial stability.

We’ve already seen this scenario pan out after the launch of the UK’s Faster Payment Service (FPS). With new payment rails and services poised for growth across North America – at a time of economic uncertainty – here are some fraud and scams we expect to see.

  • APP fraud. With the ability to send money with just a few taps of a phone screen, authorized push payment (APP) fraud is likely to be one of the most troublesome types of faster payment fraud. Bad actors will use a variety of scams to trick victims into making transfers that are virtually impossible to reverse.
  • BEC/CEO fraud. Business email compromise (BEC) and CEO fraud are common in the age of remote work. Fraudsters can use BEC fraud to pretend to be a vendor and claim to update their payment information. Or, in the case of CEO fraud, they can pretend to be a worker’s boss or a company executive and pressure employees to pay fake invoices or authorize transfers.
  • Romance scams. Romance scams are another common (and cruel) type of fraud that the rise of faster payments will power. Fraudsters pretend to be in love with a victim using online dating services or social media. Once they gain their victim’s trust, they ask for money to buy an airplane ticket or cover a medical expense. 
  • Account takeover. If fraudsters can’t trick a victim into authorizing a transaction, they can resort to account takeover (ATO) tactics and breach the victim’s account themselves. 

These frauds and scams are just the tip of the iceberg. Fraudsters will inevitably invent new techniques to scam customers. Banks and customers have virtually no room for error since once the money is transferred, it’s likely gone for good.

4 Tips to Keep Faster Payments Secure

Consumers expect things to go fast, from same-day deliveries to streaming show recommendations to summoning rideshares to their precise location. 

At the same time, consumers also expect things to go smoothly. If they learn they were scammed, they’ll immediately expect their bank to assist them. In the UK, liability for fraud has shifted to banks with the industry embracing a Contingent Reimbursement Model (CRM). US banks should consider the CRM model and other steps organizations can take to prevent fraud and protect their customers – and themselves from potential liability.

Raise consumer awareness about scams

Saying it aloud won’t win banks any friends, but let’s face it: consumers are the weakest link in the fraud prevention chain. 

A fraudster’s dream come true is having the ability to move funds in a matter of seconds. With the availability of instant P2P services like Zelle, all criminals need is the right scam to trick victims. That’s why it’s absolutely critical that banks invest in raising consumer awareness about scams. 

Build up your fraud and scam education resources and regularly communicate with consumers about the latest threats. Empower your customers to prepare themselves for the latest fraud and scam threats without overwhelming them with fear tactics.

Implement strong consumer controls

Of course, sometimes you can’t stop a customer from initiating a transfer – even to a risky party. But banks can still put controls in place to prevent fraud. For example, banks can add simplistic rules about first-time beneficiaries and lower the dollar amounts of transfers. 

Banks can pause transfers and prompt customers to confirm the transfer and implement outbound validation measures to verify if a customer intends to make a transfer. These measures will better protect banks against potential liability if the transfer proves to be a scam.

Layer controls from treasury use cases

A key advantage banks have as they implement faster payment services is they can use existing treasury use cases for their consumer-facing solutions. Apply fraud controls that were implemented to protect ACH and wire transfers to new faster payment services. Bear in mind that customers are unlikely to understand the difference between different payment services. Make sure that these controls don’t cause transaction delays.

Leverage historical rules and models 

With so many different payment methods available, it’s important for all channels to speak to each other. The good news is there’s no need to start from scratch. With all the data these systems produce, they should be able to communicate with each other seamlessly and block suspicious transactions. If there’s a suspicious character attempting to make an ACH transaction, make sure they aren’t able to simply switch to a different rail. Banks should also look at the number of transactions an individual has performed in the past few days as well as the aggregate dollar amount. 

Speed will be a defining element of the financial services industry in the coming years. But as payments move faster, banks must do everything they can to protect consumers and businesses from faster payments fraud.

Watch our on-demand webinar What’s Behind the Surge in Online Fraud and How to Stop It to learn how to improve the risk decisioning process using real-time customer interaction data.