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Fighting fraud in a real-time payments environment
Consumers have come to appreciate - and even demand - the convenience of instant payments, but they will not be willing to accept any lapse in security as a result.
Consequently, financial institutions (FIs) must be equipped to detect and prevent fraud in a real-time payments environment.
An escalating threat
Growth in any specific market, service or channel within the financial services industry will always bring an increased risk of fraud. Opportunistic criminals are always on the lookout for emerging areas where they can exploit weaknesses in existing security infrastructure, particularly in cases where that infrastructure is ill-suited to handle a sudden increase in user activity.
What has become clear over the past year or so is that all parties with a stake in real-time payments - from established banks to emerging fintechs to ecommerce merchants - must be ready to combat the threat of fraud in this space.
An increase in consumer adoption of real-time payments is inevitable in 2018, in light of the recent increase in services available in various regions.
In Europe, for example, the Single Euro Payments Area Instant Credit Transfer (SCT Inst) scheme could expand to encompass more than 30 countries this year, while Australia is gearing up to launch its fully electronic, real-time New Payments Platform.
Installing the necessary safeguards against fraud must be a priority as these systems develop and mature over the coming year and beyond.
According to research by the Association for Financial Professionals, three-quarters (74 percent) of companies in the US experienced attempted or actual payments fraud in 2016. That proportion has now been on an upward trend for three years, rising from 60 percent in 2013 to 62 percent in 2014 and 73 percent in 2015.
Financial services organizations need to prepare for the possibility of this threat escalating as real-time payments become more common.
The good news for banks, payment processors and businesses is that, just as payment systems and criminal methods evolve, so do the technologies and solutions available to help keep transactions and customers safe.
Along with technology, it is important that the financial institution can obtain the necessary data needed for analytics and rules to prevent fraud in real-time. As more and more financial institutions rely on third-parties for their software services, it is important for them to keep in mind what control they may lose, like not obtaining critical detection data, if a third-party is involved.
It has, for a number of years, been possible to detect and prevent fraud in real time, thanks to innovations such as machine learning and behavioral analytics. Fraud solutions have the capability to monitor individual transactions in real time and identify anomalous and potentially fraudulent activity more accurately because of behavioral analytics. This might include unusual international payments or a transfer to a new bank account.
Machine learning also helps fraud detection systems to track the latest changes in the threat landscape and respond accordingly. This means FIs, payment processors and other businesses will benefit from up-to-date, evolving protection.
Another advantage of cutting-edge fraud solutions is the ability to add user-defined rules, which allows individual businesses to set their own criteria for evaluating transactions. This can reduce the risk of genuine payments being rejected, meaning a better overall customer experience.
As the payments industry continues to evolve and real-time transactions become increasingly important to customers, these sorts of innovations will play a vital role in keeping fraud in check. Those providers that make the best use of the solutions available will see the benefits in terms of a stronger customer experience, increased brand loyalty and a reduced risk of financial losses.