Interviews, insight & analysis on digital media & marketing

Real-time protection for real-time payments

By Jay Floyd, Senior Principal Financial Crime Consultant at ACI Worldwide

The world has seen a marked increase in fraud and money laundering since the start of the Covid-19 outbreak. Whether through authorised push payment (APP) fraud scams, phishing attacks or even targeting vulnerable people during the ongoing pandemic, they will always find new ways to make money, with no remorse. According to UK Finance, total losses due to APP scams were £479 million and fraud losses on UK-issued cards totaled £574 million in 2020.

The arrival of new payment types and digital experiences used in the past year – for instance increased use of mobile wallets and Buy-Now-Pay-Later services – has provided an opportunity to accelerate the growth path for real-time payments. However, this has also presented fraudsters with what they see as a unique opportunity to commit crime.

As the use of real-time expands, so too does the scope of fraud, as real-time speeds shrink the window in which potentially fraudulent transactions can be stopped. Financial institutions need to respond rapidly, accelerating and reprioritising their shift to digital if they are to protect their customers.

Real-time payments fraud is on the rise

Recent research found that across Europe, consumer adoption of digital services across industries jumped from 81% to 94% in just a few months in 2020 – a rise that would have taken two to three years at pre-pandemic growth rates.

Our own Prime Time for Real Time report further found the dramatic shift away from cash during the pandemic saw 3.2 billion mobile wallet transactions made in the UK, a Year on Year growth of 25.5%, with mobile wallet adoption rising to an historic 46% globally in 2020. It also unveiled that Europe’s rates of card fraud versus real-time payments fraud were roughly on par only a couple of years ago, but today, “non-plastic” fraud is rising far faster.

Among the scams targeting individuals, APP fraud continues to be a huge problem. The corporate equivalent is CEO fraud, where criminals impersonate senior management to dupe employees into authorizing transactions. And money launderers consistently target university students to create networks of mule accounts, in addition to creating fraudulently accounts within the banking network.

The numerous and increasingly varied types of fraud make it difficult for financial institutions to detect fraudulent activity in such a fast-paced environment. Real-time payments require real-time fraud detection. And as an industry, we need to be moving conversations to focus on how to interpret and respond to individual customer behaviors – beyond simply securing payment processes.

How to combat the fraud of tomorrow

To help reduce the risk of real-time fraud, financial institutions should integrate their payment screening solutions with other partner technologies to gain greater access to valuable external data elements – such as identity checks, transaction activity, location and chosen payment methods.

However, there is a real challenge in applying these capabilities at the necessary speed and scale. The growing diversity of payment types, soaring transaction volumes and their increasing speed means more data to monitor, and less time to do it.

One tool that’s extremely effective is advanced Machine Learning (ML) technology. ML can be leveraged as part of a multi-faceted fraud prevention strategy to derive payments intelligence that improves the end-to-end customer experience. So, with readily available access to data, financial institutions can build more tailored approaches that will improve the overall efficiency of fraud management for their customers.

Financial institutions should also look to partner with data intelligence providers that flag suspicious or bad IP addresses along with devices. By doing so, they can locate the exact e-fingerprint, along with geolocation, of recurring fraudulent behaviour and narrow down the list of e-fingerprints that are likely to engage in fraud.

Harnessing biometrics technologies can also help identify customers based on how they hold their smartphones or use a keyboard and mouse. This advances authentication by validating an individual’s identity based on their physical characteristics, the way they speak, or the way they behave – a vital tool in the defense against fraud.

All of these methods not only reduce the risk of being defrauded, but offer frictionless experiences and greater payments intelligence for added value in customer relationships.

The fight against fraud

It pays to be prepared – and predictive – in the fight against fraud, as fraudsters will always be on the lookout for new ways to act on crime. So, financial institutions must remain forward-looking to mitigate any risks.

Harnessing fraud management software – such as ML and data intelligence – will enable financial institutions to defend against fraudulent activity. And ultimately protect customers – and themselves – from the financial crime of tomorrow.