Faster payments can 'push' faster frauds

Fast payments come with significant advantages, like helping consumers better manage their cash flows. But the speed and irrevocability of some faster payment networks also make them prime targets for fraudsters.

One worrisome trend involves authorized push payments (APPs), which involve fraudsters manipulating or deceiving individuals into authorizing their financial institutions to push funds from their accounts to accounts that are controlled by fraudsters. Consumer protection laws are of no avail in these situations, since the laws only protect defrauded consumers when payments are initiated (pulled) by fraudsters.

ACI Worldwide estimated that Americans lost more than $2 billion to APP scams last year. At a combined annual growth rate of 7 percent, losses are expected to top $3 billion by 2028. Meanwhile, a new paper out of the Federal Reserve Bank of Kansas City – Combatting authorized push payment scams in fast payment systems – explains how consumers are especially exposed to APP scams in faster payment systems.

In 2023, customers at the three largest bank participants on the person-to-person payment network Zelle, disputed more than $206 million worth of transactions as scams, with the victims bearing more than 80 percent of the losses, according to published reports.

"As fraudsters increasingly leverage technology to expand their operations and create more convincing scams, consumers face a growing risk when using fast payments," wrote the paper's author Ying Lei Toh. "Efforts to combat APP scams are thus critical to ensuring the safety of fast payments and building and maintaining consumer confidence in fast payment systems."

Numerous articles have been published illustrating how consumers are being victimized – from imposter and romance schemes to employment and online marketplace scams – and how once defrauded via a fast payment system (like Zelle) the victim has little to no recourse as the payment is typically irrevocable.

Although it is the consumer who ultimately decides to initiate a fast payment, addressing the issue of APP scams in fast payment systems likely will require more than just greater consumer vigilance.

"As fraudsters increasingly leverage technology to create scams that appear more realistic, even vigilant consumers may fail to detect them," Toh wrote. Operators of faster payment systems and participating financial institutions will need to play more active roles.

Steps FIs, network operators can take

"The interactions of an FPS [faster payment system] operating and participating financial institutions with fraudsters during various stages of an APP scam operation present them with opportunities for mitigation," Toh suggested.

FIs can make it harder for fraudsters to set up so-called "mule" accounts, which criminals rely on to launder money obtained through scams. They can implement strong customer identity verification methods that cannot be easily falsified. For example:

• biometric authentication,
• behavior analysis, and
• digital identity verification.

To combat fraudsters taking over legitimate customer accounts, FIs should consider strong customer authentication tools, such as multi-factor authentication and behavioral biometrics. Behavioral biometrics involves analyzing patterns of behavior and activities, like mouse moving patterns, which can help detect anomalies in customer behaviors that suggest unauthorized account access.

Customer education is also crucial. FIs can educate customers about common money mule scams and the consequences of serving as mules. FIs and FPS operators can also remind customers of scam risks and common signs of scams.

Additional steps that can be taken include:

• Confirmation of payee, a name verification service that sending FIs can deploy to help customers detect scams, especially impersonation scams.

• FIs can leverage artificial intelligence and machine learning tools to assess the scam risk of transactions prior to execution and alert customers who may be about to make high-risk transactions.

• FIs can share information about suspicious accounts and accounts involved in suspected and reported scams, and alert customers when they are about to send money to these accounts.

• At the money laundering stage, receiving FIs and FPS operators can adopt measures to detect and take down mule accounts.

• FPS operators can adopt transaction monitoring tools to detect suspicious transactions and accounts, alerting FIs so they can investigate further.

• Cross-industry collaborations between FPS operators, FIs, telecommunications companies, operators of other digital platforms and law enforcement.

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