By Calin Sandru
ARGO
The adoption of faster payments in markets worldwide is based on the demand from consumers and businesses for quick, convenient and immediate funds availability. Instant payments have been making waves in recent years, enabling consumers and businesses to send and receive funds in real-time with 24/7 availability, along with rapid access to funds and just-in-time payments to manage cash flows.
Other benefits include:
In addition to the Clearing Houses RTP (Real Time Payments) Network going live in 2017, and the Federal Reserve's FedNow Service launching in 2023, instant payments are poised to disrupt the payments and financial services landscape. However, without the proper controls, the benefits offered by faster payments can be nullified by 'instant' fraud risk.
A key benefit of instant payments is the ability for consumers to have irrevocable payments; however, this gives financial institutions (FIs) significantly less time to assess the fraud risk of a payment while funds are transferred or withdrawn by subsequent transfers.
The combination of using instant payment networks and digital channels that operate 24/7 allows fraudsters to strike by performing transfers during periods when capacity for manual review is the lowest.
Real-time fraud is an emerging threat that will grow in size and severity as the use of faster payment methods gains momentum. Mitigating these risks should be a priority for banks and other FIs that provide faster payment capabilities to their account holders.
Combating fraud risk requires real-time fraud scoring and a high level of automation, which is only achievable through advanced artificial intelligence with configurable rules and policies geared toward stopping fraudulent payments.
Instant payments fraud schemes come in a variety of forms. Account takeovers involve fraudsters gaining direct or indirect access to a user's online or mobile banking account. Once fraudsters compromise an account, they can initiate transfers or purchases that will appear to be authorized by the account holder.
Account takeovers can happen in three ways. The first way involves an attacker obtaining a user's credentials or abusing the account recovery process to gain direct access to the account. A second method involves the fraudster using malware to access a user's device. The third form of account takeover occurs when fraudsters socially engineer a user into carrying out their wishes.
Direct debit or auto-pay is a common target for criminals looking to exploit instant payments. Direct debit fraud can happen when a debit is taken from an account without a valid direct debit request. Consumers often use direct debit to allow another party to withdraw funds to pay for recurring costs like utility bills and rent. Consumers can also use direct debit to withdraw money from their checking accounts on a specific date or at regular intervals.
Business email compromise and vendor impersonation fraud are types of fraud that exploit vulnerabilities within a customer's professional organization. Fraudsters can deceive the customer's personnel, processes and systems convincing the organization to voluntarily send payments to accounts controlled by fraudsters.
The FBI identified this type of fraudulent practice as one of the fastest growing and financially damaging crimes with losses exceeding (see bit.ly/3xzY0bn).
Fraud schemes that involve a form of social engineering to trick a business or private person to transfer funds are also referred to as authorized push payment fraud.
Ways financial institutions can secure themselves against fraud
Fraud in instant payments is a modern problem that requires a modern solution. To effectively bolster defenses against fraud, FIs should implement solution platforms that stop fraudulent transactions using the following capabilities:
Instant payments are here to stay and will change the way we conduct payments. However, the benefits of instant payments being immediate and irrevocable is also a risk. Fraudsters will be quick to exploit weaknesses, meaning that banks and other FIs must rise to the challenge and implement measures to secure their instant payments capabilities against criminals. 
As vice president of fraud solutions at ARGO, Calin Sandru oversees relationships with over 250 financial institution customers, resellers and technology providers, and provides entrepreneurial leadership to drive company growth through effective product and market development and customer success. To contact him, please visit https://argodata.com/about-us/meet-our-team.
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