Faster payments fraud prevention is becoming increasingly important as the U.S. moves toward payment systems that transfer funds more quickly. Faster transaction processing can deliver significant benefits to banks, businesses, and consumers, but it also reduces the amount of time financial institutions have to identify and stop suspicious transactions before funds are transferred.
The UK’s experience with faster payments demonstrates the potential risks associated with this transition. As payment speeds increase and some transactions become irrevocable, financial institutions may need to rethink existing fraud controls and adopt technologies capable of identifying threats in real time.
As the U.S. runs hurtling towards faster payments, better or at least different fraud controls are needed. As pointed out in an article in International Banker, U.S. bankers should study the implementation of Faster Payments in the UK, where increased fraudulent transactions resulted:
While banks and businesses both want a faster way to move money, data and a variety of other financial-service products across physical and digital borders, the high volumes of payments and the speed at which the funds are transferred could potentially allow fraudsters to take advantage of the new system. This happened in 2008 when the UK moved to faster payments, attracting the attention of fraudsters who seized the opportunity to steal and get away with money before being detected. Online banking fraud losses in the UK went from £22.6 million in 2007 to £52.2 million in 2008 and £59.7 million in 2009, before they started to drop again; but even by 2012 there were still £39.6 million in online banking losses.
Faster Transactions Create New Fraud Challenges
The reduction in the time it take for transactions to clear also reduces the time available to detect fraudulent transactions. The irrevocability of some of the faster payments schemes also minimizes opportunities for recourse. As is pointed out in the article, many financial institutions will be dealing with this seemingly inevitable outcome of more fraud by adding more people to analyze transactions. This is a very expensive solution to a transaction that has an unproven business case. It seems that the industry needs to be running toward fraud solutions at a faster rate:
It will be paramount for banks to assess and choose the right fraud-prevention security platforms, and establish that they can handle additional real-time fraud traffic. Once the regulation takes effect, fraud-attempt numbers will grow, along with the introduction of new types of attack vectors. Current security controls such as transaction-based anomaly detection, device identification and MitB (Man-in-the-Browser) infection detection will become less effective at mitigating risks. Incumbent solutions will need to be complemented with a new-generation fraud-prevention solution that can detect new types of malware and remote-access attacks, and that cannot be easily circumvented.
Simply adding more employees to manually review suspicious transactions could become an expensive and difficult-to-scale response to the increased fraud risks associated with faster payments. Financial institutions will need fraud prevention systems capable of analyzing larger transaction volumes and detecting emerging attack methods quickly enough to intervene before funds are transferred.
The transition therefore requires banks to consider fraud controls alongside the development of faster payment capabilities themselves. Effective faster payments fraud prevention will depend on technologies that can operate in real time, identify evolving threats, and supplement traditional security measures that may become less effective as transaction speeds increase.
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
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