Is adoption of real-time payments keeping up with fraud?

Faster and real-time payments are finding more and more use cases, but the razor-thin transaction windows are alluring to fraudsters who want to make a swift getaway with stolen funds.

The phrase “real-time payment" generally means an execution of a few seconds, which is a small window for banks and payment networks to catch suspicious behavior. The threat of real-time payments crime is new enough that the Federal Reserve is still working on defining and classifying real-time payments security.

“It’s a bit of a debate as to when the clock starts ticking. And it’s a bit different from consumers to corporations, since the dollar values are higher in the corporate space, and there are more approvals or authentications," said Elena Whisler, head of enterprise product management for FIS.

FIS research found 54 countries have national real-time payments systems. That’s up from about 40 in 2018, with six national systems launching in the summer of 2019, and about a half dozen more in the pipeline for next year. Many nations in this group have double-digit growth in both volume and value of real-time transactions.

As with any shift in the payments ecosystem, fraud comes along.

The obvious risk is there’s less time to catch a bad transaction before it processes. Chargeback 911 COO Monica-Eaton Cardone highlighted the risk in PaymentsSource on Friday, writing: “These payments will occur in a matter of seconds … fraudsters who identify methods of abusing the system could easily commit and attack, then vanish long before anyone even notices the incident.”

Beyond securing the transaction, protecting data can also support the ancillary benefits of real-time payments. The information that surrounds P2P transaction or a supply chain payment is considered a primary value-add for faster payments. That's driving investments in real-time payments as a way to serve the gig economy, either to improve payments for contractors or to tie ride-sharing payments to loyalty marketing or cross-selling.

Since most real-time payment schemes use the ISO 20022 standard, the transactions can include more information that improve data for remittances, reconciliation, compliance and international transactions, according to Whisler.

“What we’re seeing is the industry is bolstering up at each stage and adding different methods of authentication to make sure the payment goes where it’s supposed to go,” Whisler said.

Protecting real-time payments does not have to start from scratch, Whisler contends, adding there are lessons from card payments that can be transferred into real-time transactions. There is also innovation in artificial intelligence and machine learning that can improve exception processing, authentication, ID theft mitigation and phishing attack management.

Whisler also advocates a centralized and unified approach among issuers to combat real-time payments fraud.

“Mobile security can be used, or it can be online banking security … or tokens. That’s what we’ve seen the industry move toward,” Whisler said. “And on the back end we’ve also seen transformations to manage fraud analysis, sanctions screening, analysis of patterns and trends.”

Most of the real-time deployments are starting with P2P consumer transactions, which are simpler than B2B and treasury management payments. While that mirrors most payments automation adoption stages, it also introduces transaction complexity gradually to real-time processing. “Nations are starting with transactions that are very low,” Whisler said.

Security is just one challenge, as the global real-time payments market is strengthened through consolidation. The large payment acquisitions of the past year — GlobalPayments/TSYS, FIS/Worldpay and Fiserv/First Data — have all closed, and conversions will take place over the next few years.

Whisler has said the varied assets that will come into the combined company will help expand B2B payments, among other transaction types. The large deals are also expected to promote open banking, which aids the kind of e-commerce and cross-border transactions that will require faster processing to thrive.

FIS is navigating the varied international approaches to real-time payments, since not all nations are the same. Even in the U.S., there are two general initiatives, the pending Federal Reserve system, FedNow, and the Clearing House's Real-Time Payments initiative. Whisler expressed general support for both efforts.

"The two different [U.S] approaches both drive toward a ubiquitous approach," Whisler said. "Our approach is to enable our clients to handle payments in any way they want."