If banks refuse to offer real-time payments because they are too worried about fraud, they risk losing customers and missing out on a new wave of products and services, executives warned at a conference hosted this week by The Clearing House and the Bank Policy Institute.
“Real-time payments can have an impact on the banking industry in the same way Uber had on the taxi industry,” said Carolyn Criscitiello, HSBC Bank’s head of digital payments for retail banking and the wealth management group. “The risk of not doing it now is the big question.”
Criscitiello, along with other proponents of fast payments, are positioning such systems as essential additions for any bank based on consumer demand for more immediacy and transparency from their digital services.
“Real-time payments has the opportunity to help banks retain customers but also grab market share as the demand for immediacy is growing and becoming stronger,” said Arthur Brieske, managing director for JPMorgan Treasury Services.
JPMorgan Chase, which is experimenting with The Clearing House’s real-time payments network, has rolled out a feature to help its customers get accustomed to fast payments: Holders of accounts at multiple banks can instantly transfer funds from their Chase accounts to ones at different institutions.
“We thought we would get them used to sending money to themselves,” said Brieske. “It starts to get the consumer used to it on both sides” of the transfer and helps with the education process.
Brieske said the next logical step would be to extend the real-time capability to bill pay.
How quickly banks adopt real-time payments will depend on the benefits they see, but one observer warned executives not to hesitate.
“There are some benefits to waiting, but not so long that they get left behind,” said Duncan Douglass, a partner at the law firm Alston & Bird. So much of the business case for adopting real-time payments, he added, “is keeping up with the industry and making sure they don’t lose customers.”
One factor keeping banks shy, at least initially, is fraud.
“Fraud follows speed,” said Mary Ann Miller, the fraud strategy leader at Varo Money.
She explained to American Banker before the conference started on Monday that criminals will gravitate to any system that gives them instant gratification.
Miller said while consumers will see the benefit of instant transfers for payments such as insurance claims and loan disbursements, criminals see such speed as an opportunity to take over an account and clear out funds.
Banks long have experienced fraud issues when introducing new products focused on enhancing the payments experience.
Dan Larkin, director of fraud protection at PNC Bank, said during a panel about fraud and real-time payments that criminals blitzed its mobile banking app when the bank added Zelle.
“We saw pretty quickly that once the bad guys got into the mobile channel, they stayed there,” he said. “As they were compromising the mobile wallet, they saw Zelle became available and moved over to that. They then moved over to cardless ATM access.”
Larkin said PNC did not use so-called device binding at the time of the Zelle integration. Device binding enables customers to conduct transactions on trusted devices without the need for constant authentication. “Device binding would’ve helped us, and we’re going to introduce that in the next month or so,” he said.
PNC’s initial fraud problem with Zelle is not unusual for banks that introduce the person-to-person payments network. Early Warning Services, the company that runs Zelle for the banks, cautions financial institutions that fraud attacks will be most prevalent upon launch.
Donna Turner, the chief fraud policy and control officer at Early Warning, discussed how the company handled Zelle’s fraud issues upon launch. “We sat down and walked through the process” of a Zelle transaction “in excruciating detail,” Turner said.
She added that the key to combating fraud in Zelle’s early days was cooperation with the banks, noting there is little doubt banks linking themselves to a real-time payments network will experience increased fraud.
“If you’re in the payment business, you’re going to have fraud,” Turner said.
