Do Faster Payments also mean faster fraud? Real-time or “Faster” Payments have matured dramatically over the last decade, improving the customer experience and creating new opportunities for payment product innovation across the globe. But as consumers enjoy the benefits of real-time payments, so do fraudsters, who take advantage of the speed and irrevocable nature of such payments. To learn more about both the benefits and challenges of Faster Payments and what’s next for 2022, I spoke with Peter Tapling, MD of PTap Advisory and US Faster Payments Board Member; Mary Ann Miller, VP of Client Experience and Fraud Executive Advisor at Prove; and Amit Goel, Country Head India and VP Global Advisory of Prove. Watch our conversation here or read on for the key takeaways.
*Responses have been edited for clarity and brevity.
Peter Tapling: According to the Banks for International Settlements, Instant Payments are payments in which money is moved from one bank account to another bank account, cleared and settled between the banks, in real-time (within several seconds), on a 24/7/ 365-day basis.
The US Faster Payments Council broadens that definition and includes a push-to-card capability for debit cards and things like same-day ACH (automated clearing house), where faster is defined as faster than it used to be.
Peter Tapling: Every Faster Payment scheme around the world started with a white paper, and in that white paper, time was spent identifying the use cases for Faster Payments. In almost every case, however, the largest volume use case was not identified in the white paper. If you ask someone, do you want your money now or later, they will always say now. So as these systems come to market, we will continue to see innovative ways that businesses and consumers choose to use them.
Push-to-Card, for example, is something that has become very popular for same-day payroll. Uber uses this to pay drivers at the end of their shift. And, of course, when we talk about Instant Payments, RTP is a true 24/7 365 day single-transaction instant settlement service the clearinghouse offers. PayPal has a capability that allows the consumer to cash out from PayPal instantly if their bank offers this service. It drives a lot of volume in the market.
Amit Goel: Out of the 40 billion transactions that will take place this year in India, 80% will be very small transactions. The use-cases for Faster Payments have changed over this period of time. It all started with peer-to-peer payments because that is the easiest. Soon after, the entire industry was very motivated to bring on merchant payments which was the next thing to take off. Mom-and-pop shops now accept instant payments throughout India. Something specific to e-commerce in India was that all payments were made using cash on delivery. UPI has eliminated that. Using UPI, you can pay in real-time for your order without using cash. Other emerging use cases include payroll and collections for lending companies.
Mary Ann Miller: The exciting thing about Faster Payments is the types of products you can offer the customer. You can offer the instant issuance of a debit card or the instant payment to your landlord for rent, or the instant payment to your roommate for your half of the rent. If we had modern and safe ways set up to get emergency funding to citizens during the pandemic through a Faster Payment rail, this would be a much-needed advantage in the United States. Canada is doing a great job of setting up this infrastructure in the future. There are so many things that we don’t think about that are so slow and cumbersome because the speed of payments simply isn’t fast enough.
Amit Goel: In India, real-time payments take place on the Unified Payment Interface (UPI). Transactions made on the UPI are skyrocketing both in terms of volume and value. In fact, around 35 billion transactions have happened this year alone (2021).
One of the key elements to UPI’s success was allowing third-party apps to also use the UPI platform. That has been one of the cornerstones of success. Google, WhatsApp, and other FinTech companies have contributed to this boom made possible by open innovation.
Mary Ann Miller: Over a decade ago, the entire industry in the UK went live at the same time. We joke that this was a “cakes and balloons moment” because all of the banks went live at the same time and celebrated with cakes and balloons. All of the banks in the UK put together a central payment platform that orchestrates account-to-account payments across the entire industry. Consumers adapted to the platform really quickly, but, unfortunately, it was a cakes and balloons moment for the fraudsters, too. In that orchestrated event, each bank chose its own way to prevent fraud. One of the major takeaways is that there was an underestimation by executives about the relationship between fraudsters and speed. Fraudsters are attracted to speed, the popularity of new services, and large sums of money. On day 1 of Faster Payments in the UK, fraudsters were ready.
“Fraudsters are attracted to speed, the popularity of new services, and large sums of money. On day 1 of Faster Payments in the UK, fraudsters were ready.” – Mary Ann Miller, Fraud Executive Advisor at Prove
Mary Ann Miller: It’s really important not to underestimate your customer’s love of speed and service but also the fraudster’s love of speed and service. It’s critical to think carefully about what investments and building blocks are necessary to ensure that a bank and its customers are protected. Data matters. When you’re looking at speed, look at data lineage and data validation and how data is consumed by the fraud brain. Your transaction monitoring systems will take signals from your authentication event like biometric signals or phone signals and other types of events. All the signals need to be monitored for their liveliness, their predictiveness, and their delivery on time because they are feeding models that need to be accurate. In the UK adoption, there were early lessons learned when data feeds dropped, and there weren’t signals to warn the fraud teams, so the robustness of some models wasn’t in-tune.
Peter: Bad guys love speed even more than businesses or consumers do. Say, you’re going to rob a bank. You're not going to hang out and smoke a cigarette outside the door. You’re going to want to get out of there as fast as possible. Bad guys also love things that are new because there is confusion every step of the way. When there is a brand new financial product, neither the consumers nor the operations teams fully understand how it works yet.
Ultimately, Faster Payments require faster decisioning on the part of banks. The ACH network has rights of revision windows where (up to two years after a transaction in some cases) participants in that transaction can get their money back. That doesn’t exist in real-time payments. In real-time payments, there is no ability to further review any transaction and no ability to get the money back. So the ‘who’ of the payment becomes critically important whether it’s a consumer or business payment.
“Bad guys love speed even more than businesses or consumers do. In real-time payments, there is no ability to do any further review of any transaction and no ability to get the money back. So the ‘who’ of the payment becomes critically important whether it’s a consumer or business payment.” – Peter Tapling, MD of PTap Advisory and US Faster Payments Board Member
Amit Goel: I’m in India, which is leading in real-time payments, so the future is already here. A lot of innovative use cases are coming up. India never really ran on credit cards, so people are trying to create a credit product that runs on top of UPI that does instant funding at the time of purchase. One-time mandates will allow consumers to make payments if a specific requirement is met. So we are going in the direction where it’s no longer a payment product but also a credit product, among other things.
“I’m in India, which is leading in real-time payments, so the future is already here. India never really ran on credit cards, so people are trying to create a credit product that runs on top of UPI that does instant funding at the time of purchase. We are going in the direction where it’s no longer a payment product but also a credit product, among other things.” – Amit Goel, Country Head India and VP Global Advisory of Prove
Mary Ann Miller: It’s important to educate the C-level at your company. Many people still underestimate the types of investment and systems required to ensure that companies can safely enable their systems. One of the reasons Lloyd’s Banking Group was able to offer an easy customer experience is that the executive team supported and invested in Faster Payments in the early days. Those investments help banks enable more products across their entire portfolio. Ultimately, it’s important for product teams to prioritize customer experience and for the fraud executives to continue to educate their C-level.
“One of the reasons Lloyd’s Banking Group was able to offer an easy customer experience is that the executive team supported and invested in Faster Payments in the early days. Ultimately, it’s important for product teams to prioritize customer experience and for the fraud executives to continue to educate their C-level.” – Mary Ann Miller, Fraud Executive Advisor at Prove
To learn about the future of Faster Payments globally, watch our webinar “What’s Next for Faster (and Safer) Payments in 2022” here.
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