Search online for the words “Facebook scams” and your search engine will immediately deliver myriad news stories warning consumers to be vigilant when scrolling through the site.
One recent story specifically identifies Facebook Marketplace as an especially popular place for scammers to hang out. So popular, in fact, that some U.S. banks are now issuing warnings to their customers to proceed with caution when shopping there.
Facebook Marketplace is one of many online bazaars that enable bargain hunters around the globe to buy goods across time zones and borders. But despite Facebook’s many investments in fraud prevention tools, one bank determined its Marketplace was ground zero for 60% of fraud complaints it received last year.
There are thousands more digital destinations where fraudsters congregate as well, and that prevalence of bad actors is forcing many banking executives to question the value of open banking.
As “How Fraud Fears Impact FIs’ Adoption of Faster Payment Solutions” found, nearly half of financial institution (FI) executives say the risk of fraud now outweighs any rewards open banking might offer. And for those institutions that have recently experienced an uptick in fraud, the percentage of open banking skeptics jumps to 57%.
The report, which PYMNTS Intelligence created in collaboration with Hawk AI, reflects responses from 200 FI executives who were asked how fraud trends are shaping their support of open banking generally and, more specifically, real-time payments.
As the report explains, open banking — the legal framework linking financial data across institutions for use by consumers, FIs and FinTechs — has helped facilitate an array of innovations, among them real-time payments. But the ongoing increases in financial fraud appears to be dampening the support many FI decision makers have around both open banking and faster payments.
When surveyed, 46% of FIs executives say the risks of open banking outweigh any benefits, while 35% believe the benefits overshadow the risks. Smaller institutions appear to the biggest proponents of open banking initiatives, with nearly 2 in 5 saying the benefits outweigh the risks. However, executives from large FIs — those managing with greater than $100 billion in assets under management (AUM) — take the opposite view.
One reason for this divergence may be that smaller FIs view open banking as a path to competitive differentiation because it enables them to collaborate with FinTechs to fast-track new services and tools.
But that narrative is flipped when the conversation turns to faster payments.
When asked about increased payment speeds, some say faster payments could actually expose their institutions to higher fraud risk.
A high percentage of FIs — 81% — say they are confident they could deliver secure, real-time payments, but an institution’s size informs that view. Nearly all FIs with more than $100 billion in AUM say offering real-time payments will not increase fraud vulnerability, but only 78% of smaller FIs (with AUM between $1 billion and $5 billion) share that confidence.
Yet again, an FI’s familiarity with fraud colored survey responses. Those institutions that recently experienced an increase in their overall fraud rate were 4% less confident in their ability to provide secure real-time payments than those FIs that saw a decrease in their overall fraud.
Industrywide, bank transfer fraud rose last year, and transactions initiated using digital wallets — Samsung Pay, Apple Pay, etc. — saw some of the highest fraud levels overall. Trends like these undoubtedly contribute to the viewpoint some FIs executives have that faster payments equal higher levels of fraud risk, which might explain their lack of enthusiasm for real- time payments — and open banking.
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