Managed Services Give Banks End-to-End Look at Real-Time Payments

Laura Sullivan, senior product manager at Form3, told PYMNTS in an interview that as faster payments gain ground in the United States, fraudsters are lying in wait.

“Everybody feels like the scammers just have not caught up with instant payments just yet,” Sullivan said.

As she noted, the RTP® Network, sponsored by The Clearing House, has been around since 2017, and the FedNow® Service launched last summer.

Right now, she added, “there’s a lot of concern over what’s going to happen across those rails.”

The conventional wisdom is that faster payments allow faster fraud to take shape, and much of the financial services industry still is tied to slower-paced ACH payments.

But with the emergence of real-time payments, the ways and means by which payments are examined are changing, she said. The new, faster schemes allow banks to hold payments if they have scanned those transactions and suspect that there may be an issue with those payments. But they can’t hold a payment to scan it.

There’s a negative ripple effect, too, Sullivan remarked: If a payment is held to make sure the bank is comfortable with it before sending it on to the receiver, an hour-long holding period will mean that customers will become “rapidly disillusioned on how ‘instant’ that payment is.”

The Advantage of Managed Services

End-to-end managed services help ensure that banks satisfy messaging requirements and sanctions screenings so that funds can become available to transacting parties in real time, Sullivan said.

“Managed services offer you the technology and the ability to interface in real time with the various vendors that support fraud and sanctions screening,” she told PYMNTS.

Many vendors, Form3 among them, use modern technologies including APIs to enable real-time monitoring of those flows and automate what used to be manual activities. The information moves directly between computers, which streamlines the process itself, she said. That’s critical, given the fact that ISO 20022 messaging has 2,000 data fields.

Form3’s own experience with managed services, especially in the United Kingdom — and in looking at the whole picture of faster payments — has been able to identify patterns in fraud, she said. Bad actors essentially hopscotching transactions from bank A to bank B to bank C as they perpetuate consumer-focused scams (such as authorized push payment fraud) are stopped dead in their tracks, and fraud rates are reduced by 80%.

False positive rates are also dramatically reduced, Sullivan said. Introducing the right amount of friction into the transaction process is critical. Advanced data and analytics can determine if users are a bit too practiced in how they are populating real-time payments fields — and perhaps have been prepped by fraudsters to act as payment “mules.”

“There’s a dramatic difference when you pool all of this data,” Sullivan said. “We’re certainly offering the same service to U.S. banks… We’re learning a lot and can apply this knowledge to help combat fraud.”

As she told PYMNTS, with a nod toward faster payments fraud, “this is going to be a continuously evolving field. And the advantage of using a vendor for those types of fraud monitoring is they will be rapidly adjusting as the fraudsters evolve.”