Anti-Fraud Innovations Keep Instant Payments on Right Track

Transactions are built atop a first principle of trust. And the faster transactions happen, the stronger that trust needs to be.

As digital payments evolve to meet consumers’ expectations for speed and convenience, fraud remains a central challenge for financial institutions and their clients. The push toward real-time, instant payments has brought with it a heightened need for robust security measures.

With the Thursday (Oct. 31) news that Pay.UK, the operator of the U.K.’s national retail payments system, has announced a major expansion of Confirmation of Payee (CoP), bolstering protection for U.K. consumers against authorized push payment (APP) fraud and misdirected payments, fraud checks for payments is becoming a linchpin of financial security and end-user trust.

This expansion, driven by Pay.UK’s collaboration with the payments industry, represents a 200% increase in coverage since the mandate was issued and is expected to further increase daily check volumes by 7%, mirroring the growth in Faster Payments transactions, a Pay.UK spokesperson told PYMNTS in a statement.

“While reimbursement is important, true progress lies in preventing fraud from happening in the first place,” the spokesperson added.

The CoP verification system, which checks that the name on an account matches the intended recipient’s details, has proven effective in curtailing fraudulent transactions that exploit weak or nonexistent identity checks.

Read more: Slow Going for Faster Payments as Fraud Concerns Persist

Fraud Prevention Is Key

The rise in digital fraud, particularly APP fraud, has the potential to dampen consumer confidence in instant payments. Fraudsters exploit weak security, and as instant payments remove the traditional clearing window, the possibility of a swift, irrevocable transfer becomes a double-edged sword.

“There’s always the potential of fraud in mismatched payment information,” Nium Chief Payments Officer Alex Johnson told PYMNTS.

Instant payments are appealing for businesses because they enhance cash flow and operational efficiency, and they hold potential for cost reduction over time. But as fraud losses rise, institutions face pressure to pass these costs on to clients, or scale back their instant payment offerings to avoid reputational and financial damage.

PYMNTS Intelligence’s latest report, “How Instant Pay Is Becoming the Standard for Ad Hoc Payments,” a collaboration with Ingo Payments, details the rise and ongoing adoption of instant payments and finds that half of ad hoc payments are sent using instant methods, and almost all enterprise senders see instant as the future for ad hoc payments.

That’s just one data point why robust fraud prevention measures are not merely beneficial — they are essential to achieving broad adoption of instant payments.

Read more: The Latest Data on Real-Time Payments Global Expansion

Fortunately, the marketplace is responding, and as recently as Tuesday (Oct. 29), Visa teamed with ClearBank on a partnership centered around issuance and money movement solutions.

“By utilizing ClearBank’s cloud native banking infrastructure, Visa could soon benefit from its real-time payment processing, enhanced transaction visibility and a streamlined reconciliation process when processing transactions in the UK and Europe,” the companies said.

And Oct. 15 the digital banking solutions company Tyfone formed Payfinia, a new entity centered around instant payments with a strong focus on security and fraud prevention.

As separately noted here last month, the launch of the FedNow® Service alongside The Clearing House’s RTP® network, is progressively integrating instant payments into the financial landscape, a sign of a promising future for this payment method.

“Looking forward, 68% of businesses plan to adopt instant payments via RTP or FedNow within the next two years,” that report said. “This enthusiasm spans various sectors, including 81% in consumer and retail, 75% in hospitality and leisure, and 70% in healthcare. These figures highlight a recognition of instant payments’ potential to enhance liquidity management and boost customer and vendor engagement.”

Data from the PYMNTS Intelligence/Clearing House collaboration “Fast-Tracking Funds: Finance and Insurance Accelerate Payments,” also notes that more than a quarter of policyholders reported switching providers to access faster payouts, highlighting a gap in service delivery.

And the experts that PYMNTS has spoken to regarding instant payments believe that collaboration between financial institutions, technology providers and payment processors is crucial to combating the new iteration of frauds and scams targeting faster payments — as is end-user education around the risks endemic to push payments.