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Real-time payment fraud

What is real-time payment fraud?

Real-time payment (RTP) fraud, also called instant payment fraud, refers to unauthorized or illegal transactions during processing of the real-time payments that enable the near-instantaneous transfer of funds between banks or financial institutions. Due to the real-time nature of these payments, once a fraudulent transaction is initiated, it is often too late to stop it.

The speed and convenience of RTPs creates opportunities for multiple types of fraud, including:

  • Identity theft. Fraudsters steal personal information to impersonate someone and set up new accounts or take over existing accounts for fraudulent transactions.
  • Phishing. Fraudsters uses deception to scam individuals into revealing sensitive banking information, which is then used to initiate unauthorized real-time transactions.
  • Account takeover. A fraudster gains access to a user's bank account details, often through hacking or phishing, then makes unauthorized real-time transfers.
  • Transaction manipulation. Transaction details or amounts are manipulated in real time, exploiting vulnerabilities in the payment processing system.
  • Malware. Malicious software is used to infiltrate banking systems, intercepting or altering payment instructions.
  • Insider fraud. Fraud may be perpetrated by insiders within a bank or financial institution who abuse their access to systems for unauthorized transactions.
How prevalent and costly is RTP fraud?

With the rapid adoption of RTP, a global wave of scams has quickly followed, resulting in both institutions and consumers suffering significant losses. According to the Federal Trade Commission (FTC), consumers lost over $10 billion to fraud in 2023, a 14% increase from 2022. And by 2027, financial crime and fraud are projected to cost banks and financial institutions over $40 billion globally on an annual basis.

Losses from the most prevalent type of RTP fraud, APP (Authorized Push Payment) fraud, are expected to climb to nearly $7 billion by 2026 across six major markets (US, UK, India, Brazil, Australia and Saudi Arabia).

What are the benefits of combating RTP fraud?

Combating RTP fraud is crucial for maintaining the integrity and reliability of real-time payment systems. The benefits of preventing RTP fraud include:

  • Customer trust and confidence. Customers who feel their money is safe are more likely to use and recommend a bank's services.
  • Reduced losses. Financial institutions can significantly reduce the financial losses associated with fraudulent transactions.
  • Improved security. Enhancing overall security posture leads to stronger defense mechanisms against various types of cyber threats, beyond just payment fraud.
  • Regulatory compliance. Combating RTP fraud helps institutions comply with region-specific fraud prevention regulations, avoiding potential legal penalties and reputational damage.
  • Operational efficiency. Automated systems for detecting and responding to fraud can reduce the need for manual intervention, freeing staff to focus on other critical areas of operation.
  • Global standardization. As institutions around the world focus on combating RTP fraud, there is a move toward global standards in payment processing and security. This harmonization is beneficial for international trade and finance.
How can financial institutions combat RTP fraud?

In a world of RTP and settlement, fraud prevention must be quicker than the fraudsters. Anti-fraud measures must be in sync with the latest consumer behaviors, which requires a holistic, AI/ML-based approach to detection and prevention.

A fraud-resilient integrated solution approach can create instant payment hubs and/or enable instant payment rails that process domestic RTGS, ACH or SWIFT transactions. Through RTP rails, money transfers arrive immediately and irrevocably, so powerful fraud prevention safeguards must be implemented to detect and prevent suspicious transactions.

A good deal of fraud can be detected even before the payment hits the payment hub. Two ways to do so are:

  • Network and counter-party collaboration—sharing the data characteristics of fraudulent transactions through the Payment Market Infrastructure (PMI) service
  • AI/ML-based suppression layers of protection—helping detect and block RTP fraud with granular precision, reducing losses and improving approval rates
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