The world is technologically advancing daily, with countless developments being introduced in every aspect of our lives – ranging from shopping to entertainment to socialising. In the realm of payments, it is apparent that innovation has completely changed the way we handle bills and transferring money and a drastic difference can be clearly witnessed when comparing consumer behavior to that over just a couple of decades ago. Payment methods have evolved from the barter system to the introduction of bank notes and coins to digital payments, which is what we enjoy as of now.
The benefits of modern payments are clearly evident. The Digital Payments and Business Resilience report published by the World Bank Group states that new payment technology such as contact less payments increase card-sales amount for merchants on average by 8.3 percent compared to merchants without this technology. Source
The popularity of new payment methods is expected to be on the rise. According to the World Payments Report by Capgemini, digital payments grew by a whopping 53% over the last year, with data also indicating that customers were more open to experimenting with new modes of payments. 41% tried contact less cards, 35% added a card to a digital wallet and 27% of customers experimented with QR code payments A technological breakthrough in the payments industry was when Faster Payments was introduced, designed to speed up the process of money transfer. This article takes a look at Faster Payments and how they are impacted by fraud. Source
What Are Faster Payments & How Does it Work?
Faster Payments are a type of electronic payment mode that enable payments to be made online, via phone or via self-serving machines – with very little clearing time involved. Cash transfers are made almost immediately, with the intention of speeding up sending money as well as to reduce payment times for bank-to-bank payments. Various different types of payments can be made using the Faster Payments Service ranging from single immediate payments to forward-dated payments to standing orders to direct corporate access payments. The process itself is fast and convenient for customers but there is a lot that banks do behind the scenes in order to process transactions. For example – if a business wants to make a cash transfer, they will need to contact the bank via its website, mobile banking app, telephone banking or at the bank branch itself. After providing transfer details such as the receiver’s sort code, account number and passwords, the bank will then verify identification. Fund levels will be checked to see whether a sufficient amount is available in order to make the transfer, followed by additional checks.
Once this is cleared, your payment will be transferred. Once the receiving bank accepts the payment, the transaction is complete and the receiver’s account will be credited. The entire process can take place within just a matter of minutes – with all payments being credited by the end of the next business day. Delays are experienced in the case of security checks, where further identification is required to be carried out by banks.
The Benefits of Faster Payments
There are many benefits of using Faster Payments, with them being utilised by individuals, businesses and financial institutions alike. One of the more obvious benefits is that it eliminates the need for physical transactions as it makes use of mobile app technology or online websites, which is especially beneficial in terms of convenience and safety during a period such as the pandemic. Speed is also another factor as Faster Payments enables near immediate transfers to take place – which is a great option for time-sensitive payments. Users also do not need to know detailed information about the recipient in order to transfer money – which is another convenience factor. Individuals such as daily-wage workers are able to receive their daily income instantly for the work they do each day, letting them have immediate access to funds at all times. Businesses also benefit from Faster Payments in terms of real-time money management and cash flow. Due to the check that is done to ensure senders have sufficient funds, businesses rarely have to deal with payment reversals too. Financial institutions that offer Faster Payments are also able to remain competitive in the market by better serving customers in terms of offerings and service.
How Fraud Affects Faster Payments?
Despite the various benefits offered by Faster Payments, they do have their own share of drawbacks and challenges. Dealing with fraud is one of them in particular. Faster Payments are especially susceptible to fraud due to a number of reasons. Fraudsters tend to take advantage of Faster Payments by pretending to be someone else and prompting individuals or companies to send payment to them. Though this might sound as though it is easy enough to avoid, in reality fraudsters utilise advanced methods for impersonation – ranging from email hacking to social media hijacking – in order to achieve their end goal. As such, a number of users fall prey to this type of fraud on a regular basis, which is of concern.
Another technique used is in the form of social engineering – when fraudsters trick people into revealing sensitive information such as passwords which are then used to withdraw their money, without them even realising it.
Why Faster Payments Are Popular Amongst Fraudsters
Ironically, the speedy nature of Faster Payments – which is its main advantage – is ultimately what draws fraudsters to this service. As payment transfers are made immediately, fraudsters are able to transfer this money to their own accounts as quickly as they came in – before the victim even realises that they have been tricked or fooled. By the time the victim contacts their bank, fraudsters have usually emptied their accounts and the transaction is irreversible.
The report “Fraud: The Facts 2021” provides insight into fraud taking place in the payment industry and reveals that Faster Payments was the preferred payment type used in 96% of authorised push payment scams for the year. Source
How Can Fraud Be Prevented and Combatted?
However, the good news is that there are a number of things that can be done to mitigate fraud in order to prevent falling prey. These can be listed into technical and behavioural controls and have been listed below:
- Do not write down passwords
- Keep devices locked
- Leverage artificial intelligence or machine learning to detect fraudulent activity
- Always verify payment information prior to making a payment
- Set transaction limits if available
- Close payment apps when not in use
- Set login authentication – this can include behavioural biometrics, physical biometric authentication, anomaly detection, usage of complex passwords, multi-factor authentication, knowledge-based authentication, device identification, inactivity locking and logoff.
- Transaction monitoring – can be done using advanced fraud detection tools as well as regular checks on text and email notifications
- Account Tokenization and Validation
- System Security Controls – due diligence is required, as well as anti-virus software, system hardening, automated patching, auto updates of systems as well as heightened awareness in general. With proper awareness and effective controls in place, it is easy to mitigate fraud and thus reap the countless benefits on offer by Faster Payments.