The Federal Reserve in the US is developing the FedNow Service to create a new infrastructure to support 24x7x365 instant payments. This is bound to be a game changer for US Payments industry just as India’s UPI or Brazil’s Pix infrastructure. Such low value real time payment infrastructures have created a paradigm shift in the way digital payments boost the ecosystem. The FedNow Service will provide a springboard for financial institutions (FIs) to offer innovative instant payment solutions and help them meet the growing demand for these services.
*Source: Economist Intelligence Unit, ACI Worldwide
The FedNow Service will debut in 2023, with additional functionality to come in future phases. The initial launch will focus on core capabilities and certain value-added features that will meet market needs and help FIs transition to a 24x7x365 instant payment service.
At initial launch, the service will support the account-to-account and consumer-to-business bill pay use cases; however, the service is use-case agnostic and will be able to support a wide variety of use cases with innovation by the industry. Future releases of the service may offer additional features/functionality to enable FIs to offer additional use cases to their customer.
With new opportunities, we deal with new forms of Fraud and Risk:
India’s UPI has been a front-runner in Instant Payments, widely successful and acclaimed globally as one of the most efficient instant payment infrastructures. The growth in UPI volumes is up almost 100 percent (year-on-year) in Aug, 2022 and amounts transacted grew by 75 percent YoY in the month of August, 2022. We are talking about 6.5 Bln transactions worth almost US$130 Bln in a month! Having said that, UPI frauds are a major concern with fraudsters using new and innovative approaches to destroy customer confidence!
*Source - NPCI
Common types of frauds that impact an instant payment infrastructure are quite different from traditional financial crime. In many cases they exploit consumer naivety and lack of awareness.
Phishing – Using spam emails to extract sensitive information which is misused
Vishing - Unknown callers posing as bank representatives and extracting victim’s personal information like PIN or Password to execute fraudulent transactions
Money Mule – Fraud rings transfer money to an intermediary account which acts as a money mule to transmit and park money from victims
SIM Cloning - If a fraudster clones your SIM, he can even change the PIN you use for instant payments
Authorized push payment fraud (APP fraud) where victims are manipulated into making real-time payments to fraudsters, typically by social engineering attacks involving impersonation
Scams when a counterfeit customer asks a seller to click on the “Pay” option to receive payment and thereby source the PIN or OTP necessary to authorise a transaction.
Get ready for FedNow – address RiskNow!
As Financial Institutions gear up to adopt and accelerate their business with FedNow Service, it’s critical to brace for the risks attached. Learning from scenarios and experience of early adopters in Instant Payments (like UPI), banks and partners should look at enhancing their risk mitigation infrastructure- and do it NOW!
Risks associated with Instant Payments involves a range of scams or authorized push payments which require many parameters and more than just rules. Leveraging alternate data elements like device fingerprints, geolocation, IP address driven by machine-learning models is the best way to protect customers. It is important to build the enhanced risk infrastructure in parallel to the instant payments infrastructure to make best use of the future of payments!
Drona Pay offers a new-age risk management platform which uses supervised & unsupervised machine learning algorithms that leverage device fingerprints, behavioural biometrics, geolocation, app usage patterns and transactional data in real-time to protect instant payment infrastructures for Banks, BNPLs, FinTech’s and payment processors.