In this blog, we’ll break down the basics of real-time payments fraud, explaining what it is, how fraudsters exploit these systems within digital banking solutions, and who is most at risk. We’ll also cover effective strategies to mitigate risks and provide practical tips to help individuals and businesses avoid becoming victims of this fast-growing form of fraud.
Real-time payments have revolutionized the way we transfer money, offering speed and convenience like never before. Real-time payments are ubiquitous, and with good reason – 90% of consumers want the flexibility of real-time transfers between their financial accounts (Visa Direct NA Product Consumer Preference Research). However, anything that has this level of demand, also comes with risk.
In our recent Banking on Security: Check & Real-Time Payments Fraud webinar, we explored how real-time payments fraud occurs. Cybercriminals exploit instant money transfer systems to steal funds, using tactics like phishing, account takeovers, or social engineering, often leaving victims with little recourse since the transactions are nearly impossible to reverse. As more consumers and businesses adopt real-time payment systems, understanding the growing threat of real-time payments fraud within both business and retail banking solutions becomes critical to safeguarding financial transactions.
Financial institutions are encountering several types of real-time payments fraud, as cybercriminals exploit the speed and finality of these transactions. Some common examples include:
Payments fraud affects people across all generations, but the impact varies based on each group’s familiarity with technology, their financial habits, and susceptibility to scams.
In terms of severity, older generations often face greater financial losses because they typically have more substantial savings, while younger consumers are victimized more frequently, but with smaller financial losses per incident. However, since real-time payments are irreversible, both groups suffer significant consequences when they fall victim to fraud, as recovering lost funds is often difficult or impossible.
Older people lose more money to scams than their younger counterparts: an average of $803 for victims in their 70s compared to $460 for those in their 30s, based on reports to the Federal Trade Commission.
Real-time payments fraud poses significant challenges for financial institutions that have not yet started to invest in advanced fraud detection systems. The speed of real-time payments transactions leaves little room for error or time to flag suspicious activity, making these institutions vulnerable to attacks. Once a transaction is processed, the funds are typically irretrievable, which increases the pressure on banks and credit unions to detect fraud in real time. However, with limited access to the sophisticated fraud detection technologies that larger financial institutions deploy, these smaller entities may struggle to keep pace with increasingly sophisticated cybercriminals.
The financial and reputational damage caused by real-time payments fraud can be particularly detrimental to community banks and credit unions, which rely heavily on the trust and loyalty of their members or customers. The cost of reimbursing victims, implementing tighter security measures, and conducting investigations can strain the resources of these institutions, which are often already operating on tighter margins. This dynamic has forced many institutions to reevaluate their risk management strategies and invest in partnerships with fintech providers or adopt new technologies to better protect their account holders within their digital banking solutions.
In our recent Banking on Security: Check & Real-Time Payments Fraud webinar, Mark Majeske, SVP, Faster Payments at Alacriti shared his firsthand experiences, best practices and prescriptive advice around real-time payments fraud, and how to get ahead of fraudsters in an effective and strategic manner.
Oftentimes when financial institutions start offering a new payment channel or rail (such as RTP and FedNow) to their members and customers, it is announced on the payment channel’s website. That information is public for anyone on the internet to see, including fraudsters. Fraudsters often take advantage of this and specifically target these institutions that are new to these payment channels because the institutions may not have implemented the necessary fraud prevention measures prior to going live.
Recommendation for Financial Institutions: Ensure that all possible security measures are in place prior to going live with new payment rails. It is advised to keep transaction dollar limits small in value to start, and increase them over time, or offer them as a customized limit setting for certain clients.
Financial institutions can effectively manage risk and prevent real-time payments fraud by partnering with trusted payment security providers, who offer advanced fraud detection tools and solutions that help identify and stop fraudulent transactions before they occur. Here are some of the providers that Alkami integrates with:
Also during the Banking on Security webinar, Cassandra Tucker, Director of Operations from ABNB Federal Credit Union (ABNB) shared her experiences with preventing fraudulent instant payments transactions by employing the following strategies:
(On Risk Tolerance) The key is to manage those losses, and keep them within acceptable limits, the same way you would for every check, ACH or wire channel.
- Cassandra Tucker, Director, Operations, ABNB FCU
While real-time payments fraud is a prevalent concern, it should not deter financial institutions from embracing the benefits of innovative payment strategies. By understanding the risks and proactively implementing effective solutions and practices, financial institutions can safeguard their processes without sacrificing the advantages of real-time payments. Leveraging advanced fraud detection tools, educating account holders, and maintaining a watchful approach will help reduce the risk of fraud while keeping your institution in control. With the right measures in place, financial institutions can continue to offer fast, efficient payment services while ensuring the security and trust of their account holders.
Watch the recording of our webinar, Banking on Security: Check & Real-Time Payments Fraud where our panel of experts, representing diverse perspectives from product development, compliance, and real-world client experiences, shared their firsthand accounts of detecting, managing, and mitigating fraud. Regardless of your role within your institution, this webinar will equip your team with the knowledge and tools necessary to strengthen your fraud defenses.
