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Where Payments Move Freely, Fraud Moves Fast: How to Clamp Down on Real-Time Fraud

Two steps forward and one step back?

During the pandemic, real-time payments evolved faster than anybody had foreseen. Implementation in new markets, and adoption in mature markets, continues to rise exponentially. All corners of the financial landscape are adopting these changes. Central infrastructures, payment networks and banks are pursuing digital innovation, making the changes tangible to the consumer. We are seeing a global change in the way we move money and an ease of transfer between markets, people and businesses. The result is digital inclusion across the globe, allowing consumers to open free bank accounts, use digital wallets and have more control over their money.

Despite the multifarious benefits, real-time payments are also an attractive target to fraudsters, and so they require real-time fraud detection. As payment limits increase and the technology evolves, fraudsters find new ways of committing financial crime, so the need to protect the movement of money will become more urgent. The availability of real-time transactions leaves banks, processors and financial intermediaries vulnerable to attack, with a tiny window to prevent fraudulent transactions.

Around the world in three use cases

  1. Faster Payments has been live in the U.K. since 2007, but fraud is still as rampant as ever. Annual bank investigation costs are estimated to have reached £159.7 million as a result of the pandemic and the increased use of Faster Payments. This totals around £12 per active bank account per year. This cost is absorbed by banks or passed on to the customer.
  2. India is the most advanced global market for real-time payments, where they are used for paying bills and taxes, person-to-person (P2P) transfers and more. The opportunity for real-time fraud has never been better, with data showing an 89 percent increase in fraud attempts from the first four months of 2020 to the first four months of 2021, indicating the pandemic has had a part to play. This issue is a wider problem – nearly 80 percent of financial institutions surveyed in the Asia-Pacific region reported “rises in fraud losses after debuting real-time payments services.”
  3. Since PIX, Brazil’s real-time payments system, was launched in October 2020, Sao Paulo has seen a 40 percent rise in kidnappings. The Brazilian central bank subsequently implemented a $200 transfer limit on P2P payments overnight.

In advanced markets, fraud moves fast. In a world where customers expect a seamless transfer and settlement of funds within seconds, keeping money and citizens safe requires real-time fraud detection and prevention. As the pandemic slows down and economies opens up, real-time payments are set to not only stay, but also increase. It is technology that is enabling fraudsters to scale their crimes, so it can only be fought back with the latest financial crime-fighting technology. Fighting fraud requires analysis of consumer behaviors and locations for suspicious changes before a transaction has happened. This technology will block an untimely large domestic transfer made into a dormant account, or the unusual transfer from, for example, an Australian citizen to an account in Spain receiving numerous low-value funds from all over the world. But only with new developments such as machine learning, combined with network intelligence community fraud signals, will banks successfully bolster real-time protection.

Real-time benefits to banks

There is an opportunity for banks to enhance their product offering, generate new revenue streams, and make life easier for customers. Effective fraud management can not only save losses, but also become a competitive differentiator by facilitating real-time payments seamlessly, with less burden on the customer and greater security.

Real-time fraud prevention also offers operational efficiencies and risk benefits – as banks would need fewer analysts looking for possible attacks but would stop more fraud. Globally, real-time payments technology is still in its infancy, and the time has never been better to be a wave-maker in financial crime prevention.

The use of real-time payments has risen exponentially over the last 18 months and is set to eclipse the one trillion mark annually by 2025. With the adoption of online banking, real-time payments are being increasingly used for day-to-day purchases, in place of cash. But where real-time payments move freely, fraud moves fast.

In the digital payments era, banks and financial intermediaries with robust fraud management will be more resilient, lose less money and be able to maintain a seamless customer experience. While real-time payment schemes are being implemented throughout the globe, the time is now for retail banks, processors and acquirers to evolve their technology decisions to meet the demands of a real-time ecosystem.

Find out more about ACI Fraud Management

Head of Payments Intelligence & Risk Solutions

Cleber Martins joined ACI Worldwide in 2001 and has 20 years of experience in implementing industry-leading enterprise fraud prevention solutions and anti-money laundering strategies. Cleber’s enthusiasm for driving innovation in fraud prevention stems from the pride he takes in protecting both his banking customers, and the people and communities they serve. Throughout his career Cleber has been at the forefront of the evolution of machine learning: from a focus on inputting human experience into machines, to its modern form that empowers fraud experts to combine their real intelligence with AI. Cleber calls this trend toward business users wielding new models, the democratization of machine learning. Cleber’s key areas of expertise include helping payments leaders to develop multi-faceted fraud prevention strategies that combat modern threats, as well as creating actionable intelligence in payments data, and the evolution of fraud prevention into a Customer Experience differentiator for organizations.