ACI Blog

How Will Accelerated Adoption of Digital, Real-Time Payments in the U.S. and Beyond Lead to More Fraud?

The payments industry is brimming with experts voicing the predication that the future is digital and real-time. Rooted in consumers’ growing desire for convenience and waning patience, rising demand for digital and real-time payments is inevitable. But with faster payments and the push for value-added services that accompany them comes another inevitability: an increase in fraud.

I recently had the opportunity to sit down with PYMNTS to discuss the complex relationship between digital payments (in particular real-time payments) and security in the U.S. But it’s worth taking a closer look at how this issue has played out in markets around the world where real-time payments are more established.

An international case study in fraud

India’s digital payments landscape has seen massive growth since demonetization in 2016 — a catalyst that has propelled the country globally not just in the world of digital payments, but specifically real-time payments. According to ACI Worldwide’s “Prime Time for Real-Time” report, which tracks and analyzes real-time payments across 48 global markets, India comes in at the top spot with 25.5 billion real-time transactions annually. The report also predicts that by 2024, real-time payments will account for more than 50 percent of all digital payments in the country.

However, progress towards widespread adoption comes at the cost of increased fraud. According to the ACI report, scams associated with real-time payments in India — including confidence tricks, identity theft and digital wallet account hacks — increased from 2019 to 2020. According to another report from ACI Worldwide, vulnerability to fraud remains the biggest consumer concern among Indian consumers when it comes to digital transactions. 

The real-time payments security conundrum

Despite a current lack of mandate for U.S. players to adopt real-time payments, more than 1.2 billion transactions were logged in 2020, ranking the U.S. as the ninth-largest market for real-time. As coming years look set to be increasingly dependent on real-time, industry players are doubling down on the value-added services built upon these rails — which raises the prospect of increased fraud.

When it comes to the connected economy, if you are able to drive value, people will join up. But as payment limits expand and new real-time payment-based channels, capabilities and products are developed to meet demand, fraudsters have new ways to target consumers and businesses.

Even with proactive security development, no real-time-based technology has been or will be perfect when it hits the market. Vulnerabilities exist and fraudsters — drawn to real-time payments — will attempt to exploit each one.

Focusing on consumer protection

The stakes are naturally high in a real-time setting because these payments are irreversible. Battling fraud is all about prevention, including taking proactive measures such as deploying machine learning models that can sift through hundreds of thousands of data points, finding anomalies and calling out risk before fraud can occur. These preventative measures, along with customer due diligence (including customer authentication measures), are key steps in protecting consumers in a real-time setting.

While all official parties want to keep consumers safe from fraud, conflicting interests when it comes to real-time payments have complicated the path towards greater security. For example, while more security measures bolster protection, they often increase friction, which merchants work hard to limit for consumers. As a result, regulators have the complex, yet essential task of balancing protection and convenience in an environment that is continually evolving.

Only time will tell how the U.S.’ response to real-time payments fraud will play out. In the meantime,

the U.S. can take a cue from the trends emerging from other major markets, such as India, and prepare for an influx of bad actors ready to take advantage of new vulnerabilities that come with new types of payments. Through balanced regulatory efforts and proactive security measures, we can make a stand against fighting fraud in an increasingly real-time payments world.

Read ACI’s Prime Time for Real-Time report on global payment trends

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.