Addressing Payment Fraud and Bank Accounts in the new COVID 19 world

Instant money and instant fraud – how to reverse the trend of greater fraud, a guest blog by John Bertrand.

UKFinance reported fraud grew 28% in 2019 to £456 million with Faster Payments, 73% of that total, growing at 33%. UKFinance noted 76% of the fraud comes from the internet and the banking industry covers 98% of the fraud losses. If continued unchecked this could total £1 billion within three years.

In addition, COVID 19 has turbo charged the move to digital commerce. With online payment volumes growing rapidly so could fraud. After all, instant payments – instant fraud!

We are now at the tipping point for digitalisation as examples:

  • Less cash used
    In the four months, March to June 2020, transactions at UK link ATM network compared to the same period in 2019 dropped 52%.
  • Online shopping showing dramatic increase
    Online shopping habits are becoming permanent as capacity is being built to provide the service required with online grocery in 2020 set to grow 33%.
  • Faster payments for immediate settlement
    Faster Payments processed 241 million payments for £163 billion in June 2020 and compared to June 2019 volume was up 29%.

COVID 19 has reduced the opening hours and numbers of bank branches being open, and reduced cash payments with businesses demanding contactless payments and a surge in internet usage and digital banking whilst in lockdown. All these activities increased usage of Faster Payments.

Real time payments through April 2020 accounted for 26% of the UK payment volume and grew 18% over 2018 with single, immediate payments growing 25%. Since 2017 the use of Faster Payments has increased 50% while the other payment schemes grew less than 1%.

Fraudsters are usually the first to take advantage of rapidly changing and growing markets. Banks now need to look at more sophisticated ways to augment their cybercrime defences and protect their legacy systems to avoid acceleration of real time bank account fraud across their legacy system base.

This can be done by:

  1. Using AI and data to combat the fraudsters in the time allowed
    The key is the beneficiary’s bank account – the destination of the money. In opening a bank account, the bank requires certain parameters of usage. The issue becomes one of what, if any, tracking of the actual usage is occurring. The money flows of the account show the behaviour taking place. This in turn can be related to potential of fraudulent activities. Often Banks only look at a bank account when a fraud has been reported.

The payees, when making instant payments, are seeing two new initiatives:

Confirmation of Payee (CoP)
This helps solve to whom the money is going to by showing who is receiving the money. Today while the sort code and bank account details are matched the payee account name often is not. CoP, underway at 6 banks, gives greater clarity on the beneficiary’s name and matching it, or not, to the actual account holder.

Take 5
Most banks use Take 5 approach, an initiative by UKFinance and backed by the UK Government. While these guidelines are to help prevent fraud, they are not significantly publicised, established nor universal. Should a payment be deemed at high risk it would improve customer service significantly if the payer was contacted. This could be done through automation and most people would welcome the interaction with the bank.

  1. Helping legacy IT banking infrastructure cope with real time processing
    It is estimated that 90% of banks are still batch processing and replacement systems to meet today’s demands of real time money flows have often led to expensive failures. The good news is the latest technologies can be implemented incrementally and layered across the legacy IT infrastructure, e.g. cloud technologies can safely front the customer without greatly impacting and possibly harming the legacy infrastructure.

Now with remote working and increasing reliance on mobile and tablets the need to prevent new fraud is paramount. As UKFinance notes, the fraudsters have taken great interest in mobile banking, and while still small, at £34 million in 2019 it was up 261% year on year. As the sport writers would say, ‘one to watch’.

New specific fraud services could become components for others to use
Given that there are 70 countries using or about to implement real time payment services, all will need to make them as secure as possible. As there are many variations of fraud, FinTech, can quickly offer existing and new activity component services to assist countering fraudsters. For example, VocaLink, has developed a product to expose Mule Accounts which can be used by individual banks and implemented quickly and easily.

By having a collection of components available from FinTech or Banks the financial industry has the ability to use what they need to provide their clients with greater real time banking safely. Implementation of these services is easier using APIs. This way, banks can match the fraudsters for adaptability and save millions on not having to compensate people and businesses on losses.

Banks pay compensation on 98% of frauds committed, they could cost-justifiably invest this in an array of components to prevent fraud. In helping combat fraud this way and adding the ability for the payer and bank to communicate over high risk potential transactions the service becomes compelling.

After all none of us like to be defrauded.

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