This week Nashville was the only city on the planet where you could learn about real-time payments, the fraud concerns associated with it and then grab a little snifter of Pappy Van Winkle bourbon for $275. The decimal is in the right place, by the way. I learned a lot and skipped the Pappy at the just-wrapped NACHA Smarter Faster Payments conference.
The agenda and the show floor were packed, as the hopefully fading pandemic has enabled more travel and more in-person events. And if there’s one overall theme to share from NACHA, it is that payments, especially the instant or real-time variety, are poised to continue gaining traction as use cases evolve and banks enable them. And if I had to pick a secondary theme, it’s this: As fraud tactics evolve, the banking and payments industry needs to fortify their defenses and collaborate to stay ahead of the bad guys. But first, as they say on cable news … the news.
NACHA was not without its surprises, at least one of which should advance real-time payments. The Clearing House (TCH) announced that it is piloting international cross border RTP later in 2022 for small amounts. This will be announced soon via press release and is on the heels of TCH raising the limit from $100k to $1 million just a few weeks ago. Extending real-time to cross-border promises to advance use cases for TCH, and the new international reach may draw even more interest in bank origination.
Speaking of bank origination, TCH now has 243 participant banks including 26 originators. At this point it is averaging 15% Quarter to Quarter growth and achieving over 13 million transactions per month. If you are wondering why there are not more originators, that’s because “receive-only” is a much lighter lift, typically enabled with smaller banks that work with a third-party provider. Also, it’s interesting to note that once a third party has a minimum of three banks enabled, TCH considers the provider certified and then that provider can enable new banks much more quickly. Jack Henry has taken advantage of this and has now signed up more banks than any other third party provider.
Fraud and Financial Crime
It would be great if fraud wasn’t a big issue at NACHA, but that’s not the case. Example: Lipis Advisors covered fraud in faster payments systems and shared some global lessons learned. According to Lipis, there is a wide variation in fraud incidents happening in different regions and countries. Because fraud and scams are increasing, Lipis called for a much greater push for consumer education.
In the category of non-authorized fraud, Lipis identified the main types as Identify theft (the most common type), Friendly fraud, Cybercrime/data breaches and SIM swap. Authorized fraud (scams) are also referred to as Authorized Push Payment fraud (APP fraud). Only the UK and Japan have regulations in place to protect victims from APP fraud. And the most common type of APP fraud includes impersonation scams, advanced fee scams, and malicious redirection of payments. Definitions and terminology may vary between calling this “fraud” or “scam” but the point is financial institutions need to be incredibly vigilant or risk great customer harm.
Interesting to note that Confirmation of Payee has proven to be a particularly effective tool for APP fraud but success depends on widespread adoption/implementation by banks and PSPs. It can utilize proxies built on top of faster payments infrastructures, and clear communication regarding liability is important between participants and their customers.
Also on the fraud prevention front, there was breaking news from Early Warning, the organization that created Zelle. It announced a new synthetic identity fraud prevention solution called Verify Identity. Verify Identity will detect synthetic identities and help prevent them from entering the customer's system by first assessing the applicant's likelihood of presenting their true identity credentials. In addition, government entities can confirm whether an applicant's name, social security number and date of birth match a legitimate Social Security Administration (SSA) record.
One of the final sessions of the conference was an overview of the upcoming FedNow Service. Slated to go live in 2023, FedNow is working hard to increase industry awareness. They had a series of provider presentations at their booth, and their conference session gave a high-level overview of how it will work. One-hundred twenty participants are piloting the system.
One attendee asked if FedNow will be interoperable with the RTP Network? They hedged slightly in their response, saying they will look at it and will make sure the message specs will be similar. What’s important to remember is the customer will ask for the capability rather than a specific network.
Fraud features will include transaction limits, participant negative list (to block fund transfers) and fraud reporting by participants. Anticipated price points will be $25/month for access with a 4.5 cent credit transfer fee, 1 cent request for payment fee and no fee to receive.
Bottomline will enable the FedNow Service on Digital Banking IQ®, and a preview video is live on the FedNow Service Provider Showcase.
A video on how the FedNow service will work is available here.