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Encyclopedia

Real-time payment fraud

Entersekt | Resources | Encyclopedia | Real-time payment fraud

What is a real-time payment fraud?

Real-time payment fraud refers to a type of financial fraud that occurs within real-time payment (RTP) systems. As financial institutions (FIs) adopt real-time payment rails like the FedNow® Service and The Clearing House’s RTP® network, the speed and irreversible nature of these transactions help FIs improve operational efficiencies, but also introduce unique vulnerabilities. RTP fraud exploits the immediacy and irrevocability of these transactions, often resulting in the swift and unauthorized movement of funds before traditional fraud detection systems can respond.

How real-time payment fraud happens?

Real-time payment fraud typically involves tactics such as social engineering, account takeover (ATO), and business email compromise (BEC). Fraudsters often impersonate trusted entities, like a bank manager or government official, to manipulate account holders into initiating payments. In the case of ATO, once they’ve gained access to a customer’s account, the fraudsters initiate high-value transfers that settle in seconds, leaving little opportunity for FIs to reverse these payments.

Key attack vectors include:
  • Authorized push payment (APP) fraud: Fraudsters convince victims to willingly send payments under false pretenses.
  • Synthetic identity fraud: The use of fabricated identities to open accounts used for fraudulent RTP activity.
  • Malware and phishing attacks: Designed to capture login credentials and two-factor authentication tokens for account takeover.

What is the impact of RTP fraud on banks and their customers?

Because real-time payments are settled immediately, it means traditional fraud controls like manual review, batch processing, or transaction recalls are ineffective post-authorization. This places a significant reputational, operational, and financial burden on financial institutions. Customers who become victims of real-time payment scams may lose trust in their FI’s ability to protect their assets, potentially leading to customer attrition and regulatory fines.

Along with eroding customer trust, RTP fraud also has liability implications for FIs, particularly as regulators increasingly scrutinize how FIs handle fraud disputes in faster payments environments. As RTP adoption grows, so does the demand for robust fraud mitigation frameworks that go beyond outdated, static authentication measures.

How a modern fraud prevention approach can mitigate RTP fraud

To combat real-time payment fraud, banks should utilize a layered approach to fraud detection and prevention, including:

  • Cross-channel, context-based authentication: A unified fraud prevention approach that shares context and risk data across all customer channels.
  • Behavioral biometrics: Monitor customer behavior to distinguish legitimate customers from fraudsters.
  • Transaction monitoring tools: Real-time risk monitoring and step-up challenges for high-risk transactions.
  • Customer education: Inform customers about the latest scam and fraud threats.

Additional resources:
  • Blog: How real-time payments push real-time fraud
  • Video: Unmasking the threat of authorized push payment fraud

Keywords:

Real-time payment fraud | Instant payment | Payment authentication
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