Latest news and press releases

Fighting modern fraud should be a ‘team sport’

The launch of FedNow last year has transformed the instant payments landscape, unlocking real-time settlement capabilities 24/7/365.

But according to Pradheep Sampath, Chief Product Officer at Entersekt, “we’re at a tipping point here in the U.S. and also globally,” and it’s important to employ strategies that help customers and businesses overcome their existing habits and preferences.

This will require a multifaceted approach, Sampath told PYMNTS in an interview, one that hinges on appealing to three primary stakeholders: customers, businesses and the broader ecosystem.

When it comes to customers, he stressed the importance of communicating the key benefits of instant payments, such as speed, convenience, reliability and security to promote widespread adoption. From a business perspective, the advantages, including reduced costs, improved cash flow, and enhanced customer experiences, are equally compelling, he said.

Additionally, with instant payments becoming seamlessly integrated into daily transactions, incentivizing early adopters is also critical to drive adoption, he added.

Moreover, in markets like the U.S., where instant payments are still emerging but gaining traction, Sampath noted that showcasing the success of instant payment implementations in emerging markets like India and Brazil can further catalyze progress.

“It’s important to let the entire ecosystem know that while it might be new to the U.S., [instant payments are] not new as a payment method. There’s 300 million people in India that use UPI and 150 million people in Brazil that use PIX,” he pointed out, adding that 70% of the U.K.’s adult population also use the country’s faster payment service.

Irrevocable Real-time Payments and Fraud

From investment scams to romance scams, fraudulent transactions are increasing at an unprecedented rate, leading to a staggering $10 billion loss in the U.S. alone in 2023. This impacted nearly 700,000, with a median loss of $500.

“[And] it just gets worse in the era of instant payments and faster payments,” Sampath noted, pointing to the irrevocable nature of transactions conducted through these systems.

In such an environment, ensuring robust security measures for accessing bank accounts is paramount. This involves implementing multi-factor authentication measures beyond simple passwords or SMS-based codes, as well as contextual authentication, particularly when a customer’s account is compromised.

Real-time detection and response mechanisms — which he referred to as “necessary friction” — are also vital. For instance, if a customer is deceived into transferring funds to a fraudulent account, Sampath argued that prompts should intervene, alerting them to the unusual nature of the transaction and providing an opportunity to reconsider.

As fraudsters adapt their tactics to exploit advanced technologies, he highlighted the need for more sophisticated solutions that leverage artificial intelligence (AI) and machine learning (ML) to develop advanced analytics and solutions.

As Sampath noted, AI and ML-based models play a crucial role in identifying anomalies and dynamically adapting to emerging fraud patterns, staying ahead of evolving threat vectors and shielding customers from financial losses.

Fighting Fraud is a Team Sport

Ultimately, when it comes to driving widespread adoption or fighting fraud in today’s instant payments era, Sampath said one thing is certain: there is power in collaboration.

“[Curbing fraud] is a team sport and there is a certain amount of collaboration that must happen to make sure that we pull our resources together to fight [it],” he said.

Above all, he emphasized the need for the broader ecosystem, encompassing core banking systems, digital banking platforms, payment processors, and treasury management systems, to adopt a paradigm of shared intelligence. This involves financial institutions (FIs) and payment service providers anonymizing transactions and sharing data to collectively refine models and anticipate threat vectors.

Collaborating on denial lists is also critical to enable the sharing of information about fraudulent actors or merchants across the broader ecosystem. Adopting standardized approaches, such as the W3C’s Web Authentication standard for passwordless authentication, can bolster security significantly.

Finally, from a regulatory compliance perspective, Sampath stressed the importance of establishing rules that equitably distribute the responsibility for fraud across the ecosystem. This includes implementing agreements on addressing instances of fraud that prevent any single party from shouldering the entire burden.

Looking ahead, he expressed optimism about the significant progress made so far, particularly how the entire industry — financial institutions, technology providers, and payment processors — embraces collaboration and pooling resources to combat fraud effectively.

“Now we have instant payments, faster account-to-account payments, which are all going to be extremely beneficial to both customers and businesses,” Sampath said, “and with this growing realization that we’ve got to tackle this [fraud] as an industry, we are extremely optimistic about what the future holds in store.”