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Accelerating the use of Instant Payments

European instant payments were introduced in 2017 and by 2022 represented 14% of all SEPA credit transfers. Across the 29 counties, some have yet to start while others, led by the Netherlands, have reached 90% domestic single payments. International instant payments, for example, euro to pound, are beginning to happen but come with a high risk of being of not going to the right account.

With the new directives in European, commencing late 2023, all 29 countries will be focused on providing instant domestic payments. At the same time international payments service providers (PSPs) have to offer services that enable customers to be notified when a mismatch is detected between the payee and IBAN provided for payment. The goal is to verify the payee and IBAN that are the same entity: similar to Confirmation of Payee (CoP) offerings in domestic payments.

Instant payments are bank account payments. This well liked method of payment can be used along side the traditional direct debts and card payment channels. The potential for instant payments is massive.  Europe credit transfers in 2021 amounted to 24% of transactions and represented 94% of the value. The average credit transaction value was €7,000 compared to €36 for card payments and corporate payments stretching into millions. The UK, for example allows Faster Payment amounts for anyone up to £1 million (€1.2 million). Europe has a limit of €100,000.

Acceleration of instant payments from bank account allows Open Banking (access and control of accounts by Trusted Third Parties) and Corporate PSPs greater opportunities.  

Open Banking allows access to all the different bank accounts in one place held by an account holder. Electronically money can be moved from one account to another and then onto merchants. Often the merchants are offered smaller fees than the traditional cards enabling cashback. 

Corporate PSP has the ability to offer greater security protection to prevent misdirected and scam payments. This is particularly important in the countries that believes large corporates (above £5 (€6) million per year in turnover) are responsible for their own fraud prevention

Instant payments are an economic benefit to a country.  People and businesses receive money instantly. They in turn can settle their outstanding liabilities in the next moment. This enables faster and more frequent payments than the traditional end of month bill payment. Countries with predominantly instant payments can see GDP rise 1 to 2% as money is in constant circulation.

Need to be careful

Once the instant payment is made, the chances of recovering the money is domestically low and almost virtually zero internationally. The reason is criminality. 

Scammers now have a spider web of false bank accounts that instantly move the defrauded money once it arrives at the first account. We need to ask the one million UK scammed bank accounts clients how much of their money was returned?

In July 2023, the UK Supreme Court ruled that if a Bank receives valid payment instructions for the Payee and if the payment can be made, it must be made. Authorized Push Payment Fraud is growing rapidly in countries where instant payments are becoming the new payment practises. 

APP Fraud in the UK passed £500 (€600) million and is growing yearly in double digits where CoP is not used. CoP services implemented in 2021 saw APP decline 7% between H1/and H2/2021. 

The UK ‘s Payment System Regulator (PSR) is mandating CoP in 2024 for 300 banks for domestic Payments and a reimbursement program for consumer and SMEs victims. The EU proposal requires PSP to notify customers of discrepancies in an IBAN-name check to help stop misdirected payments and prevent scams.

The EU is also addressing charging for instant payments to ensure fees are equal to or less than current payment methods. Instant payments expected to be offered along side the current payment schemes. Where merchants’ pay for existing services then “Cashback” can be offered to customers using instant payments from bank account. In addition EU requires PSP to check their customers frequently against “black Lists”, e.g. Sanctions. 

Social Media

Before the bank/PSPs become involved social media is heavily prompting interest into “too good to be true” offerings/scams.  In the UK research into advertising on search engines and social media leading to a fraud is overwhelming:

78% online

18% via telecom/email/text

Social media companies, under little regulatory requirements, often perform limited validity checks on the actual offerings they advertise. They tend to rely on the old Caveat Emptor (Buyer beware) approach as a disclaimer. The biggest scams are around investments, which are regulated but are often not being checked. Investment scams account for 5% of cases and 30% money scammed.

In this social media world we live in, the number of scams are clever, heart rendering and plentiful. The emotional negative impact to a victim is significant and harmful.

Before making a payment to a new payee or changing an existing payee’s payment details the following is necessary:

  • Verification of payer and payee account information to prevent misdirected payments and scams.

 

  • Technology platform that verifies and authenticates the person making and receiving the payment through facial recognition, liveliness, mobile ownership and confirmation of original documents. 

 

  • Data used from banks, telecoms & public credit data, is GDPR compliant.

 

  • Proven, easy-to-use technology meeting existing compliance processes and payment systems with minimum internal changes.

 

  • A competitive priced subscription based revenue model 

The Key is that before the instant payment is made, the payer must verify the payee. Without the above checks taking place, instant payment fraud looks like a multiple billion a year business within five years. APP fraud in the UK, US, and India alone could be is $4 to $5 billion and these figures could easily double.

 

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Comments: (9)

Melvin Haskins
Melvin Haskins - Haston International Limited - 02 October, 2023, 08:48Be the first to give this comment the thumbs up 0 likes

The last paragraph is the key. If banks charge ahead with instant payments without Confirmation of Payee (CoP) fraud is going to excalate at an alarming rate.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 02 October, 2023, 12:14Be the first to give this comment the thumbs up 0 likes

The TPV of UPI-IMPS in India is $1.5T, of Zelle-TCH-RTP in USA is $0.5T. I don't know the figure for UK FPS but assuming it's around $0.25T, we arrive at a total TPV of $2.25T between UK, USA and India. 

If APP Scam - I refuse to call it APP Fraud - touches $5B, it would be 0.22% of TPV. With a combination of CoP and my Three Strike Rule To Eliminate Cybercrime, I'm guessing the scam value can be brought down to below 0.1%. Is that good enough?

If not, any idea what's the global benchmark for allowable scam? 

John Bertrand
John Bertrand - Tec 8 Limited - London 02 October, 2023, 13:181 like 1 like

Mel - completely agree: "without CoP both domestic and international payments fraud/scams will accelerate at alarming rates".

This we saw in the UK when Payment System Regulator brought in a voluntary CoP scheme - CoP 10 - for the largest banks looking after 90% instant payment traffic in 2019/20. This lead to a jump - 30%+ in APP scams. Scammers switching to non-CoP enabled banks as their hosts. Plus a reimbursement policy which varied enormously by each bank in the program from TSB (90% reimbursed) to two anonymous larger banks showing less than 20%).   

Given this experince, the PRS, with Government support, is bringing in new regs for 2024 and this should help others in their approachs to CoP. For example the EU in 2024. Thanks John

 

John Bertrand
John Bertrand - Tec 8 Limited - London 02 October, 2023, 14:001 like 1 like

Ketharaman - To give an idea of loss rates in the physical cheque cashing business - "cheques cashed here" - the run rate can be 15 to 25 basis points ( 0.15 to 0.25%).

The fee for cashing the physical cheque to the end user can be up to 15% (< 2,000 bp) of the amount but normally 5% (5,000 bp) with a minimum fee.

To cash the cheque the person has to be present, prove they are who they say they are and the cheque is their's. The files are then checked to ensure that the cheque is valid. If the check and person can not be validated then they are politely turned away.

Given most APP fraud/scams the Payer has not had a physical meeting with the Payee or verified who they say they are. The UK banks with CoP - currently 10 out of 300 - do verify the account owner for domestic payments. IBAN used in International payments, usually the last instant payment of the scam, does not verify the ownership of the bank account.

The figure of 0.1% (10 basis points) for a global benchmark given the above seems low. Breaking out the benchmark by market sectors - consumer, SME and Corporate - could be more accurate.

Thank John 

 

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 02 October, 2023, 14:08Be the first to give this comment the thumbs up 0 likes

@JohnBertrand: TY for the data. "0.1% (10 bps) seems low" means "All well, nothing more needs to be done to control APP Scam"? (Or did you mean 0.1% still seems too high a scam rate and something more needs to be done"?)

John Bertrand
John Bertrand - Tec 8 Limited - London 03 October, 2023, 17:25Be the first to give this comment the thumbs up 0 likes

Ketharaman - as an estimate for APP scams of 0.1% compared to what a what third party cheque cashing business is experiencing is optimistic. That is APP scams will be higher based on experience and the weaknessess within the current payment flow.

It is highly likely the APP scam rate will be higher greater and probably greater than 0.2%.

Yes something further needs to be done to prevent misdirected and scam instant payments. 

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 03 October, 2023, 17:55Be the first to give this comment the thumbs up 0 likes

TY @JohnBertrand.

I just started reading the Supreme Court judgment on Philipp v Barclays case. It says "The Financial Services and Markets Act 2023, which received Royal Assent on 29 June 2023, provides for a mandatory reimbursement scheme."

Seems like the matter of liability in the case of FPS-based APP Scam is already sorted?

John Bertrand
John Bertrand - Tec 8 Limited - London 04 October, 2023, 11:00Be the first to give this comment the thumbs up 0 likes Ketharaman - reimbursement details are being finalised by the PSR for the UK for consumers and SMEs. Larger companies where revenues exceed £5 million per year are excluded. EU is adding CoP mandates in 2024 so we’ll have to see how euro reimbursements are addressed.
Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 04 October, 2023, 12:13Be the first to give this comment the thumbs up 0 likes

I read that the said decree covers only FPS payments. Is EURO reimbursement even on the cards? 

(The last I checked, FPS covers only GBP payments within UK.)

John Bertrand

John Bertrand

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Tec 8 Limited

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