FPC study highlights faster payment fraud

The latest study by the U.S. Faster Payments Council, jointly conducted by the FPC’s Fraud Work Group and Verafin and released Jan. 24, 2023, calls for renewed efforts to rein in faster payments exploitation.

Fraud Trends and Mitigation Opportunities (Bulletin.01) offers guidance on threat detection, prevention and mitigation, according to The Clearing House Vice President, Real-Time Payments Lee Kyriacou, who also chairs the FPC Fraud Work Group.

"This first bulletin reflects the dedication of the FPC's Fraud Work Group in addressing the dynamic landscape of faster payments fraud," he said, adding that the report "sets the stage for industry-wide collaboration to strengthen our collective defense against fraud."

Authorized push payment (APP) fraud, in which authorized parties are deceived into sending payments to fraudsters, is particularly worrisome, researchers noted. They recommended increased education, awareness and enhanced business workflows to combat these malicious activities.

Prior research studies

For the past four years, the FPC and its Financial Inclusion Work Group (FISWG) have linked faster payments to a variety of financial crimes, including identity theft, account takeover, synthetic identity, social engineering and push payment scams.

Based on its analysis of industry data and real-life use cases, the FISWG urged payments industry stakeholders to implement a range of technical and behavioral controls in a series of reports.

The 2021 Faster Payments Fraud Survey and Report, published in August 2021, identified top consumer fraud types as account takeover, social engineering and stolen credentials. Researchers noted that top business fraud vectors included invoice fraud, CEO impersonation fraud, and vendor/authority impersonation fraud.

Among key findings shared in the report, researchers noted that about half of respondents "had implemented new technology controls and operational processes, stronger authentication, and/or AI based real-time decision making." The report also includes a comparison between U.S. and global fraud trends in March 2022.

In July 2022, an FIWG white paper identified fraud as a barrier to full financial inclusion in faster payments, claiming that related risks of losing household funds to fraud posed a pain point and a barrier to faster payments usage for U.S. households living paycheck to paycheck. While noting the need for assistance and remedies for consumers who were tricked into sending money to a fraudster, researchers cautioned that using biometrics for authentication and behavioral analysis may pose unique challenges for underserved consumers.

Closing gaps

Having found significant gaps in detecting, preventing and mitigating fraud, researchers identified the following two deficits in providing secure, reliable faster payments:

• Fragmentation: Standardized coding would help stabilize a fragmented landscape of disparate payment providers and technologies by providing standardized coding for fraud reporting and repositioning fraud mitigation approaches for credit-push scenarios, by advocating for a uniform Confirmation of Payee capability in the United States.
• Limited information sharing: Collaborative efforts would help improve information sharing and help stakeholders react quickly to threats through enhanced, swift and uniform fraud reporting.

Amanda Compton, director, integrated account protection at Arvest Bank and vice chair of the Fraud Work Group, emphasized the need for a unified approach in fighting fraud. "Our bulletin emphasizes the need for industry stakeholders to adopt effective fraud prevention processes and enhance information sharing practices to safeguard the payments ecosystem," she said.

FPC Executive Director Reed Luhtanen agreed, stating, "This bulletin not only outlines current trends and challenges but also serves as a call to action for industry participants to actively contribute to ongoing efforts in preventing, detecting, and mitigating faster payments fraud."

Compton and Luhtanen noted that the FPC Work Group will continue to explore opportunities for improvements in greater depth as well as a deep dive into a variety of other specific topics.

For more information on the FPC and its current work efforts, or to join the council, visit www.fasterpaymentscouncil.org.

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