Can faster payments outrun fraud?

Payment security and speed go hand in hand, according to the Federal Reserve and NACHA. The Fed’s recently unveiled plan to roll out real-time payments in the U.S. is growing closer to becoming a reality with the formation of a Board Advisory Group that will help NACHA realize its plans to create faster and more secure payments that meet the needs of banking institutions, merchants and many others.

It’s the latest move in the direction to modernize the way that U.S. businesses and consumers complete transactions, as the nation is only just getting up to speed with EMV technology. However, is the adoption of real-time payments a good idea?  

Drivers of change

Convenience for consumers is perhaps the biggest driver behind the push to adopt real-time payments, as research shows customers are clamouring for speedy transfers.

No longer are consumers prepared to wait a week for a check to clear, or for a batch transfer to slowly surface over a three-day period. Research from the Fed points towards an overwhelming preference for instant or one-hour payment speeds.

“A safer, more efficient and faster payment system contributes to public confidence and economic growth,” said Jerome Powell, Federal Reserve board governor.

But while real-time payments are in demand for the added convenience of speed, will the new system also create a higher level of security?

UK case study

Real-time payments schemes have already been launched in a number of countries across the globe, so it’s prudent to take a look at how the system has performed previously.

In the UK, the scheme was launched nearly seven years ago back in May 2008, and in the years following there was a surge in online banking fraud. Losses went from £22.6 million in 2007 to £52.2m in 2008 and £59.7 million in 2009. After receding, online banking fraud losses jumped again last year to reach more than £60 million.

We can expect some increase to occur as online banking use becomes more common, but the problem for banks is that online transactions did not previously need to be completed so quickly – if you had days to check for fraud then detection systems did not need to be so evolved as they do now.

It’s interesting to note, however, that the £60 million in online banking fraud is just a tiny fraction of the amount being sent through the system daily. The technology exists now to ensure that Faster Payments is secure, but the Fed will need to work closely with stakeholders to get it right – it won’t want faster payments to mean faster fraud.

U.S. plans

Payments security is a big worry and the Fed notes that more input from the industry in order to create a comprehensive list of security gaps and fraud concerns. However, the formation of the Advisory Board Group will go a long way to identifying the concerns of a broad range of industries.

Payments in the U.S. is big money. According to NACHA, the ACH network moves almost $39 trillion and just under 22 billion electronic payments annually. But will it provide real-time delivery of payment messages more frequently and yet keep a lid on fraud?


It all hinges on how real-time payments will be rolled out: whether the technology is in place for a seamless integration and if fraud has been properly prepared for. Two payments task forces will be assembled by the Fed to address security concerns such as real-time payments verification and user authentication.

These two task forces, the Faster Payments Task Force and the Payments Security Task Force, will help the Fed to better understand the impact it can have and what the next steps it should take are. “We have to ensure that security in payments is a concern,” said Dave Sapenaro, first vice president of the Federal Reserve Bank of St. Louis.

“Other countries that have implemented faster payments have incorporated things like strong authentication, real-time monitoring, transactional dollar limits, credit-only payments and interbank settlement throughout the day, as opposed to just at the end of the day. Those are all things we want both task forces to look at,” he added.

The Fed stressed that all stakeholders will need to collaborate and contribute to realise the goal of a modern payment system. However, progress is rolling forward and it seems that all is being done to ensure the risk of fraud will be minimized to as little as possible.