Real-Time Payment Fraud & APP Scams Are on the Rise: How to Tackle This Issue?

In the fast-paced world of digital transactions, real-time payment fraud has become a pressing global issue. What’s more, scams and dishonest activity are getting more and more sophisticated each year, impacting even the most cautious individuals and organizations worldwide.

This article sheds light on the evolving tactics of dishonest players in the field of real-time payments and explores the responses of regulatory bodies and industry stakeholders that could be potentially effective for addressing them across various countries. Let’s dive in!

The Current Situation with RTP Fraud

In 2022, the global number of real-time payment transactions reached an impressive 195 billion, marking a significant year-on-year growth of 63.2%. Such increasing popularity of real-time payments offers a plethora of benefits for businesses and consumers alike, including:

• Convenience and efficiency
• Financial inclusion
• Enhanced cash flow management
• Improved e-commerce experiences

However, the growing adoption of RTP services has also opened new avenues for fraudulent activities. For instance, many large real-time payment markets have experienced a surge in authorized push payment (APP) scams, surpassing the numbers associated with card fraud.

In APP scams, the victims are deceived into authorizing payments or transfers to the fraudsters’ accounts. This deception can occur through various means, such as impersonating a trusted entity or manipulating victims into believing they are making legitimate transactions. Thus, the discouraging APP statistics highlight the urgency of addressing fraud prevention measures in RTP systems.

While such issues are arising in the majority of countries across the globe, the extent of their impact depends on the current state of real-time payments in each specific jurisdiction. Here are some prominent modern-day examples depicting the various cases of RTP fraud in different countries:

The US: Regulatory Gaps & FedNow’s Launch

Presently, under Regulation E on electronic fund transfers, banks are required to reimburse victims of “unauthorized fraud”. This means that consumers are secured against unauthorized payments but lack protection for authorized payments made under false pretenses. This situation highlights a serious regulatory gap, which is putting local consumers at risk of losing significant sums.

As a result, without proactive measures, the US could face a surge in authorized push payment scams. In fact, in 2022 alone, APP scams accounted for 18.6% of all fraud cases, nearly tripling from 7.4% in 2021.

Fortunately, FedNow’s upcoming launch is an excellent opportunity for the US to harness the knowledge derived from the real-time payments fraud experiences of other markets and implement robust fraud prevention strategies. Taking such action is crucial to ensure a secure and trustworthy RTP ecosystem in the United States over the long term.

Brazil: The Rise of PIX & APP Scams

Yet, the launch of PIX also had some unintended consequences. Alongside its rise, São Paulo experienced a notable 40% increase in kidnappings, prompting the Brazilian central bank to implement a $200 transfer limit on overnight person-to-person payments.

Despite this measure, there has been a surge in APP scams, also locally known as PIX fraud. Such scams nearly tripled from comprising 12% of all fraud in Brazil in 2021 to 28.5% in 2022.

To fully unlock the potential of PIX and maintain trust in digital payments, it is vital for Brazil to implement robust fraud prevention strategies. Doing so will enable the realization of significant societal benefits, including increased financial inclusion, economic growth, and prosperity.

Besides, even more importantly, by addressing the challenges associated with APP scams, Brazil can continue its journey toward a secure and thriving digital payment landscape.

Australia: The New Payments Platform & Alarming RTP Fraud Figures

Unfortunately, Australia, similar to other highlighted markets, is grappling with a surge in fraudulent activity. In 2022, Australians fell victim to APP scams resulting in a staggering loss of AUD 3.1 billion, marking an 80% increase from the previous year. Notably, scams accounted for over double the proportion of fraud, rising from 9.4% in 2021 to 21.4% in 2022.

In light of these alarming figures, it has become essential for FIs operating in the Australian market to implement effective strategies to protect their reputation, mitigate losses, and, most importantly, safeguard consumers from falling victim to APP scams. Addressing this issue is paramount to ensure trust, security, and confidence in the evolving landscape of real-time payments in Australia.

Summing Up: How Can RTP Fraud Be Addressed Across Jurisdictions?

While the strategies to address RTP fraud and APP scams will inevitably vary based on the specific country and its current payments landscape, there are some universal features, implementing which can be extremely helpful regardless of the location, namely:

• Enhanced consumer education. Educating customers about RTP-related fraud schemes, warning signs, and preventive measures can empower them to recognize and avoid potential scams.
• Robust authentication and authorization protocols. The implementation of strong security mechanisms, such as multi-factor authentication and transaction verification, helps to ensure that only authorized individuals can initiate and approve RTP transactions.
• Advanced fraud detection. Deploying advanced fraud detection systems and real-time monitoring tools can help identify suspicious patterns and transactions. Machine learning algorithms and AI-powered analytics can enhance fraud detection capabilities and enable prompt response to potential fraud.
• Collaboration and information sharing. Encouraging collaboration among FIs, regulators, law enforcement agencies, and industry stakeholders is vital, as sharing information about emerging fraud trends, tactics, and best practices can empower a collective effort to combat fraud across jurisdictions.
• Regulatory frameworks and compliance. Establishing robust regulatory frameworks that set clear guidelines for fraud prevention and mitigation is essential. The regulations must mandate proper customer protection measures, dispute resolution mechanisms, and liability frameworks to ensure accountability and support victims of fraud.
• Technological innovation. Embracing technological advancements, such as AI-driven fraud prevention solutions, blockchain technology for secure transactions, and real-time monitoring tools, can bolster the resilience of payment systems and mitigate fraud risks.

By adopting these key principles and tailoring them to the needs of any given country, relevant stakeholders can enhance their ability to prevent and address RTP fraud and APP scams effectively, fostering secure real-time payment system operations.