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With fraudsters adopting new technology and changing tactics, multiple sectors need to work together to combat fraudulent activity in payments.
As the payments industry evolves, so do the methods fraudsters use to stay ahead of security and prevention measures, and the likelihood is that players such as banks, non-banks, networks, fintechs, regulators, payment service providers (PSPs) and credit card companies will need to work together to find practical solutions.
Denise Leonhard, the Zelle general manager at Early Warning Services, describes scams, which tend to start with social media sites and go through telecoms companies before reaching the payment stage, as an ecosystem problem.
“It's really important for all the parties to work together in order to get scams out of the system,” she said.
A real-time paradox
One of the biggest issues facing the payments sector is that real-time payments are both convenient and vulnerable.
Users demand ever faster payments, but this creates opportunities for scammers, given that the instant transfer of funds limits the possibility for prevention or recovery.
The US can look to other jurisdictions for inspiration — the UK and Australia, for example, have some of the fastest payments systems in the world and often act as an example for others.
The UK’s Faster Payments System (FPS) initiative has been in place since 2008 and has reduced processing time from more than three days to just a few seconds.
In March 2024, however, HM Treasury proposed introducing a four-day delay where fraud is suspected.
This came in response to the estimated £485m losses to fraud recorded in 2022 alone.
However, James Mirfin, global head of risk and identity solutions at Visa, told the Clearing House annual conference in New York that limiting payment times to hours or days is not the only option.
“We don't think that the answer is slow, the answer is technology and collaboration to try and stop those problems at the root,” he said.
Mirfin mentioned a pilot that Visa ran in 2024 that used AI models to detect fraud, suggesting Visa was able to capture around half of the fraudulent activity on the network in doing so.
“But when we worked with one of the banks and we were able to overlay [its] debit card data with the bank account data, we were able to uplift the full capture by over 30 percent more,” he said.
“The criminals out there that have found fraud very easy would like nothing more than to think that Visa, Zelle and banks weren't talking to each other, because then they can just keep walking through that door. A lot of this comes back to collaboration.”
It takes a village
A challenge for the US payments industry is that it generally operates within silos. Although many of the stakeholders in the industry have large budgets and anti-fraud operations, they rarely work together.
And because payment scams tend to start somewhere other than the payment rail itself — such as social media — the need for collaboration extends well beyond the financial sector.
Mark Kwapiszeski, executive chief information officer of corporate functions technology at PNC Financial Services Group, said that although the US payments industry has made progress in tackling fraud, there is little optimism that preventative measures are developing faster than the scams themselves.
“The best way to observe progress is when you start to see fraud patterns shift. That shows that while we're tightening up one segment, the processors are naturally shifting somewhere else,” he said.
How fraud prevention is handled in a collaborative manner makes a difference.
Existing coalitions intended to combat fraud, such as the Fraud Consortium, can be limited in how they function.
“The problem with consortiums is that their success very much depends on who's actually in the consortium, and quality of data sometimes becomes an issue,” said Kwapiszeski.
“The biggest opportunity that we have, and this is where networks can come in to help, is moving beyond the account and moving to an individual level.”
This is because criminals will often use the same stolen or first-party identity more than once and move around.
“We share a lot of that data with the consortiums. But is it enough if we connect the dots to actually isolate where those problem people really are?” he asked.
Regulation and data
Regulators have a key role to play in collaborative efforts to combat fraud, but although new rules are usually introduced with best intentions, they often have unintended negative consequences.
Data sharing has become a significant issue in the US payments space and the Consumer Financial Protection Bureau (CFPB) recently finalised its Personal Financial Data Rights Rule in response.
As covered by Vixio, the CFPB’s rule aims to fuel competition by forcing credit card issuers and financial institutions to share financial data for free, but this still remains difficult and acts as a roadblock to collaborative approaches to tackling fraud.
“If you have free flow data between banks and the networks and you could actually see it move around, you could stop a lot of fraud very easily,” said Mirfin.
“If you think about the data protection legislation in California and elsewhere, a lot of banks and others have become very cautious about sharing data.”
Working through this is challenging, especially given the pace at which scams are developing.
Money laundering regulation is another area where addressing crime would benefit from more open sharing of data.
Regulators want to follow the flow of funds, which poses the question of whether to allow money to flow or to prevent it and lose access to the oversight. There are contradictions in play regarding priorities for payments regulators and other parts of the industry.
“There's a whole world here that means we've got to work together, we’ve got to figure out what it is we're trying to do. Are we trying to stop that payment, or are we trying to actually follow the funds?” asked Visa’s Mirfin.
Although stakeholders have differing goals and desired outcomes for the management of payment fraud, a collaborative approach is likely the best way to ensure consumer protection.
