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With fraud continuing to be a significant problem for European payments players, EBA CLEARING is piloting a new tool to confront the challenge.
When you speak to regulators and industry insiders about payments, fraud is consistently a topic that comes top of the list.
In VIXIO’s 2023 Payments Outlook, fraud was the number one compliance priority for payments players.
Rules such as strong customer authentication (SCA) have been a success for Europe but have also meant that fraudsters have shifted their focus to other perceived vulnerabilities, including impersonation scams, as the industry plays a whack-a-mole game in trying to combat the problem.
Meanwhile, new consumer protection rules in the UK and EU to deal with impersonation fraud are making banks jittery due to shifting liability in terms of reimbursement.
Earlier this year, EBA CLEARING confirmed that it was launching the new Fraud Pattern and Anomaly Detection (FPAD) tool that will support RT1 and STEP2 users in complementing their fraud-fighting tools and assessments with insights from a central network view.
"There were many motivations for EBA CLEARING to enter into fraud pattern and anomaly detection,” said David Renault, SEPA team leader at EBA CLEARING.
The company announced at its shareholders meeting in Madrid last month that it will begin piloting the FPAD analytical tool in July.
So far, the company says that it has been attracting STEP2 and RT1 payment service providers (PSPs) of different sizes from all across Europe.
The hope now is that the analytical pilot will allow EBA CLEARING, a financial market infrastructure provider, to validate and refine the fraud pattern and anomaly detection models with participants, in anticipation of a launch in November 2023.
The development of EBA CLEARING’s FPAD functionality started in early 2023 following the release of a blueprint and subsequent RT1 and STEP2 user consultation in the latter part of 2022.
RT1 users in particular have been a key consideration as EU policymakers continue to push for instant payments to become the new normal.
Speaking to VIXIO, Renault explained that as the payment ecosystem evolves, everybody agrees that fraud is an important topic that will never be finished, but also that it is very important that consumers can trust the payment method they use.
“Instant payments in particular have features that make them more attractive for fraudulent behaviour,” he said.
“With instant payments, money moves fast from one account to another. So, when it comes to prevention, there is tremendous value in tools to complement the existing solutions of PSPs,” he said. “We had an ambition not to replace any of these tools, but to add something more, a network view, as is the case with FPAD."
FPAD’s underlying aim is to help the user community prepare for the expected acceleration of account-to-account transactions and wider instant payment adoption, in particular.
EBA CLEARING is hoping that it will support PSPs in minimising fraud risk and thereby increase safety and customer trust for SEPA transactions.
"FPAD will provide every participant with ways to assess account risks based on transaction data leveraging the EBA CLEARING network,” said Renault.
This will be fully aligned with regulatory requirements and will provide standardised responses to participants in milliseconds and, eventually, it will be implemented at a pan-European level with all RT1 and STEP2 participants.
The functionality will be delivered in a phased approach, starting with the post-transaction investigation feature, as well as the transaction and account risk assessment functions, which can be leveraged by users before executing a transaction.
The latter will include functionality allowing users to request an IBAN/name matching check, which also addresses fraud prevention requirements set forth in the proposed Instant Payments Regulation, which is expected to be finalised by lawmakers come the end of the year.
"Similar to EU legislation, the FPAD functionality includes an IBAN and name check, but combating fraud goes beyond just that,” said Renault. “By the end of the year, we hope to bring the first functionalities to our participants and in the meantime, are working on completing the analytical pilot."
Although there are definitely solutions that exist already in Europe at a country level, there is very little that is equivalent to cover all of Europe.
“EBA CLEARING is pan-European by design and desire. All of our services have been built with a pan-European objective that has become a reality,” said Renault. “FPAD is no different from others in that respect. We bring expertise from all corners of Europe to develop solutions."
