When implementing something new, fraud is typically top of mind. However, the fraud potential in instant payments is no different than with any type of payment and can be alleviated by the cooperation of financial institutions and others in the instant payments ecosystem. FedNowSM will have its own mechanisms available at launch to assist in fraud mitigation and control, including:
- Network-level transaction limits – This is the maximum amount per transaction a financial institution can send over the FedNowSM network – an amount set by the Federal Reserve.
- Participant-level transaction limits – Participants can set a lower transaction limit for credit transfers they initiate based on their organization’s risk policies.
- Participant-defined negative lists –Financial institutions may specify suspicious accounts their organizations can’t send to or receive from.
- Information security and other measures, such as requiring digital signatures for messages, will also help to prevent fraud.
Additionally, the Federal Reserve recommends taking steps internally to ensure your financial institution is as prepared as possible in fraud defense. Here are their recommendations:
- Understand the basics of instant payments and fraud. There are resources on FedNowExplorer.org to help you do this. Educate your clients and internal stakeholders on instant payments and how to protect themselves.
- Activate your fraud management team. Get your fraud management experts – whether in-house or outsourced – involved in plans early. They’ll need to become familiar with the implications of instant payments so they can evaluate your current processes.
- Review and upgrade your systems as needed.
- Look at your systems to ensure that robust account opening procedures, strong user authentication practices at login and continual verification of user contact information (email, mobile numbers, etc.) are in place.
- Add suspicious accounts and aliases to a watch list to block potentially fraudulent transactions before the funds leave your institution.
- Determine what systems upgrades are needed to analyze incoming transactional data in real-time, 24x7x365, to help prevent fraudulent transactions from completing.
- Note: Systems designed to combat fraud involving payments that are cleared and settled in batches on predictable cycles may need updates to address fraud involving payments that clear and settle immediately.
- Enlist clients in prevention. Educate your clients on how to identify fraud attempts and protect personal data.
- Tell clients you will never ask for their login information over the phone, email or text.
- Encourage strong authentication mechanisms for different accounts.
- Guide clients to enable alerts related to transactions in their accounts and educate them on potential scams.
- Talk with vendors about tools to improve detection. Talk with your vendors and technology partners about new approaches such as applying real-time fraud detection capabilities and achieving a comprehensive view of transaction patterns across all payment types.
- Classify fraud to strengthen mitigation efforts. Explore the FraudClassifierSM model, which enables organizations to systematically classify fraud involving payments.
For details on steps financial institutions can take to strengthen their fraud management approach, download the "Protecting against instant payments fraud" resource in the Planning Office on FedNowExplorer.org.
Want to learn more about faster payments? We’ve got you covered! EPCOR has partnered with The Payments Professor to help you bring everyone at your organization up to speed on RTP® and FedNowSM with THREE new on-demand Faster Payments curriculums. Click here to learn more! Or consider joining us for our When The Dollar Goes Digital webinar on October 18th or our Top 10 Things You Need to Know about FedNow and RTP webinar on November 29th.