Navigating the fast lane: 4 challenges of instant payments
In today’s fast-paced financial industry, instant payments are game-changing—and causing significant challenges for credit unions. Emerging rails such as TCH RTP and FedNow have revolutionized the way your members can transfer money, allowing for real-time transactions that provide unparalleled convenience to consumers and businesses alike. Yet, the immediacy of these transactions coupled with the ever-present threat of fraud also poses considerable risks. This blog delves into four major challenges of instant payments for credit unions and how your institution can effectively navigate these obstacles.
1. Fraud schemes & scams are prevalent: One of the primary challenges that credit unions face with instant payments is the increased risk of fraudulent activities, as criminals are quick to exploit the immediacy of these transactions to conduct unauthorized transfers. Business Email Compromise (BEC), government benefit fraud, and elder abuse are just a few examples of the many schemes that may be accelerated by instant payments. In fact, Nasdaq’s 2024 Global Financial Crime Report attributed $10 billion in losses to cyber-enabled scams last year alone, with BEC comprising the bulk of that number at $6.7 billion globally.
2. A narrow window for fraud prevention: Instant payments are irrevocable and settle instantly, leaving only a narrow window of opportunity to detect and prevent suspicious activities in real-time transactions. Combined with the ever-present challenge of scams such as BEC, there is significant potential for loss. Meanwhile, identifying and mitigating these potential fraud risks is complex and requires detecting and interdicting on these transactions immediately. With so many challenges, it is hardly surprising that 52% of respondents to a recent survey identified real-time and faster payments as their area of greatest concern.
3. Balancing member experience & security is challenging: Balancing a seamless member experience with robust fraud detection is another challenge facing credit unions in the instant payments era. While members demand frictionless transactions and immediate access to funds, credit unions must establish robust anti-fraud measures to safeguard against financial crimes while ensuring these controls do not add friction or delays to transactions. Preserving both outstanding member convenience and security is a constant challenge.
4. Siloes are hindering effective detection: Across the industry, financial institutions are operating in siloes, with a lack of visibility within and between institutions that allows criminals to evade detection while committing fraud more easily over instant payments or other rails. Collaboration is key. By working together, credit unions and the industry at large can share appropriate intelligence, insights, and best practices for more effective fraud detection.
The Road Ahead
As instant payments continue to gain traction, credit unions must adapt and innovate to meet the evolving needs of members while mitigating fraud risks effectively. By staying vigilant and proactive, with a mindset and commitment to innovation, your credit union can navigate the complexities of instant payments and emerge stronger and more resilient in the face of evolving threats.
Verafin, a Nasdaq company, offers enterprise Financial Crime Management solutions, providing a cloud-based, secure software platform for Fraud Detection and Management, AML/CFT Compliance and Management, High-Risk Customer Management, Sanctions Screening and Management, and Information Sharing. More than 3800 financial institutions use Verafin to effectively fight financial crime and comply with AML/CFT regulations.
Visit our CSS website to learn how Verafin can help you navigate the challenges of instant payments.
