Plenty has been written on the benefits of frictionless payments – and there is no doubt consumers and businesses have benefited greatly. On the flipside, the spread of payments platforms and potential cross-border linkages has meant fraud has also increased.
Regulators are alert to this risk. In its recent targeting scams report, the Australian Competition and Consumer Commission (ACCC) warned that all categories of financial fraud were on the rise in 2020, with more to come.
According to the ACCC, the losses from scams last year reported by government agencies and 10 large Australian banks that pooled their data, totalled $850 million.
This amount could have been even larger, were it not for the work by Australia’s large banks and financial institutions, which saved nearly $208 million from being sent to scammers.
This included amounts detected early and not processed, and amounts that were recovered after warning other financial institutions to suspend suspicious transactions.
However, as payments move faster, scammers can move money faster as well, so banks will need to lift their game to keep up. The ACCC’s scams report said payments made via bank transfers were responsible for the highest dollar loss, leading the consumer watchdog to push hard for better processes to be developed to stem this particular gap.
“As banks move towards more real time payments, there is a greater need for real time solutions that can identify and halt scam transactions via bank transfers,” the ACCC observed.
High on its wish list is a system to alert customers when an account number does not match a name, similar to the UK’s Confirmation of Payee.
“In order for name matching on bank transfers to be effectively implemented in Australia, there would need to be an overlay of the functionality that checks name against account number onto the traditional banking system,” the ACCC said in its report, and has repeated this in submissions to a raft of enquiries into Australia’s payments system.
Banking customers evidently also expect their banks to help them avoid payment fraud.
In a Cornerstone report1 earlier this year, nearly eight in 10 mobile banking users rated managing balance/fraud alerts as either “critical” or “important” features.
Real time delivery of these alerts and providing customers with sufficiently granular controls has historically proved challenging for many banks.
The Reserve Bank of Australia (RBA) is another regulator that has been pushing the financial services sector to do better on payment fraud. The Bank has long encouraged the industry to build an addressing service into the New Payments Platform (NPP), as far back as its 2012 Strategic Review of Innovation.
In the Bank’s Payments System Board 2020 annual report, it acknowledged the potential of the UK’s Confirmation of Payee system, while observing that it is similar to the PayID service used by the NPP in Australia, where the payer can check an account name before confirming a payment.
The RBA also noted that the availability of digital identity services is becoming increasingly important to improve the security and convenience of online transactions, including payments.
The Bank has strongly supported the work of the payments industry over the past few years to develop the TrustID digital identity framework to operate across a network of “competing but interoperable digital identity services”.
These are services that would allow users to establish their identity online with a preferred service provider and then to use this digital identity to prove who they are when interacting online with businesses or government.
For banking customers, this brings the dual benefits of decreased friction and increased security while for banks it could significantly reduce the costs of identifying customers.
About The Author
Dr. Malcolm Macnaughtan is Regional Vice President for Australia and New Zealand with Backbase, the global leader in Engagement Banking Platforms.
He oversees Backbase’s sales and go-to-market success for his territory in Asia Pacific. With an extensive background in technology development and commercialisation, Malcolm helps financial institutions transform their digital channels to get in shape for an increasingly competitive digital and open banking future. He has worked with banks, accounting and advisory firms to apply digital technology to serve their customers more effectively and profitably.
Prior to this, Malcolm’s experience spans diverse roles including start-up co-founder, R&D, product management, and sales leadership.
An engineer by training, Malcolm has a PhD in wireless signal processing and is first named inventor on a number of international patents.