Jim Maimone, SVP, Senior Enterprise Payments Platform Product Manager, Citizens Bank

Below is an insight into what can be expected from Jim’s participation at CeFPro’s Digital Banking Congress.

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

How can the development of real-time payments help financial institutions mitigate the risk of fraud?

I think new real-time payment methods around the globe are bringing more attention to the need for greater anti-fraud tools. Especially in the United States, where real-time payments through The Clearing House (TCH) are irrevocable (reversals are not allowed like in ACH) and final, there is greater focus by banks and corporations to ensure the recipient is the intended individual or corporation.

In addition, tools are being developed to prevent “faster fraud.” For example, TCH’s Secure Token Exchange substitutes the actual bank account for a random number that helps prevent fraudsters from identifying the actual account number. It also eliminates the ability to use that token to debit the account or print fraudulent checks. Even if compromised, the token is of limited or no use to cybercriminals.

Other payment directories, such as Zelle, use social tokens – an email or mobile phone number – instead of account numbers. In the near future, I think we will see greater use of QR codes, Bluetooth devices, and biometrics to make point-of-sale purchases from your bank account faster, more convenient, more secure, and less expensive. Never having to give someone your bank account information is a great way to eliminate fraud. For B2B payments, there are buyer/supplier networks that allow the receiving company to independently set up their account and not share that bank account information. Those payment networks have rigorous security protocols to ensure that properly authorized people make account changes.

How can financial institutions ensure that needed risk controls are in place for real-time payments?

Phishing schemes and induced fraud have increased, driving much attention around “credit push” payment systems. Based on 30 years of experience in payments, here are several things that both consumers and businesses can do to combat fraud from these attacks, and some are old-fashioned and simple:

1. First, don’t open any email you don’t recognize.
2. Know your audience – don’t take the sender’s email address as a certainty. You can simply hover over the presented email address and see the actual address behind it. “Pat Smith”, instead of smith@abc.com, may actually be fraudster@abc.fraudster12345.com
3. Don’t react to threatening emails – even state revenue departments will provide multiple hard copy invoices before taking any action. A legitimate vendor’s first communication will not be a “threat of service interruption.”

Why should U.S. financial institutions look to collaborate with European firms with real-time payments?

The basic idea behind instant payments is immediate availability and irrevocability, which provides payment certainty. Key issues with International Wire Transfers are their 2-5 days to settle, lifting fees, and lack of transparency. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has made great strides in achieving greater transparency, but there is still much room for improvement. In addition, when intermediary banks are involved, there can be a beneficiary bank “lifting fees” deduction, which adds to further uncertainty of the amount the receiving party receives. I believe the settlement and receiving amount issues were the key factors behind Dodd-Frank legislation requiring banks to jump through several major hoops to ensure U.S. consumers agreed to the ultimate wire settlement. It also sprouted a cottage industry for large banks with international reach to process other banks’ international wires.

A rule of The Clearing House’s RTP Network is that there is no “netting.” Therefore, the bank participants cannot deduct a fee from the original payment amount. This, in addition to the instant nature of RTP, provides absolute certainty that the ultimate receiver has received the payment for the actual amount sent – absent foreign exchange rates. Therefore, connecting to the UK’s Faster Payments system or the European Central Bank’s SEPA Instant Credit Transfer for Euros, Australia’s New Payments Platform (NPP), and coming soon Canada’s Real Time Rail can bring efficiency and payment certainty to the global economy and bring the world a little closer without delays and hidden fees.

How can financial institutions look to effectively shift real-time payments out of siloed applications to being viewed holistically?

I believe this is where financial institutions can use APIs and intelligent routing to make effective use of all the payment rails. For example, the Boolean (if, then else) logic could be:

1. If paying a bank account, is an account at an RTP bank?
2. If yes, send RTP right now.
3. If no, send ACH ASAP.
4. If a payment needs to go immediately, send a wire transfer.

Clients are less interested in how the payment goes than they are that the payment is made. Cost may factor into their choosing the payment type, i.e., wire transfers are typically more expensive for both the sender and receiver, so the sender may be OK with next-day ACH if the payment can’t be sent via RTP.