Accelerating the use of Instant Payments

European instant payments were introduced in 2017 and by 2022 represented 14% of all SEPA credit transfers. Across the 29 counties, some have yet to start while others, led by the Netherlands, have reached 90% domestic single payments. International instant payments, for example, euro to pound, are beginning to happen but come with a high risk of being of not going to the right account.

With the new directives in European, commencing late 2023, all 29 countries will be focused on providing instant domestic payments. At the same time international payments service providers (PSPs) have to offer services that enable customers to be notified when a mismatch is detected between the payee and IBAN provided for payment. The goal is to verify the payee and IBAN that are the same entity: similar to Confirmation of Payee (CoP) offerings in domestic payments.

Instant payments are bank account payments. This well liked method of payment can be used along side the traditional direct debts and card payment channels. The potential for instant payments is massive.  Europe credit transfers in 2021 amounted to 24% of transactions and represented 94% of the value. The average credit transaction value was €7,000 compared to €36 for card payments and corporate payments stretching into millions. The UK, for example allows Faster Payment amounts for anyone up to £1 million (€1.2 million). Europe has a limit of €100,000.

Acceleration of instant payments from bank account allows Open Banking (access and control of accounts by Trusted Third Parties) and Corporate PSPs greater opportunities.  

Open Banking allows access to all the different bank accounts in one place held by an account holder. Electronically money can be moved from one account to another and then onto merchants. Often the merchants are offered smaller fees than the traditional cards enabling cashback. 

Corporate PSP has the ability to offer greater security protection to prevent misdirected and scam payments. This is particularly important in the countries that believes large corporates (above £5 (€6) million per year in turnover) are responsible for their own fraud prevention

Instant payments are an economic benefit to a country.  People and businesses receive money instantly. They in turn can settle their outstanding liabilities in the next moment. This enables faster and more frequent payments than the traditional end of month bill payment. Countries with predominantly instant payments can see GDP rise 1 to 2% as money is in constant circulation.

Need to be careful

Once the instant payment is made, the chances of recovering the money is domestically low and almost virtually zero internationally. The reason is criminality. 

Scammers now have a spider web of false bank accounts that instantly move the defrauded money once it arrives at the first account. We need to ask the one million UK scammed bank accounts clients how much of their money was returned?

In July 2023, the UK Supreme Court ruled that if a Bank receives valid payment instructions for the Payee and if the payment can be made, it must be made. Authorized Push Payment Fraud is growing rapidly in countries where instant payments are becoming the new payment practises. 

APP Fraud in the UK passed £500 (€600) million and is growing yearly in double digits where CoP is not used. CoP services implemented in 2021 saw APP decline 7% between H1/and H2/2021. 

The UK ‘s Payment System Regulator (PSR) is mandating CoP in 2024 for 300 banks for domestic Payments and a reimbursement program for consumer and SMEs victims. The EU proposal requires PSP to notify customers of discrepancies in an IBAN-name check to help stop misdirected payments and prevent scams.

The EU is also addressing charging for instant payments to ensure fees are equal to or less than current payment methods. Instant payments expected to be offered along side the current payment schemes. Where merchants’ pay for existing services then “Cashback” can be offered to customers using instant payments from bank account. In addition EU requires PSP to check their customers frequently against “black Lists”, e.g. Sanctions. 

Social Media

Before the bank/PSPs become involved social media is heavily prompting interest into “too good to be true” offerings/scams.  In the UK research into advertising on search engines and social media leading to a fraud is overwhelming:

78% online

18% via telecom/email/text

Social media companies, under little regulatory requirements, often perform limited validity checks on the actual offerings they advertise. They tend to rely on the old Caveat Emptor (Buyer beware) approach as a disclaimer. The biggest scams are around investments, which are regulated but are often not being checked. Investment scams account for 5% of cases and 30% money scammed.

In this social media world we live in, the number of scams are clever, heart rendering and plentiful. The emotional negative impact to a victim is significant and harmful.

Before making a payment to a new payee or changing an existing payee’s payment details the following is necessary:

• Verification of payer and payee account information to prevent misdirected payments and scams.

• Technology platform that verifies and authenticates the person making and receiving the payment through facial recognition, liveliness, mobile ownership and confirmation of original documents. 

• Data used from banks, telecoms & public credit data, is GDPR compliant.

• Proven, easy-to-use technology meeting existing compliance processes and payment systems with minimum internal changes.

• A competitive priced subscription based revenue model 

The Key is that before the instant payment is made, the payer must verify the payee. Without the above checks taking place, instant payment fraud looks like a multiple billion a year business within five years. APP fraud in the UK, US, and India alone could be is $4 to $5 billion and these figures could easily double.