As real-time payments technologies continue to gain momentum, more concerns are being raised about the increased risk of payments fraud. Traditional payment mechanisms settle in the same day or over a period of days after payments are sent from treasury or ERP platforms. However, with real-time payments that clear instantaneously, once the payment is sent, the funds are immediately transferred out of bank accounts and remitted to the beneficiary in real-time.
While there are many benefits for instant B2B payments, the drawback is that the ability to claw back unauthorized or fraudulent payments after they are sent is increasingly difficult, if not impossible. While transaction limits for instant payments initially started as low as $25,000 USD, limits are increasing so that instant payment systems are competitive with other faster payment counterparts. For example, NACHA Same Day ACH in the United States recently proposed increases of up to $1 million USD.
The increase in limits similarly increases the CFOs’ risk exposure, meaning that finance teams must double or triple check outgoing instant payments to ensure they are correct. In concept this is a great solution. However, the challenge is that for most enterprises the volume of payments and data to “doublecheck” is beyond the ability for a person to verify all aspects of the payment for internal compliance and accuracy. For example, a mid-sized organization that remits 100 payments in a single payment run would require 2-3 minutes of extra verification per payment, adding up to five hours of additional processing time for the entire batch. For a process that begins early in the morning and only needs to be sent by mid-afternoon, the timing is acceptable. Unfortunately, most AP runs have more than 100 payments. And, if talking about real-time payments, the process becomes anything but instant.
Technology can alleviate the burden.
- Digitization. We start by digitizing the organization’s payment policy, taking rules and limits that need to be verified and turning them into digital checkpoints in the payment journey. Examples include:
- Is the destination bank account in a country we do business in?
- Has the bank account been recently updated?
- Is this a regular recurring payment that is off cycle and/or for a different amount than normal?
Fortunately, these and many more scenarios can be fully automated within the payment journey’s digital workflow.
- Artificial Intelligence (AI). Comparing an outgoing payment request against historical payment patterns is also important. This is less about checking boxes for internal policy compliance and more about “is this our usual type of payment”. AI is ideal for this task, as machine learning algorithms can be trained on the structured data of your organization’s payment history and then identify anomalies from normal payments for further review. Machine learning apps will typically be built into your payments software; alternatively they can be delivered via a third party and integrated via API.
- Application programming interfaces (APIs). Matching payments against third party data is an important payment audit requirement. Examples include sanctions list screening, such as OFAC in the U.S., or verifying the ownership of the bank account to ensure that you are paying whom you think you are. APIs built into your payments platform are critical to ensure real-time access to this third party data and real-time matching and exception handling. Only exceptional payments are flagged and automatically set aside for further review, while the remainder of your instant payments are uninterrupted.
- Visualization. Finally, data visualization is key to identifying and managing exceptions so that even quarantined payments can be easily reviewed and cleared to minimize delay for legitimate payments. ERP-integrated treasury and payment hub apps offer integrated business intelligence tools and dashboards without having to perform custom coding or interfacing.
Instant payments offer a tremendous amount of benefit for organizations looking to expedite the delivery of domestic and – in the near future – cross-border payments. CFOs are increasingly interested, for good reason.
To ensure a safe instant payment journey, CIOs and CFOs are demanding real-time payment governance to combat the increased risk of payments fraud for instant payments. These best practice controls are best applied to all corporate payments, including real-time payments. This delivers a consistent defense against payments fraud, eliminating opportunities for fraudsters to exploit weak points and steal corporate money. With CFOs reporting 40% increases in payments fraud attempts in the past year alone, any technology that increases resilience is a win for CFOs and internal governance.