Real-time payments scams rise

Date: November 26, 2024

Real-time payments scams rise

Rise in Real-Time Payment Scams: Insights from FICO Survey

As the adoption of instant payment systems grows, so does the prevalence of scams targeting non-card payment methods. A recent survey by FICO reveals a concerning increase in fraudulent activities, emphasizing the need for stronger fraud protection and consumer awareness.

Key Findings from the FICO Survey

A second annual survey by FICO, conducted in July and released on November 13, highlights the alarming trend of real-time payment scams in the U.S.:

Increased Scammer Contact: 75% of U.S. adults reported receiving scam-related emails, texts, or calls, up from 68% in the previous year.
Victim Rates Rising: 33% of survey respondents said they fell victim to a scam in 2024, compared to 20% in 2023.
Common Scam Methods: Scammers often create fake profiles on dating sites or pose as potential employers to deceive victims.

Debbie Cobb, Vice President for Product Management at FICO, noted that the rising numbers underscore a growing problem with scams exploiting real-time payment systems.

The Role of Real-Time Payment Systems in Scams

The shift to instant payment networks like FedNow, the RTP network operated by The Clearing House, and platforms such as Zelle has provided scammers with new opportunities:

Instant Transfers Exploited: Criminals capitalize on the speed of real-time payments, making it harder for banks to intercept fraudulent transactions.
Challenges of Consumer Authorization: Unlike traditional third-party fraud, scams are difficult to combat because victims willingly authorize payments, often under false pretenses.

“Traditional third-party fraud is often easier to identify,” Cobb explained. “All of that goes out the window with scams because the consumer is the one making the payment.”

Scam Losses in Perspective

According to the Federal Trade Commission (FTC), U.S. consumers lost approximately $2.7 billion to impostor scams in both 2022 and 2023, compared to $2.1 billion in 2021. The rise in these scams has been fueled by:

Advances in Artificial Intelligence: AI technologies make scams more sophisticated and harder to detect.
Rapid Expansion of Instant Payments: The convenience and immediacy of these systems attract both consumers and bad actors.

The Need for Advanced Fraud Protection

FICO recommends that financial institutions adopt cutting-edge technologies, including AI and analytics models, to combat the growing threat of scams:

Sensible Friction: 75% of survey respondents said they would welcome measures like slowing down suspicious transactions to prevent fraud.
Proactive Bank Actions: Customers value banks that flag or delay potentially fraudulent transfers, even if it adds a slight inconvenience.
Enhanced Fraud Strategies: Traditional anti-fraud measures must evolve to address the nuances of scams where victims authorize payments.

“Customers are more than willing to have you put a little bit of sensible friction into that process,” Cobb noted, emphasizing the importance of consumer awareness in preventing scams.

Implications for Financial Institutions

Banks and payment networks must act quickly to protect customers and build trust:

Responding to Victim Needs: Financial institutions must assist scam victims while educating consumers about fraud prevention.
Using AI Against AI: Leveraging advanced analytics can help banks stay ahead of scammers who exploit technological vulnerabilities.
Guardrails for Transactions: Instituting measures to flag or slow suspicious payments can provide an additional layer of security without alienating users.

Conclusion

The rise in real-time payment scams reflects the growing need for vigilance among consumers and proactive measures from financial institutions. By adopting advanced technologies and introducing sensible security measures, banks can help curb scams and rebuild trust in instant payment systems.