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Real-time Payments and Real-Time Fraud: A Crash Course

Since 2020, two major topics have taken over the banking industry—real-time payments and real-time scams. Financial institutions (FIs) know customers want to send and receive money instantly. But they also know scammers have adapted to this demand and, with the help of a few tools, made fraud faster than ever.

While real-time payments pose new sophisticated fraud threats, they’re also key to the payments industry’s evolution. Fortunately, with the right detection and defenses, it’s possible to stamp out scammers and keep customers delighted.

Let us explain in this guide on everything you need to know about real-time payments and real-time fraud.

What are real-time payments?

Real-time payments are payments that, once initiated, send and settle within seconds. Where ACH transfers, debit and credit purchases, and checks take days to clear, real time payments finalize immediately.

Consumers and businesses alike love real-time payments because they provide access to funds right away and bring far greater flexibility.

Currently, there are two major real-time payment rails in the US—RTP and FedNow. RTP, managed by The Clearing House, is the backbone for real-time payment juggernauts like Zelle, Venmo, and PayPal. But FedNow’s launch means that every FI in the US can now offer real-time payments for customers. If you want more information on that service, check out our complete FedNow guide.

How do real-time payments work?

All real-time payment networks allow transfers 24 hours a day, 7 days a week, 365 days a year. In the past, this simply wasn’t possible for FIs because they processed transactions in batches only during business hours.

Real-time payments are available at any time because they leverage real-time gross settlement (RTGS). FIs have long used RTGS to send large-value transfers to each other. Gradually over time, consumers gained access to RTGS systems via FIs in various countries too.

Today, when you send a real-time payment, it goes through the following process:

  1. Your FI deducts the amount you sent from your bank account immediately
  2. The funds you’re sending go through the RTGS payment rail to the receiver’s FI
  3. The receiving FI adds those funds to your intended recipient in seconds and confirms the transaction

Faster payments vs. instant payments vs. real-time payments

With so many different speedy payment options available today, it can be confusing to keep track. In the end, it’s pretty simple to remember as long as you keep the real-time payment process in mind.

Faster payments are any payments that:

  • Show the balance change of a transaction for both sender and recipient immediately
  • Allow recipient to access new funds immediately

Real-time and instant payments refer to the same type of payment. The key difference for these from faster payments is that real-time or instant payments settle in real-time (or instantly.) These payments do all the same things as faster payments, but with real-time settlement (usually in seconds) they are essentially irreversible.

This instant settlement is the part fraudsters like most, and why real-time payment scams have exploded.

How real-time fraud happens

Real-time scams most commonly rely on authorized payment fraud. In these frauds, scammers trick victims into authorizing transfers that end up with the account holder losing their money.

Sometimes called push payment fraud, these scams use clever use social engineering tactics to gain the victim’s trust. Fraudsters usually do this by impersonating legitimate entities or playing victim’s emotions.

Some of the most common real-time frauds are:

  • Zelle fraud – scammers pose as an FI and convince the victim to make a real-time transfer “to themselves” or to upgrade their Zelle account, which really sends the money to the scammer
  • Romance scams – fraudsters pose as a romantic interest and love bomb the victim to gain trust before asking for money real-time transfers
  • Money mule scams – scammers set up a strong relationship with the victim (often a romance scam) and trick them into making real-time transfers that launder dirty money
  • Phishing scams – fraudsters steal personal information, like bank account details, from victims by posing as legitimate entities, then send money to themselves in real-time
  • Invoice fraud – fraudsters send fake invoices for services a victim may have paid for and request real-time transfers so the victim can’t get their money back
  • Cryptocurrency scams – scammers promise easy returns on investment in crypto and have victims make real-time transfers to “invest” then pull the rug and leave them without recourse

How to detect real-time scams

To avoid becoming a victim of real-time payment fraud yourself, follow these steps to help spot a scam.

  1. Verify your recipient – make sure you know exactly who you’re sending money to and verify they are trustworthy. Look for legitimate contact information for businesses and ask unknown persons to prove their identity before sending anything.
  2. Check websites for legitimacy – hover over links in emails (without clicking) to see the URL’s actual destination. Double check via a web search that the URL matches the official website of the company or organization it claims to be from.
  3. Beware of urgency and pressure – scammers rely on creating a sense of fear of missing out to push victims into making quick decisions. Be cautious of messages that demand immediate action or threaten negative consequences if you don’t comply.
  4. Treat unsolicited requests with suspicion – be cautious before answering unexpected requests for payments, personal information, or login credentials. Always verify them through official channels.
  5. Protect your personal information – never share sensitive information like passwords, PINs, or Social Security numbers in response to unsolicited messages, emails, or phone calls.
  6. Stay Informedstay updated on the latest scamming techniques and tactics used by fraudsters. Knowledge about common scams can help you recognize and avoid them.
  7. Add multi-factor authentication – use extra authentication to add an extra layer of security to your accounts and transactions.

Remember that fraudsters can be very convincing and their scams always evolve over time. When in doubt, it’s always better to take a step back and verify the legitimacy of the situation before proceeding.

Preventing real-time payment fraud

Every FI has a fraud prevention solution in place to monitor transactions, spot anomalies, and flag suspicious activity for review. These typically follow a rules-based system that catches patterns of fraud based on past attacks. The problem with this is twofold: 1) real-time fraud is more difficult to catch because it often happens as authorized payment fraud, and 2) fraudsters are more sophisticated than ever.

Add to this fraudsters are leveraging tools like Chat-GPT, AI bot networks, and low cost labor to automate their attacks and you have a huge-scale problem. The solution to finding and preventing real-time fraud? Fight fire with fire and leverage AI and machine learning.

Both supervised and unsupervised machine learning are essential in any modern fraud fighter’s toolkit. ML can spot patterns with accuracy human case managers could only dream of. Once it does, unsupervised models can learn to prevent the fraud themselves in the moment.

FIs should also take a holistic view and look at the fraud coming from customers who are being tricked. Combining this 360 approach with AI is our best chance to get ahead of real-time fraud and protect the customer experience.

DataVisor’s platform uses ML and AI to catch real-time fraud in real-time. To learn how, set up a chat with our team of fraud experts.