Zelle has laid the groundwork for what could be the massive P2P wave that has taken consumers and financial institutions by storm. Consumers want more convenient ways to pay, and this solution was the answer to many of their pain points. Consumers are now expecting their FIs to provide this type of P2P service as part of their regular offerings.
But many FIs are concerned about making the leap and possibly being on the hook for millions of dollars.
In a recent PaymentsJournal podcast, Karen Buell, SVP of Operations, Banking and Fintech Solutions at Paymentus, and Kevin Libby, Fraud and Security Analyst at Javelin Strategy & Research, discuss the true story behind the headlines of these P2P fraud schemes, how can fraud be confronted, and how FIs can enter the P2P market armed with information and not fear.
P2P Expands Despite Growing Incidences of Fraud
With popular P2P platforms such as Zelle making the news, and with increased incidences of fraudulent attacks on consumers who have no recourse, it’s no wonder that many FIs are leery of adopting these payment platforms and offering them to customers.
“In 2022 alone, 28% of identity fraud scam victims that suffered a loss ended up losing that money through P2P transfers,” Libby said.
“That percentage is essentially flat year over year, but that’s a significant number of consumers, and from a consumer protection point of view, the fraud we’re seeing is enough to get the attention of consumer advocacy groups and regulators, and I think that’s why we’re seeing some of the headlines that we have.”
Headlines aside, consumers want an easier way to pay. They don’t always carry cash, and even if they do, it’s rarely the right amount. P2P payment platforms offer them a way to conceivably pay at any time, any place.
What FIs Can Do to Quell Consumer Fear Amid Growing P2P Fraud
The key to settling the apprehension customers feel about using P2P payment platforms is to provide education. Although fraud is still taking place, current statistics, according to Libby, show that “as a percentage of transactions, fraud on P2P platforms is very low.” In fact, reports have shown that the incidents are lower than 1% and even decreasing.
“FIs can do a lot to educate consumers that they don’t need to be afraid of these tools, of these payment methods, but they do need to be smart about using them,” Buell said.
Specifically, FIs should warn customers not to give away their banking credentials, as this seems to be a more common occurrence. Furthermore, implementing technology that protects consumers is essential for FIs to safeguard against and mitigate fraud.
Implementing challenge questions that only the consumer and the recipient would be familiar with would help offer that protection. This can also avoid situations where the sender might mistype a phone number or provide another type of vulnerability that can enable an account takeover to happen.
Preventive measures are key, as P2P payments are essentially real-time payments. They are immediate and final.
Buell emphasizes the importance of FIs’ role as a trusted partner, equipping customers with the critical knowledge they need to protect themselves and their accounts. Ultimately, FIs should empower them to use these platforms with confidence.
FIs should also educate their customers on what banks will never do or how they will never engage in a certain way with their consumers. For example, it’s important that FIs communicate with their customers that they will never ask for their PIN number or their one-time passcode.
“Analysts at Javelin, in our fraud and security practice, have been arguing for years that education is the cornerstone of any building plan designed for reducing fraud across most payment channels,” Libby said.
“I think that’s especially true for P2P fraud, particularly since many identity fraud scams culminate in P2P transfers. Susceptibility to scam victimization is largely about being educated about what’s out there, what scams are taking place, how to recognize them when you see them, and what to do if you believe you’ve been targeted.”
Knowledge is power. Educating consumers on some of the pitfalls of using these platforms better equips them to use the solutions carefully and responsibly.
“Another thing that FIs can do to reassure consumers is to let them know that they understand the fraud that’s taking place and that they’re employing and constantly refining very sophisticated fraud detection and prevention tools that are very effective at rooting out fraud and protecting their customers,” Libby said.
How FIs Can Address Their Own Concerns About P2P Fraud
With any new foray, FIs must proceed with a well-thought-out plan. Also, despite all the media coverage on P2P-related scams, FIs should not simply write off these solutions and avoid them at all costs. These platforms are clearly growing in popularity among consumers and are not going to disappear.
“They can’t be afraid of P2P, even if it’s one of the most targeted payment rails,” Buell said. “It’s important for the FIs to have a specific strategy, certainly an overarching payment strategy.”
Buell said fraud departments have been adept at confronting fraud for decades, but as the P2P space is relatively new, as are the fraudulent activities targeting it, the focus should be directed to getting educated on fraud as it applies to the P2P landscape.
She also recommends what her clients are currently doing: attending their local compliance chapters and AML groups to get familiar with all the latest fraud practices and trends. Staying informed is a key to staying ahead of the ever-growing and changing fraudulent tactics.
Moreover, although segmentation is a great tool for marketing purposes, it can also be leveraged for payment risk mitigation. Setting up different limits and rules for each customer avatar can help FIs further understand their customers and can help with the customization of fraud mitigation and fraud education.
“What financial institutions need to do is to bring to bear the technology that they have to intelligently leverage robust data sets to build models well trained at rooting out and arresting the fraud that’s attempted,” Libby said.
“They won’t be able to stop all of it, but they can make meaningful strides to that end. And in the case of P2 fraud scams, it will most likely require pulling in data from diverse sources, even from third parties that can provide insight into the context surrounding the P2P transactions.”
What Paymentus Can Do to Address These Issues
In forming a partnership with a technology solutions provider, communication is key. Buell said Paymentus reaches out to FIs, asking them for feedback on their specific fraud situations. If there is a “confirmed fraud situation feedback,” this information gets added to the Paymentus database.
Buell explained that there is constant juggling of the customer experience and the risk mitigation strategies of FIs. It is a tricky balance, for sure. But customers should always have as many payment method options as possible available to them.
“We don’t want it to be visible to the end user what’s happening, but we collaborate directly with our financial institutions, sharing best practices and providing them those tools to really dial up or down their strategy,” Buell said.
Paymentus also has relationship managers who meet with FIs quarterly or semiannually to check in with their payment strategy and determine how they are protecting their business. During these meetings, fraud mitigation tools and segmentation can be discussed, all with the purpose of becoming trusted advisors on the FIs’ journeys, with Paymentus offering advice and support along the way.
Trusted Partnerships Will Prove Essential in Mitigating P2P Fraud
As consumers continue to adopt digital payments, P2P payments will also increase in popularity. As new technologies grow, fraud follows closely behind.
Fraud will never go away entirely, so FIs must be prepared to meet it head-on. The key is partnering with trusted technology solution providers to not only mitigate risk but also continue enhancing the customer experience.