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15 Apr 2024 Article

Security and Fraud Prevention in Instant Transactions

Security and Fraud Prevention in Instant Transactions

Fraud prevention within online payments is essential. Today, virtually every consumer on the planet is able to access a digital device, and how we pay online is constantly changing.

Indeed, one of the most interesting developments in recent years has been the emergence of instant payments. These new payment methods have proven immensely popular, with Pay by Bank (the consumer-facing term for an account-to-account payment) ranking second only to only debit cards as a preferred online payment method, according to a recent YouGov and Brite report.

However, as payment methods have improved and multiplied over the years, so has the need for an evolution of online payment security and banking fraud prevention measures. Today, fraud costs merchants approximately £267 billion globally every year, making prevention a number one priority for merchants and payment providers everywhere.

In this article, we’ll highlight the history of payment security, discuss how consumer information and privacy are handled, and look at the obstacles in place to ensure payment security. Read on to learn more.

The framework of payment security and fraud prevention

Payment security has evolved significantly from the early days of the internet, where basic protocols such as SSL (Secure Sockets Layer) and simple passwords/pins were commonplace.

Today, most merchants and financial institutions (including Brite Payments) use a sophisticated combination of AML (anti-money laundering) and KYC (know your customer) processes alongside two-step verification and biometric verification to ensure account and payment security for both consumers and businesses alike. 

One of the most important developments in payment security arguably occurred in 2007, with the introduction of the Payment Services Directive (PSD). Created by the European Union, the first PSD was intended to make cross-border payments as easy, efficient and secure as national payments were within a Member State. The directive brought substantial benefits to the European economy and was later replaced in 2016 by PSD2.

A third revision (PSD3) is expected to turn into EU law in 2026.  And if you’re looking to learn more about PSD3 and its implications for open banking, businesses and consumers alike, be sure to read our PSD3 explainer.

Technological advances in security measures

Technology has been a significant driver in the advancement of payment security and banking fraud prevention. As previously highlighted, new techniques (such as biometric verification) have only been made possible due to key technological advancements made in recent years.

Arguably, one of the most important technological breakthroughs has been artificial intelligence (AI), which has enabled the development or enhancement of a multitude of payment security methods, such as transaction monitoring and behavioural biometrics. Even longstanding security measures, such as fraud detection, have been significantly enhanced due to the capabilities of AI.

For example, the fintech Strise, has developed an AI-driven solution to help firms automate their AML processes and streamline client onboarding. Thanks to AI, a greater volume of data can now be analysed (often in real-time) to detect and ultimately prevent fraud from occurring.

In terms of the specific security features embedded in Pay by Bank and instant account-to-account (A2A) payment systems, technology has also seen improvements to end-to-end encryption, tokenisation, and, most importantly, Strong Customer Authentication (SCA).

Protection of consumer information and privilege

Brite’s online payment research with YouGov has found that the majority of consumers (59%) ranked security as their number one factor when selecting a payment method. More importantly, 86% of respondents ranked security as a top priority when trying a new payment method. As such, it’s evident that ensuring the security of consumer information has emerged as a critical concern for financial institutions.

The European Union’s General Data Protection Regulation (GDPR) has set rigorous data protection and privacy standards, compelling payment systems and financial institutions to prioritise consumer privacy and security. This legislation emphasises the importance of handling personal data with utmost care, establishing transparency in data practices as essential for earning consumer trust in digital payments. 

GDPR has become a crucial piece of legislation that has redefined privacy standards, mandating stringent data protection and privacy norms for all individuals within the EU. GDPR places the onus on payment systems and financial institutions to ensure the highest levels of consumer privacy and security — making the safeguarding of personal information a paramount concern.

“Security is paramount and inherently sensitive across various verticals. Being clear and transparent about data handling practices is crucial for building trust.”—  Didrick Reel, Product Lead for Design at Brite Payments.

GDPR has not only heightened the security framework around payment systems but has also instilled a greater sense of responsibility towards consumer data. Ensuring transparency in data handling practices has become a critical factor in building consumer trust in digital payment ecosystems. Amidst the technological advancements enhancing payment security, GDPR acts as a cornerstone, ensuring that innovations like AI, biometric verification, and advanced encryption are implemented with consumer privacy at the forefront, thus shaping a secure and trustworthy digital payment landscape.

The obstacles to banking fraud prevention

Securing instant payments presents several challenges, notably the fractured nature of different countries’ payment systems and the adaptive nature of cyber threats, which constantly evolve to exploit new technologies.

Instantaneous transactions, while convenient, can sometimes complicate fraud detection efforts due to the reduced time frame for verifying the legitimacy of transactions. Among these concerns is the rise of authorised push payment fraud, where fraudsters deceive individuals into willingly sending money to accounts under the fraudster’s control. This scam underscores why customer education about online threats is crucial to preventing fraud. 

As fraudsters adapt their tactics, the financial industry must remain agile, constantly updating and enhancing security measures to protect against these evolving threats.

Ensuring the security of instant payments

In concluding our exploration of security and fraud prevention within instant transactions, we have navigated through the evolution of payment security. In this article, we have underscored the importance of safeguarding consumer information and delved into the ongoing battle against banking fraud. 

As we have highlighted, the landscape of instant payments demands rigorous security measures to maintain consumer trust and ensure the integrity of every transaction. European standards, such as the GDPR and PSD3, have set a high bar for data protection, serving as a beacon for global payment security practices. These frameworks safeguard personal data and foster a secure environment for the flourishing of instant payment systems.

Amidst these advancements, the industry faces challenges, including the adaptability of cyber threats and the complexities of instant payment verification. Nonetheless, the commitment to continuous innovation, and the adoption of sophisticated new security protocols, are crucial to overcome these obstacles. As we look towards the future, technology, regulatory standards, and collective vigilance remain central to ensuring the security of instant payments.

In our latest report, you will learn more about Pay by Bank and the evolving preferences of the European consumer in key markets, including Finland, France, Germany, the Netherlands, Spain, and the UK.

Get your free copy today:

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