A Proactive Approach to Payment Fraud Prevention

Innovative fraud prevention strategies are becoming increasingly important with the rise of new payment methods like the Real-Time Payments network, an industry expert said. Launched in 2017, the RTP network has already processed over 1 billion transactions, many related to payroll, the expert noted.

As payment fraud activities continue to rise, there is an urgent need to shift from the conventional fraud prevention strategies since traditional methods of fraud continue to evolve alongside new payment methods, said James Colassano, senior vice president of RTP Business Product Management.

“Check fraud is still the most dominant type of fraud today. While many think checks are gone, they remain frequently used. However, the techniques fraudsters employ to steal checks have become more sophisticated over the last 20 years,” Colassano said.

“If you are issuing checks, don’t put them in the mail,” Colassano advised. Thieves often monitor when checks are issued and target mailboxes, so it’s crucial to consider secure delivery methods to protect yourself from this growing risk, he added.

Despite the rise in payment fraud, there is no single central reporting database or agency providing actual fraud numbers, said Cheryl Gurz, vice president of RTP Product Management.

Gurz and Colassano spoke at PayrollOrg’s Capital Summit, held in Arlington, Virginia.

Fraud is categorized into two primary methods based on how it originated: unauthorized and authorized, Gurz explained. Unauthorized payment fraud includes account information misuse and account takeover, while authorized payment fraud, or payee scams, involves manipulation of the account holder, who authorized the payment under false pretenses, she added.

Retail payment fraud often targets consumers with impersonation scams and phishing attacks, while business payment fraud targets companies with strategies like invoice redirection, BEC, and CEO fraud, Gurz and Colassano explained.

“The majority of payment scams are authorized,” Gurz said. “Anything containing personally identifiable information should be secured robustly, as fraudsters can exploit small pieces of information,” Colassano added, emphasizing the need for a secure data pool and real-time authentication of transactions, amid ongoing data breaches.

Artificial intelligence can play a huge role in combating payment fraud, Colassano said.However, fraudsters are also using AI to refine their tactics, he added, emphasizing the need for more vigilance in the payment process.

Payroll professionals should be aware of the various payment rails and their implications for liability and recovery, Gurz said. “Banks have no obligation to indemnify authorized transactions. Recovery depends on the payment rail used and the timeliness of outreach to the bank,” she added. Adopting processes like Payee Positive Pay is a vital investment for organizations in fraud management, Gurz said. Banks should implement robust authentication measures, including new payee verifications, transaction limits, payment pattern analysis, receiver decisioning, and advanced Know Your Customer procedures, she said.

User education and increased accounts security, like tokenization, would play a key role in ensuring the safety and soundness of the RTP system, Colassano said. “We often hear the phrase, ‘faster payment, faster fraud.’ Since instant payments operate 24/7 and are final upon settlement, it is crucial to understand how fraud can occur within these networks,” he remarked.

Consumers should consistently review their bank statements and online activity, use multiple fraud detection features available to them, and immediately report any suspicious activity on their accounts, the experts concluded.