Enhancing global real-time payments: tackling fraud and AML
Quick business successes can be built on the UK’s payment system that will play a key role in encouraging the efforts required to ensure that it achieves the “world class” status the industry is aiming for, writes John Bertrand.
One such potential success can be achieved by tackling real-time payment fraud and anti-money laundering. Payment fraud in particular is an area ripe for intervention; Financial Fraud Action UK recently revealed that online and telephone banking losses rose by 37% in the first six months of 2015 to £65.9 million.
In the UK, the Digital Policy Alliance, whose members include political parties, academia, and a number of large corporations including SAP, recently spent 18 months looking at real-time payment fraud. The project researched a day’s data on faster payments from six banks, including three clearing banks, to determine whether real-time payment fraud could be detected within the constraint of data protection laws. The results were:
- Collaboration between banks increased fraud detection from 10% to 70%
- 50% of cases of fraud could be immediately identified when multiple parties provided data
- Twelve networks of money moving across chains of bank accounts, e.g. ‘money mules’, were discovered
- Importantly, such collaboration did not breach data protection laws
In the sample analysed, approximately 64 payments per million were fraudulent – a number difficult for a single bank alone to identify. What is required is a minimum of two banks exchanging information, in accordance with data protection requirements, through a third party.
A collaborative hub would help the payments industry facilitate the sharing of intelligence between multiple banks to detect and report suspicious transaction patterns invisible to individual banks and, collectively, become more secure against criminal and terrorist activities.
The DPA’s findings also identified a dozen additional “networks of accounts” for investigation for possible facilitation of fraud and/or money laundering. Such networks are often designed to launder money, with the money moving from bank account to bank account often via ‘money mules’ before reaching the end destination, typically outside the country.A hub could generate near real-time alerts to enable funds to be frozen while suspicious activity is investigated and SARs (suspicious activity reports) are generated. Further, the service would reveal the identity of the other banks used in the laundering networks.
Keeping information private is, of course, a key concern. To this end, an early response from the UK’s Information Commissioners’ Office suggests that an intelligence sharing operation with the objective of tackling fraud and AML and should present no problems in terms of the Data Protection Act. The proposed hub could, there, provide a model example of a safe information sharing initiative, with the benefits of identifying criminal proceeds and blocking illegal money movement.
The next key step required is to create a political environment in which banks have the confidence that they can do more with regard to information sharing, including with the public sector, and to give a higher priority for reporting suspected money laundering. With this the banks can share information and identify suspected fraudulent activity and laundering across public and private sectors. This will be particularly true in the new world of real-time payments.
There is a considerable amount of work to be done to realise this vision but, the savings from such collaboration are estimated to be in the millions. Further, the model which the UK has the opportunity to develop offers business benefits that can be realised quickly, and also the potential for it to be replicated across the world.
Through combined industry effort and healthy ambition, the UK now has an opportunity to both cement its position as the global payments leader, and pioneer a safer, more secure global real-time payments market.