What is an instant payment?
An instant payment refers to a type of electronic payment that enables a near-instantaneous transfer of funds between two accounts, typically within seconds or minutes. Also known as a real-time payment or immediate payment, these faster payments differ from traditional payment methods that can take several days to process. Instant payments offer immediate availability of funds, making them suitable for time-sensitive transactions, urgent payments, and real-time financial activities. Peer-to-peer payments, FedNow and authorized push payments are all examples of instant payments.
Faster payment services across the globe
Many countries offer faster payment options, but the standards, regulations and technology differ. In the U.S., the RTP network was launched by The Clearing House in 2017 to facilitate real-time payment services for financial institutions. Following that, the FedNow Service was launched by the Federal Reserve in July 2023, an instant payment infrastructure. Banks and credit unions can sign up to offer this service to their customers, processing transactions much faster than the Automated Clearing House (ACH) system, which can take up to three days to clear funds.
In the U.K., the Faster Payment System supports real-time payments of up £1m. To increase the security of these instant payments, the UK government has also implemented a name checking service called Confirmation of Payee to reduce instances of instant payments fraud.
Instant payment systems also exist in geographies such as Sweden, India, Australia, South Africa, Singapore, and China.
The benefits and challenges of instant payment transactions
The instant nature of these faster payments matches up with what many consumers expect from their digital banking apps. Without modern services like peer-to-peer payment solutions, banks risk losing their competitive edge. Providers that offer instant payment services also provide their customers with more payment options, supporting personalization. What’s more, instant payment technology utilizes Application Programming Interface (API) technology, which means it can easily be integrated into banking platforms.
The challenges of faster payments include building this modern functionality on top of legacy infrastructure. Banks should look to experienced partners to upgrade their systems to ensure the least amount of downtime. Another challenge is the rise in related fraud, in other words, instant payment fraud. Social engineering scams are a common attack vector, providing fraudsters with instant funding from their victims.
How to reduce instant payment fraud
Financial institutions that employ advanced authentication measures, like multi-factor authentication including biometrics, can more easily differentiate a customer from a fraudster. Customers can verify their identity through the possession factor — their device, the inherence factor — their unique biometric features, and a password or the knowledge factor.
If the customer themselves is initiating the payment due to a fraudster’s manipulation, the bank may flag the transaction as suspicious. To protect the customer, they can implement measures like a push notification to the customer’s chosen device to double-check whether they want to go ahead with the instant payment.
In addition, providers that share customer intelligence across all their banking channels, with solutions like context-based authentication, can assess the risk of each transaction faster and more effectively. These solutions step up the security measures in suspicious circumstances, offering better protection against instant payment fraud.
Further Reading:
Keywords:
Instant payments | Real-time payments | Fraud prevention
An instant payment refers to a type of electronic payment that enables a near-instantaneous transfer of funds between two accounts, typically within seconds or minutes. Also known as a real-time payment or immediate payment, these faster payments differ from traditional payment methods that can take several days to process. Instant payments offer immediate availability of funds, making them suitable for time-sensitive transactions, urgent payments, and real-time financial activities. Peer-to-peer payments, FedNow and authorized push payments are all examples of instant payments.
Faster payment services across the globe
Many countries offer faster payment options, but the standards, regulations and technology differ. In the U.S., the RTP network was launched by The Clearing House in 2017 to facilitate real-time payment services for financial institutions. Following that, the FedNow Service was launched by the Federal Reserve in July 2023, an instant payment infrastructure. Banks and credit unions can sign up to offer this service to their customers, processing transactions much faster than the Automated Clearing House (ACH) system, which can take up to three days to clear funds.
In the U.K., the Faster Payment System supports real-time payments of up £1m. To increase the security of these instant payments, the UK government has also implemented a name checking service called Confirmation of Payee to reduce instances of instant payments fraud.
Instant payment systems also exist in geographies such as Sweden, India, Australia, South Africa, Singapore, and China.
The benefits and challenges of instant payment transactions
The instant nature of these faster payments matches up with what many consumers expect from their digital banking apps. Without modern services like peer-to-peer payment solutions, banks risk losing their competitive edge. Providers that offer instant payment services also provide their customers with more payment options, supporting personalization. What’s more, instant payment technology utilizes Application Programming Interface (API) technology, which means it can easily be integrated into banking platforms.
The challenges of faster payments include building this modern functionality on top of legacy infrastructure. Banks should look to experienced partners to upgrade their systems to ensure the least amount of downtime. Another challenge is the rise in related fraud, in other words, instant payment fraud. Social engineering scams are a common attack vector, providing fraudsters with instant funding from their victims.
How to reduce instant payment fraud
Financial institutions that employ advanced authentication measures, like multi-factor authentication including biometrics, can more easily differentiate a customer from a fraudster. Customers can verify their identity through the possession factor — their device, the inherence factor — their unique biometric features, and a password or the knowledge factor.
If the customer themselves is initiating the payment due to a fraudster’s manipulation, the bank may flag the transaction as suspicious. To protect the customer, they can implement measures like a push notification to the customer’s chosen device to double-check whether they want to go ahead with the instant payment.
In addition, providers that share customer intelligence across all their banking channels, with solutions like context-based authentication, can assess the risk of each transaction faster and more effectively. These solutions step up the security measures in suspicious circumstances, offering better protection against instant payment fraud.
Further Reading:
- Blog: How biometrics stop instant payments becoming instant fraud
- Blog: Unveiling the dark side: How real-time payments push real-time fraud
- Video: Faster payments means faster, better fraud fighting tools
Keywords:
Instant payments | Real-time payments | Fraud prevention
