Instant payments are processed in real-time, 24 hours a day, 365 days a year, with funds made available within seconds. This offers numerous benefits for consumers, providing clarity on account balances without concerns about pending transactions. For businesses, it enhances cash flows and working capital as payment terms become irreversible, even if goods or services delivery may take a few days.
Meanwhile, financial institutions can gain a competitive advantage by offering instant payment solutions. The growth in international trade, e-commerce and digital banking, coupled with shifts in consumer behavior, has fueled a rapid demand for expedited goods delivery and services, leading to an increased need for instant payments.
While the convenience is obvious, we should not underestimate the operational impact. The introduction of new payment systems will act as a catalyst for further innovation across the entire ecosystem. However, financial institutions and third-party payment system providers will need to tackle a range of issues. These include complying with new regulatory mandates, managing liquidity across systems and ensuring a seamless customer experience.
The fraud risk challenge
Implementing these processes will also require safeguarding against real-time fraud patterns, money laundering, terrorist financing and sanctioned parties. This presents a significant challenge that must be addressed.
Traditional payment types allow for human investigation or the ability to recall funds before or after clearing or settlement. Instant payments, however, not only preclude human investigation but are also irreversible. The question then becomes: How can a financial institution detect and prevent illegal payments when the service-level agreement mandates a response time of just 10 seconds?
This will be a particularly daunting task for well-established financial institutions. Their legacy infrastructures, typically designed for high throughput, will require substantial funding to accommodate ultra-low latency transactions. Moreover, they will require re-engineering of their entire processes, including fraud detection, sanctions screening and anti-money laundering checks to comply with strict SLA terms. Institutions will need to achieve all this without impacting their straight-through processing rates.
These traditional rules-based systems are manually configured and updated in response to evolving threats. However, under the pressure of rapid resolution, the emergence of new scenarios and the escalating transaction volumes, they risk falling behind fraudsters, struggling to scale and causing unnecessary inconvenience to customers.
AI to the rescue
Analytics tools leveraging artificial intelligence (AI) and machine learning (ML) offer the most effective solution for supporting fraud teams. Ultimately, they can protect customers from fraudulent activities that might slip through undetected due to resource limitations or time constraints. Moreover, this technology aids in minimizing false positives, enabling fraud teams to focus on authentic cases of fraud, while ensuring that customers do not face any inconveniences, especially in instant payment scenarios.
AI and ML can scour vast amounts of historical payment data, current customer behaviors, and emerging patterns to identify and prevent fraud. They can do this by intercepting transactions at various stages of the processing lifecycle, from initiation to release to payment networks. No amount of compliance specialists armed with legacy technology can do this.
Furthermore, AI and ML can predict and model new types of fraud. This allows fraud teams to stay one step ahead of criminals, identifying and anticipating their next move. By detecting anomalies in devices, transactions and locations, and correlating this data with customer behavior profiles and extensive fraud case databases, AI and ML operate at remarkable scale and speed, staying ahead of fraudulent activities.
Educating consumers is also crucial for ensuring secure transactions. Financial institutions must intensify efforts to promote safe practices. This includes exercising caution with unsolicited emails, links and requests for banking information. Moreover, they must implement two-step verification for suspicious transactions. Consumers should adopt a “zero trust” approach when in doubt.
Building trust and acceptance
These are all vital prerequisites for growth, given that the Middle East is the fastest-growing real-time payments market globally. Transactions are projected to surge from $675 million in 2022 to $2.6 billion by 2027, reflecting a 30.6 percent growth rate.
In particular, the UAE ranks as the eighth most cashless society in the world. Besides, 64 percent of residents expect the country to become fully cashless by 2030.
Facilitating this shift will be platforms like Aani, introduced last October by Al Etihad Payments, a subsidiary of the Central Bank of the UAE. Aani serves as an instant payment platform that allows users to transfer and settle funds anytime in less than 10 seconds. Users can transfer money instantly using only an alias, such as the recipient’s phone number or email. They can also benefit from services such as requesting money or splitting bills. Aani also supports QR codes, real-time direct debit, electronic direct debit authorization and fully digital checks.
Read: From banks to finfluencers: Navigating the new investment landscape in MENA
Qatar’s Fawran
Similarly, the Qatar Central Bank announced in March the launch of its instant payment service, Fawran, responding to the rising demand for financial technology services and aligning with the country’s financial sector modernization strategy. For some of the early adopting Qatari banks, technology solution providers like Eastnets have played a pivotal role in assisting them in implementing a centralized payment hub. This facilitates seamless transactions between them and external payment providers such as SWIFT or Buna.
As cross-border business expands, users will expect further innovations that provide trust, ubiquity and speed, building on new platforms and other recent cross-border and cross-channel developments. The building blocks are in place to transform the payments sector. Investing in this type of fraud detection solution should be on all financial institutions’ agendas to ensure that this transformation is as safe as it is durable.
Hazem Mulhim is CEO at Eastnets.
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