Technology in today’s world is limitless. We get directions, look up phone numbers, book vacations, order food, communicate across the globe, check our bank accounts and do much more in a matter of seconds. This fast-paced way of life is popping up everywhere we look and is now making its way into how we manage our finances — and protect them against fraud.
The National Automated Clearing House Association (NACHA) issued a directive to address the “lack of a real-time or faster payment system,” which puts both businesses and consumers at a disadvantage in the U.S. NACHA is a not-for-profit association that “administers and facilitates private-sector operating rules for ACH payments, which define the roles and responsibilities of financial institutions and other ACH Network participants.” This same-day processing directive calls for three clearing windows in a business day: morning, afternoon and evening.
Slow-Moving Money in a Fast-Paced World
Slow clearing times for payments can choke businesses, hurt working people and cause havoc for last-minute bill payments.
Imagine your job is to purchase the fresh meat and produce from a local farmers market for your restaurant. You arrive bright and early to get ahead of the morning rush, but the payment your company sent over has not yet cleared. So you are forced to stand there with you cart completely full and your kitchen staff waiting to begin prep work, wasting precious hours of your day.
Finally, the money clears and you race off. Then you go home that evening and rush to the bank to deposit your paycheck. However, you now must wait for your work funds to clear to pay your mortgage, pay your bills and buy food for your family. The slow clearing time of these payments can cause business to run inefficiently and hurt hardworking people who rely on the funds from their paychecks.
Addressing these issues come with its own host of challenges. The U.S. has many financial institutions, banks and credit unions, and speeding up the normal automated clearing house (ACH) processing times calls for solutions, technology and processes to be addressed by organizations of different sizes, capabilities and holdings.
Can we keep the U.S. financial system protected with a shorter clearing time?
An Opportunity for Fraudsters?
Fraudsters are known to exploit technology to their advantage, often adapting to new technology faster than consumers. Do faster payments mean faster online fraud?
This, of course, is a real concern for financial institutions. Speeding up processing times forces systems to detect suspected fraud faster. It changes the reaction windows and has the potential to increase workloads for fraud investigation teams.
Additionally, faster clearing times can actually make it easier for fraudsters to get money from their victims and quickly remove it from the financial network. Luckily, all of these issues have been discussed and studied as part of the planning of this imperative.
Wheels in Motion
The main objective of the faster payment initiative is to simplify life for businesses and consumers by speeding up clearing times. This is why the initiative will be rolled out in three stages, beginning on Sept. 23, 2016. Financial institutions have begun working to update their systems and have designed them to more accurately detect and remediate attempted fraud.
Additionally, the Federal Reserve selected a steering committee of organizations to make up the Faster Payments Task Force. The Faster Payment Task Force is currently working to address issues and approaches for a safe faster payments implementation.
Financial institutions have systems and teams in place that monitor financial transactions. According to Lauren Saunders, a writer for American Banker and an associate director of the National Consumer Law Center in Washington, “regulatory efforts, including Operation Choke Point and Bank Secrecy Act enforcement, help address the issue by reminding financial institutions of their obligation to vet their customers and to look for red flags.”
The faster payment initiative may create the ability for criminals to commit fraud faster, but it should also cause financial institutions to be more vigilant in the protection of their customers.
The changing, technology-filled, fast-paced world we live in will constantly offer new opportunities to businesses, consumers and even fraudsters. Luckily, these technological advances should also encourage financial institutions to keep their customers safe by staying a step or two ahead of cybercriminals.
Do Faster Payments Mean Faster Fraud? Read the white paper