Liable? Consortium Solutions to Payments Fraud Change

October 28, 2022 by Nasdaq Verafin

Payments Fraud Change

Payments fraud is a major challenge across the financial industry — and with it has grown a significant call for legislative change. Concern over consumer-focused Authorized Push Payment (APP) scams has prompted proposals for mandatory victim reimbursement in the United Kingdom, and debate among American policymakers around similar action. For U.S. financial institutions, such a shift in payments fraud liability would pose numerous potential challenges, including increased fraud losses and operational costs, heightened customer friction, and reputational risks.

With a potential U.S. liability shift on the horizon, financial institutions need solutions leveraging consortium analytics to truly understand payer and payee risk and protect themselves and their customers from loss.

Potential U.S. Liability Shift

Under the Consumer Financial Protection Bureau’s (CFPB) Regulation E, U.S. financial institutions are currently not liable when consumers are defrauded through APP scams. However, United States senators have begun urging better consumer protections for Peer-to-Peer (P2P) payments channels such as Zelle, where fraud claims are anticipated to exceed $255M this year.

In a recent letter to the CFPB, six senators wrote that “given the increased prevalence of P2P fraud against older adults, we encourage the CFPB to move forward in issuing this guidance” and “the CFPB could clarify that, in certain circumstances, a payment is an ‘error’ when a consumer is defrauded into initiating a transfer to a scammer.” Although P2P solutions are the primary focus of legislative deliberation at this time, the rationale behind the proposed changes could be extended to other payment channels, such as ACH, and wire where we have observed attempted fraud value increase significantly for the consumer segment.

With guidance expected to be issued in the near term, it is crucial to be proactive by ensuring your financial institution has a robust solution in place to effectively protect your customers and institution from payments fraud today and tomorrow.

The Power of Consortium Analytics

Conventional approaches to detect payments fraud using transaction monitoring techniques focused on profiling the payer cannot keep pace with the evolving financial crime landscape posed by APP fraud. More than ever, it is crucial to leverage consortium analytics that profile counterparties across the entire industry, allowing your institution to understand the risk associated with payers, and the counterparties with whom they are transacting.

With Verafin’s consortium analytics, you can confidently identify high-risk payments destined for potential mule accounts, significantly reducing the fraud exposure to your institution and your customers. Consortium analytics have the added benefit of allowing safe payments to proceed uninterrupted, thereby lowering the operational costs of alert reviews and customer call-backs. In a recent Wire Fraud proof of concept with a top U.S. bank, Verafin’s consortium analytics improved detection rates by 250% while reducing false positives by 25%.

Verafin leverages the profiles of 300 million counterparties based on our consortium of 2200 financial institutions to detect and mitigate fraud across numerous payments channels. Verafin can deliver consortium analytics as part of a robust Financial Crime Management platform, or through risk scores provided by real-time APIs.

Effectively Combat Payments Fraud & APP Scams

Amid today’s evolving payments fraud landscape, a robust payments fraud solution is essential to protect your customers and prevent loss. By deploying Verafin’s consortium analytics before a potential liability shift occurs, your institution can begin mitigating payments fraud risk and preventing APP fraud scenarios immediately, and decisively.

To learn more about how Verafin can effectively protect your financial institution and customers against payments fraud with consortium analytics, download our Payments Fraud Product Brochure.

Nasdaq Verafin provides cloud-based Financial Crime Management Technology solutions for Fraud Detection, AML/CFT Compliance, High-Risk Customer Management, Sanctions Screening and Management, and Information Sharing. More than 2,500 financial institutions globally, representing more than $8T in collective assets, use Nasdaq Verafin to prevent fraud and strengthen AML/CFT efforts. Leveraging our unique consortium data approach in targeted analytics with artificial intelligence and machine learning, Nasdaq Verafin significantly reduces false positive alerts and delivers context-rich insights to fight financial crime more efficiently and effectively. To learn how Nasdaq Verafin can help your institution fight fraud and money laundering, call 1-877-368-9986.