Money Mobility Tracker – March 2023

Disbursements are a critical part of the modern economy, with more than 170 million consumers in the United States receiving at least one within the past year. These come in many flavors, including Social Security payouts, insurance claim payouts and retail refunds. These payments all share one feature for consumers: They could be faster. According to a PYMNTS Intelligence survey, roughly half of U.S. consumers who receive disbursements would choose to obtain them via instant payment rails if they could, with faster payments providing convenience and a powerful advantage in cash flow transparency and money management. Accelerated payments are not invincible, however. Faster transactions are susceptible to the same social engineering techniques fraudsters have employed to target legacy systems — but with the added twist that funds intercepted via faster payments are often irrecoverable due to their speed. Fortunately, real-time solutions are rising to meet the challenge. Companies can confidently offer their customers the convenience of faster disbursements while proactively keeping them secure from fraud. The “Money Mobility Tracker®” examines how financial institutions (FIs) are leveraging advanced technologies such as artificial intelligence (AI) and machine learning (ML) to oversee significant drops in faster payments fraud. Faster Payments Demand Faster Fraud Tools While faster payments offer increased ease and convenience for consumers and businesses, accelerated funds lost to fraud are seldom retrievable, as opposed to slower payment methods, allowing for more time to reverse the transaction. This makes prevention paramount. With 78% of FIs and businesses calling faster payments a “must-have” for their organizations, enthusiasm for instant payments adoption has never been higher. Nearly 9 in 10 FIs say they plan to adopt the FedNow® Service or The Clearing House’s RTP® network within the next two years. Meanwhile, 76% either already offer or plan to implement the instant payments network Zelle. With so many financial players moving toward faster payments, implementing best practices to protect from fraud is an essential step in that process. Advanced Technologies Effectively Curb Disbursements Fraud Technologies such as AI and ML are highly effective at securing faster transactions by identifying minute account and transaction discrepancies and patterns that would evade human detection. AI and ML offer a range of capabilities, one of the most notable of which is the detection of payments fraud. AI systems can continuously monitor financial transactions from end to end in real time to identify fraudulent login attempts, anomalous transactions and suspicious or fake accounts. These technologies can speed decision-making in faster payments environments by validating users and analyzing data much faster than human analysts can. In addition, through their capacity to learn, the technologies’ ability to spot unusual payment behaviors or account usage is always improving, making these tools especially useful in applications for detecting account takeover (ATO) fraud — the top risk in faster payments fraud. Third-Party Solutions Yield Faster Payments Fraud Protection FIs that find it difficult to implement AI- and ML-based fraud solutions on their own can alleviate this burden with third-party offerings. Many FIs lack the technical staff to make advanced fraud prevention a reality. Recent PYMNTS Intelligence research shows that while many FIs still use in-house teams to develop fraud prevention tools, the desire to incorporate more advanced technologies for this purpose has pushed many to consider external providers. On average, FIs develop 48% of the technologies they use to combat fraud in-house, such as customer transaction alerts. Meanwhile, only 14% of FIs develop fraud-fighting AI and ML technologies in-house due to the substantial costs and expertise involved. The report estimates that as AI and ML become the standard tools for advanced fraud protection, 70% of FIs will rely on third-party solutions to leverage ML, AI and fraud scores provided by payment processors.

Ad hoc payments — non-recurring payments made outside of normal invoicing and payroll processes — are somewhat of a nuisance to enterprises. However, instant payment methods increasingly offer a way to streamline the process. Payers used instant rails for more than one-third of payments, a 28% increase in the last quarter alone. Gig economy companies make an above-average share of ad hoc accounts payable (AP) payments. These firms also use instant methods the most. Senders report that these payments represent 35% of their ad hoc payment transactions. This share rises to 39% in the gig economy industry. Gaming firms follow closely behind, at 37%. These are some of the findings explored in “Meeting the Demand for Instant Ad Hoc Payments,” a PYMNTS Intelligence and Ingo Payments collaboration. This report is based on a survey of 200 enterprise senders generating at least $50 million in annual revenues across the United States conducted between Jan. 5 and Jan. 25. It examines issuers use of instant payments for disbursements to SMBs and consumers. The report focuses on the following industry segments: hospitality, gaming, trucking and transportation, the gig economy (e.g., freelance workers) and property management. Other findings from the report include the following. The instant methods used to send ad hoc payments vary by firm size. Push-to-card remains the most popular method among all enterprise senders. Nineteen percent of enterprises send ad hoc payments via debit card to a bank account. At 8.9%, Zelle ranks as the second-most common way firms send instant payments, followed by payment to a bank account via the RTP® Network at 4.7%. As sender size increases, however, the use of RTP rises, accounting for all growth in instant payments seen by larger payers. The share of senders offering instant has risen since last quarter. More senders of all firm sizes offer instant options, with 32% offering instant payments as one of many options and 12% only sending ad hoc payments via instant methods. The gig economy and gaming sectors lead here, too. Despite these increases, senders still underestimate SMBs’ and consumers’ desire to receive payments instantly. The share of senders saying cost limits instant payment provision is down 30%. Costs have been a barrier for enterprises adopting instant ad hoc payments, yet such concerns are waning. Just 9.4% of senders reporting challenges with sending ad hoc payments cite cost as their most experienced challenge, down from 22% last quarter. Other factors still make them less likely to offer instant options: 30% of senders cite difficulty correcting payment amount errors once sent as the top reason; 16% cite an increased risk of fraud or data theft as the top reason; and 13% cite delays in payment processing due to legacy IT infrastructure. Data shows a strong correlation between the use of automated ad hoc processes and enterprise senders’ adoption of instant methods. As more enterprise senders automate their ad hoc processes, their interest in offering instant options will also increase.

Drew Edwards, CEO of Ingo Payments, and Doug Brown, president of NCR Voyix, told PYMNTS’ Karen Webster that the new instant payments rails will eventually go mainstream now that there are two bank rails in the United States up and running — but ubiquity is going to take some time. The FedNow® Service launched in July. The Clearing House’s RTP® Network has been live since 2017 and was the first new payment rail to be set up in the United States in 40 years. Yet coverage thus far is relatively small. Several hundred financial institutions and a few mega-corporates offer instant payments functionality. “There’s an adoption pattern that needs to happen in the back office,” Brown said, adding that for use cases to work successfully at scale, they’ll need to be “battle-tested, and they need to be proven.” Asked by Webster how we’ll get there from here — when ubiquity extends beyond the largest banks and reaches community banks and credit unions, connecting all bank accounts and their corporate clients — Brown offered up his take. It’ll all come together “one payment at a time,” he said. “It’ll also take a combination of a little marketing flair and a message to the market, wrapped in value — wrapped into a couple of breakthrough use cases.” Call it a marathon, not a sprint. Or to use another analogy, Brown said we’re in the fourth inning of evolution with the RTP Network, while Edwards posited that FedNow is in the second inning of development. The headwinds lie partly with the fact that, as Edwards noted, ubiquity is already a hallmark of payment methods such as checks, ACH and even the instant capabilities of push-to-card. Given the fact that the sending/receiving pool of banks is relatively limited for the bank-to-bank instant payments rails, Edwards contended that the FedNow and RTP networks are “not going to move the needle” for Ingo clients like Geico or Caesar’s. For the corporates, the question, stretching back to 2017 and RTP’s debut, has been just what problem RTP and FedNow solve beyond push to card, Edwards said. But now with the FedNow Service in the mix — and the fact that the Fed is an entity with which everyone is familiar — the conversation is changing. “The Fed has definitely piqued the interest of the banks and the credit unions,” Brown said. The Use Cases As for the use cases that will bear fruit even at this early stage of faster payments embrace, Edwards said that B2B offers a unique opportunity. Since real-time functionalities flow between treasury banks, they can add invoicing and other information to transactions, which can improve visibility and cash flow management. Consumer adoption will hinge on faster payouts and disbursements from a range of providers, such as online betting sites and insurance firms. Those use cases, Edwards and Brown agreed, will help spur banks not just to connect to real-time payments, but to activate new offerings across disbursements and verticals such as healthcare. Edwards observed that anywhere there are ACH transactions happening today, there lies the opportunity to accelerate those transactions from batched-based processes to real-time payments. Fraud will be an ongoing concern, and it’s an issue that is still being addressed. Banks are still skittish in a landscape where account takeovers are still a threat to consumers, corporates and financial institutions alike, Brown said. In the years ahead, Edwards predicted that FedNow will wind up “signing up probably every community bank in America. … The rails will be there, the connectivity will be there, and it will all work at scale.” The relatively lower price point of the FedNow and RTP networks will force all the other rails to compete, making payments more cost-effective in general. As Brown added: “The mass adoption across an ecosystem takes several stakeholders, multiple parties and time.”