The real-time revolution is here. The government is encouraging the industry to quickly enable faster payments. Businesses, consumers, and government entities all stand to benefit; but financial institutions need to play a central role in the creation, delivery, and protection of the evolving payments ecosystem. When looking at your internal systems and resources, keep these five strategies in mind to ensure your success.
1. Leverage Step-up Authentication Methods
Traditionally, financial transactions move through three risk management check points from initiation to completion: Identity (are you who you say you are), Authentication (can I confirm who I’m doing business with) and Authorization (is the requested transaction valid, appropriate and safe).
Faster payments require immediate and constant risk decisioning for all transactions, and banks need the ability to identify risky transactions with a high level of certainty and predictability. As consumers, there are transactions we normally make at the same time for generally the same amount of money through similar devices and similar channels. However, when that isn’t the case, banks need to leverage “step-up” authentication methods to minimize risk.
Step-up authentication means requiring additional authentication when existing data determines a transaction carries higher than normal risk. This could be a transaction outside of the consumer’s normal transaction behavior, such as a high-dollar value transaction or a transaction made after a consumer’s laptop or phone is reported lost or stolen. By leveraging this method, banks can reduce friction for customers and better enable faster payments.
2. Invest in Data Management Platforms
The more you know, the faster you can authenticate. In order to provide a frictionless experience, you need to fully understand your customers’ normal habits. Having information available about a customer, how they transact, the devices they use, and being able to detect what’s normal and abnormal are critical. These key pieces of information are needed to green-light the majority of transactions, and red-light only those transactions that are high-risk.
Combine what you know about a customer with biometrics data (cognitive, voice recognition, facial recognition, fingerprint, iris patterns, etc.) and leverage a data management platform to authenticate your customer. With biometrics data and a data management platform, you will have a model of your customers’ behavior and will not always have to question their actions.
3. Move Fraud and Risk Processes to Real-Time
In the new world of faster payments, facilitating payments in real-time is not the hard part; ensuring money is being moved from and to the correct person is the bigger challenge. Many processes in use today are not designed to support real-time payments, so updating fraud solutions should be banks’ first step toward faster payments.
Fraud detection and risk management need to occur in real-time. This includes transaction risk scoring, behavioral and data analytics, and multi-factor authentication. Banks should focus on integrating all of these activities into one network to gain a holistic picture of each customer. Then, they can verify people - not just transactions. Integrating these elements provides a greater level of visibility into potential risks associated with faster payments, and therefore enables faster payments.
4. Shift Staffing to Support Data Analytics
Banks need to create new models for aligning technology platforms and tools with employee expertise and capabilities. This means facilitating a staffing model focused on empowering decision makers with data analytics and replacing manual “back office” tasks with technology. Banks need more analysts and data scientists to recognize fraud behavior patterns so they can detect and react to those in real-time.
5. Embrace collaboration to improve customer experience
No single financial institution has a complete view of its consumers’ financial lives, so banks should collaborate with other entities to get a broader industry view of individual consumer behavior. Banks can create better products and improve customer experience if they have a broader view across not only financial institutions, but across mobile carriers, telecommunications, governments, merchants and billers.
Financial institutions are well positioned to lead the faster-payments revolution, and we look forward to helping them provide the secure, convenient immediate funds availability their customers demand.
About the Author: Lou Anne Alexander, group president of payment solutions, leads Early Warning’s payments product line. Alexander’s team is currently focused on creating faster payment solutions for financial institutions. She played a key role in the company’s acquisition of clearXchange, advancing Early Warning’s real-time P2P and Network Services offerings. Alexander is a frequent contributor on topics ranging from payments, retail banking, and risk for industry-leading publications like American Banker, PaymentsSource, The Wall Street Journal, and PYMNTS.com. She has presented at industry events including Money20/20, BAI Payments Connect, NACHA Payments and others.