Increased fraud in the account-to-account (A2A) payment sphere is drawing attention from payment network operators, banks and regulators. Lawmakers are calling for better protection for the account holders. In the US, the Federal Reserve is making faster B2B payments a major priority. Banks just want to provide seamless, secure electronic transfer services while avoiding over-regulation.
Currently, customers are responsible for many of their own losses relating to A2A fraud, although larger banks may refund customers to protect relationships. Banks need to address this risk or face strict regulations that bind how they enable A2A transactions. In this article, we’ll look at A2A payment trends, outside influences and how to assess and detect fraud.
Most popular A2A payment services
There are many new services emerging in the A2A payments category, and it is no coincidence that the most common are those experiencing the most fraud. A2A, meaning any payment that moves from one account to another without using payment cards, has become immensely popular since the worldwide digital banking disruption in 2020 and 2021. The most frequently used services are peer-to-peer (P2P) and consumer-to-business (C2B), with growth in business-to-business (B2B) payment services.
P2P payments have been common for some time, used by family and friends to repay each other for meals out or consumers selling used goods online. Still, P2P has exploded since 2020.
C2B is starting to catch on, a boon for businesses that want to avoid higher transaction fees than when paid by debit or with credit cards. Digital wallets, such as Ali Pay, WeChat Pay, ApplePay, Zelle and PayPal have been in use for several years now and grew quickly as consumers demanded contactless payment systems. QR codes are becoming more popular, allowing consumers to scan a business’s code to initiate payment.
Business-to-business (B2B) payments are becoming more popular, especially with small business owners. They can buy directly from their suppliers to receive inventory more quickly and cost effectively while avoiding card fees.
The Federal Reserve reported in 2022 that 93 percent of businesses have an interest in faster/instant business-to-business payment use cases. Recurring bills and invoices, just-in-time payments and merchant settlement were the three most popular uses of electronic money transfers. Between 2020 and 2021, there was a 30 percent increase in the number of businesses interested in faster or instant payments to support just-in-time supply chain payments.
The Federal Reserve’s report also notes that businesses are very interested in supporting faster (preferably instant) payments for mobile pickup of products and services and being able to accept digital wallets to send and receive payments. In 2018, the Federal Reserve committed to championing faster payments and is set to launch its own real-time payment service.
Sixty percent of European PSPs have already joined the SEPA-Instant Credit Transfer scheme and all banks and building societies in the UK have joined the Faster Payment System scheme, which means funds sent via A2A usually arrive in seconds. Funds are available to merchants more quickly and A2A transfers might help avoid costly credit lines or factoring, according to Simas Simanauskas, Partnerships Director at ConnectPay.
A2A payment trends
There is a rise in payments on A2A transfer rails, accelerated by the availability of new technologies and Fintech services. There are four key trends worth watching:
A2A transfers and P2P payments growth
Worldwide, there has been a rise in instant retail payments of small value. The global P2P payment market was valued at USD $1.89 trillion in 2021 and is expected to hit around USD $9.87 trillion by 2030, reports Precedence Research.
- Asia Pacific region contributed 34% market share in 2021
- The banking and finance segment has garnered largest revenue share of over 23% in 2021
- By technology, the versatile web segment has contributed highest revenue share 24% in 2021
- By type, the B2B segment accounted 61% market share in 2021
Accelerated adoption of digital wallets
More than 5 billion people, or 60% of the world’s population, will use digital wallets by 2026. The Southeast Asian nations of the Philippines, Thailand and Vietnam are expected to see the fastest growth and Juniper predicts that 75% of these countries’ populations will adopt digital wallets over the next four years.
Alternative payment by QR codes
Driven by the relatively inexpensive and easy to use nature, QR codes are becoming popular around the world. Dynamic QR codes generated by users accumulated a total of 6,825,842 scans from global users—a 433% increase over 2021 figures. Global spending through QR code payments will reach over USD $3 trillion by 2025, up by USD $2.4 trillion vs 2022.
The Federal Reserve is expected to launch the FedNow Service (Off-site) in late-2023 to “enable financial institutions of every size, and in every community across the U.S., to provide safe and efficient instant payment services in near real time, around the clock, every day of the year.” This will compete with the Real-Time Payments Network (RTP) launched by the Clearing House in 2017, which has restrictions. This will align the U.S. with the Euro Zone and the U.K.
The top 4 risks of A2A payments
Like all financial transactions, there is always fraud risk and the fraud cycle is complex. With stolen account information, criminals can easily take advantage of the vulnerabilities of A2A services and rails.
Social engineering attacks
Fraudsters engineer scenarios to draw in their targets. Romance scams and grandparent scams are prevalent, preying on victims’ vulnerabilities, as does the CEO scam. Deep-fake AI is now being used to mimic friends’, family members’ and colleagues’ voices, gaining the trust of targets who are enticed to send money. Because P2P is the equivalent of giving someone cash, senders and their banks often can’t trace the recipient who may have deleted the account once the funds were received.
Authorized push payments
Authorized payments are another easy hit. Scammers lure their targets in, for example by advertising a product at a one-time trial price. Once they have their victim’s payment information, they keep withdrawing funds on a regular basis. They may repeatedly withdraw small amounts to avoid detection, eventually draining the account of all funds. Usually, the product is never received, or an inferior product is sent. Merchant websites disappear from the internet and are untraceable. As the customer authorized the withdrawals directly from their account, they may not be able to claim the loss.
Account takeover (ATO)
Fraudsters access the business’s or consumer’s credentials and take over their accounts, draining them of funds or laundering illegally obtained money. For example, fraudsters can manipulate a legitimate QR code to direct consumers to a malicious website to steal their money or information. They can even access the victim’s digital wallet and commit fraud across all the victim’s payment methods.
Me-to-Me (M2M), another form of electronic transfer that’s becoming popular for fraud, is intended to move funds between one’s own accounts, including those at other institutions. Cases have been reported of fraudsters posing as bank or credit card company employees, asking account holders to transfer money to a “bait account” to catch a dishonest bank employee or to convince the customer to consolidate their funds into a new account. Unfortunately, the new account is under the control of the fraudster and the victim’s money is gone.
The options for banks are clear: face stricter regulations that may hamper the way A2A transactions take place, face significant fines or implement better solutions to identify fraud in both authorized and unauthorized transactions. Banks need to address this gap – real or perceived – to protect their customers and their future revenue.
A2A payments fraud solutions
A2A Transaction Fraud Monitoring is another offering by Brighterion that uses its advanced AI to monitor for anomalous behavior.
Maximizing our knowledge of fraud from decades of experience, Brighterion’s AI has shown a 50 percent incremental increase in fraud/scam detection in P2P payments for one of the world’s major A2A payment networks.
Brighterion applied behavioral profiling to the monetary transfer history of both senders and receivers associated with an account, creating intelligence on users’ usual transaction pattern to provide real-time fraud prevention. The scores are displayed in an end-to-end fraud management platform that comprises AI scoring, Rules Management, Case Management and Business Insights modules. Brighterion has the payments fraud solution to help banks provide fast, secure A2A payment services. We believe this is the opportunity to create the protected banking future that consumers, businesses and legislators want.