One Year into FedNow: What Have We Learned About Fast Money & Fraud?

“Not all customers know yet what [instant payments] mean to them, but they will adopt and it will become table stakes. It will become something that’s expected every day by every consumer and corporate and commercial customer.” - Liana Muller, U.S. Bank , Senior VP of Emerging Money Movement Product Strategy

The FedNow Service has pushed banks, payment processors, and service providers into the world of real-time money—whether they're ready or not .?

Nearly a year after its launch, how has FedNow impacted the U.S. financial landscape? Have fraud-fighters' fears of more risk played out in reality? And what lessons can financial institutions (FIs) take away, one year into our fast money future?

Lesson 1: Driven by Demand, Real-Time is Unstoppable

We've written hundreds of pages about the multi-layered factors that impact fraud across the U.S. economy. But in the last year, the growth of real-time money movement and real-time payments (RTMM/RTP) has demonstrated that its promise, challenges, and overall influence on the industry will be unlike anything that has come before. For one thing, unlike many of fraud's influences, RTMM/RTP is an exceptionally consumer-driven movement. Your non-FI, non-Fraud industry-employed neighbor doesn't really care if bot-powered fraud is on the rise or if fraud rings are powered by genAI . . . but they're probably one of the 86% of businesses or 74% of consumers who used instant payments in that last year. And they're probably one of the 79% of consumers who would prefer to use a traditional bank for payments, but say they are increasingly open to using non-bank payment solutions.

This consumer-led push, helped along by FedNow, is good or bad news for FIs, depending on how they adapt. The traditional banking industry, with its trusted names and too-big-to-fail messaging, still carries consumers’ faith (even the credit-skeptical Gen Z generation). But that isn’t a guarantee . Personalization, faster onboarding, low-friction approvals, one-stop shops, and user-friendly processes give challenger banks a distinct advantage: 61% of consumers say that convenience of speed is the most desirable trait in payment transfers . And now, those agile challenger banks can add real-time money to their offering mix, creating a more level playing field with the Big Banks than they ever had before.

As of now, the Fed isn't disclosing volume statistics, but many service partners have mentioned the steep rise in transactions that RTMM adoption has pulled in, with up to a quarter's worth of transaction volume coming through in one week, for example . As of April 2024 , 700 FIs had connected to FedNow, with 1K+ in various stages of onboarding, and 8K predicted to join in the near future.

While the buzzwords of instant and immediate have circled FedNow regarding money movement, they should also be synonymous with its adoption. The opportunity to use real-time money as a growth driver is enormous. But fraud risks seem to still be holding many back:

While about 60% of the institutions that have signed up for FedNow can receive payments, a smaller 40% have signed up to send payments, [FedNow Head of Payments Product Dan] Baum said. That likely reflects some concern about the potential for fraud, though the Fed is seeking to address those risks through circuit-breakers, as in shutoff controls; working with stakeholders; and analyzing anomalies in data. - Fed Seeks 8,000 Financial Institutions for FedNow

Lesson 2: Evolving Regulations & Expectations for Fraud Repair & Responsibility

Real-time challenges are changing fraud prevention in many ways, but perhaps the most impactful long-term will be how they're creating a mind shift around security and responsibility. For example, Authorized Push Payment (APP) scams have traditionally been considered the consumer's problem to solve. But as APP scams skyrocket, banks, fraud professionals, and (most importantly) regulators are starting to think differently. In the EU, where consumers lost ￡485.2M ($618M) to APP scams in 2022, and ￡239.3M ($302M) in the first half of 2023 alone, regulators took notice and took aim, with FIs in their sights as much as fraudsters. The EU's Payment Systems Regulator (PSR) enacted a 50:50 reimbursement split for victims of APP fraud in the EU's real-time payments system, along with new rules that require banks to monitor customer transactions and update their fraud systems. EU regulators were not coy with the intent behind this change: "The PSR expects to see more action from financial institutions to stop these scams from happening and to better protect people if they do fall victim." As part of that effort, the PSR is also publicly publishing fraud statistics that show customers how FIs are protecting (or not) their money from APP and other scams.

“?There's no question that fraudsters like fast money. The question is, what are we going to do about it? Should the banks be doing more? If banks take a hands-off approach to APP scams and similar real-time payment threats, there will be increasing regulatory scrutiny and banks will regret that. Regulators will look at you with very stern eyes [if you ignore fast-money fraud] and it will not be good. Banks will face consequences to real-time payment fraud, even if they're not immediate.”?- David Liu, expert in fraud risk management and fraud consultant for Fortune 500 banks, fintechs, and fraud solutions providers

If U.S. FIs want to avoid a regulatory fate similar to their EU counterparts', with its associated fees and airing of dirty laundry, it’s in their own best interest to proactively protect consumers now with real-time fraud controls . A laissez-faire approach will undoubtedly force regulations in the future, and would create a scramble to meet those changes quickly if (or, really, when) they are enacted.

As funds funneled through RTMM move faster, fraud solutions must keep up the pace. This means employing fraud prevention orchestration technology that reduces manual operations and can make more deterministic decisions higher in the fraud capture funnel. Switching to real-time fraud prevention automation makes the process simpler, repeatable, and more accurate—enabling FIs to capture both the fraud and opportunity that comes with RTMM systems. ?- Payments Journal , Real-Time Money Movement: Dispelling the Myths and Embracing the Opportunities

Lesson 3: The Evolving Balance of Speed & Security

The Federal Reserve recognized that fraud would be a challenge with FedNow, even as they plunged the U.S. economy into the RTMM world. “Individuals, businesses, financial institutions, and technology providers may combat instant payments fraud similarly to other fraud types, but it’s wise to adjust measures for instant payment characteristics," acknowledges the Fed's own FAQ , where they also outline how they're changing fraud classifications to try to keep up with new risks.

The irrevocability of real-time transactions creates new vulnerabilities, and is one of the reasons why U.S. institutions have long dragged their feet to innovate towards real-time speed, even while the rest of the world embraced it. In Asia Pacific-based banks, for example, peer-to-peer transfers and mobile payment platforms are the norm—but fraud has also increased 78% there, with 58% of Asia Pacific banks expecting fraud to continue to rise due to real-time transaction risks. Authorized Push Payment (APP) scams are the most common way fraudsters target real-time money movement, and is currently ranked the number one fraud risk in the world, with 20% of global consumers victimized in the past four years. And of those 20% of victims, 27% of them were hit by real-time payments scams (no other fraud type ranked as high).

These results follow wherever RTMM goes across the global fraud landscape. Already, as digital transactions have increased steadily, hitting 90% overall growth in 2024, the volume of suspected digital fraud has increased 105% . While it's impossible to attribute any of that growth to one singular cause, real-time money is undoubtedly in the mix, just as it has been with every country that's adopted it and then seen a fraud surge. But this isn't a reason to avoid RTP/RTMM; but rather to lean into staying ahead of the fraudsters now when you can also capitalize on the competitive growth opportunities.

“We always have to be aware that those bad actors out there will find ways to exploit. There’s always that next risk. Our concern is that we don’t get complacent. It is trying to ensure your solutions are state of the art, that we’re evolving internally and externally with vendors.” - Jim Hunt, division head of payment strategy at 1st Source Bank

An Accenture Research Report predicts that card-issuing banks who don’t implement real-time payments will lose out on 4.6% of total global card and online payments revenues, or $89 billion, in the next three years , along with consumers’ trust and market share.

Fraud concerns can’t be a barrier to RTMM adoption. At this point, waiting to implement means being left behind, and shrugging in the face of fraud concerns will break the trust and confidence of customers and regulators alike.

The complex lessons coming out of a year into FedNow show that there's no simple solution to the fraud dangers. But you don’t have to go it alone. Our RTMM webinar series will connect you directly to fraud experts with answers to your real-time payment questions, and our RTMM and fraud guidebook analyzes some of the trickiest misconceptions to overcome with fraud and RTMM. Behavioral analytics and real-time are synonymous to the digital age, and together they have unparalleled power to support your fraud-fighting future in our fast-changing world.