Managing Real-Time Payment Risk
When I was growing up, I remember my father always seemed to carry a big wad of 20-, 50-, and 100-dollar bills tightly bound together by a large rubber band. He also carried a pocket check book in case he could not negotiate a better deal for cash. Those days are gone, largely replaced by Venmo and Zelle. My grandchildren prefer a credit to their Venmo to cash and don’t want a check. And, if you’ve ever used these payment tools, it’s easy to see how people you know pay small amounts for goods and services through this medium. Thus, to no one’s surprise the demand for instant, secure transfers has rapidly escalated into a burgeoning market.
The instantaneous transfer of money has a big risk. Once transferred, it can be quickly gone and transferred to another account or otherwise used without restrictions or holdbacks. The often-frustrating holds on checks that underwent processing for 1-3 days is becoming passe. You sent the payment to an address, the payment was processed and eventually deducted from your bank account. You knew the party to where you sent the funds and there was an easily discernable audit trail.
Cyber security fraud has concurrently ballooned with the growth of real-time transfers. This cyber fraud has been particularly focused on large transactions. Thus, it’s not surprising that fraudsters have focused on real estate, loan, and investment transactions where the amounts often exceed 6 and 7 figures. While there are many data providers that help businesses combat identity fraud or validate a financial account, these providers are just selling data for the user to make an informed decision. They stand clear of effective use of the data and the consequences of decisions or actions that may result in the loss of money.
Recognizing the gap between specialized data and need for businesses and individuals to make real-time money transfers safely and securely, Dytrix has created Protected WireSM. This SaaS product is a carefully honed series of processes that ensures the data accuracy. Business and individual balance sheets are thus protected against wire fraud and the reputational risk of mishandling funds or not completing a high value transaction.
The authentication of the recipient’s identity is the cornerstone of the Dytrix process. We assume that every communication the sender has received is likely fraudulent. Accordingly, the recipient goes through a very disciplined identity check through multiple sources.
The growing body of case law around the issue suggests that “losses attributable to fraud should be borne by the parties in the best position to prevent the fraud.” It also suggests that banks will likely be shielded from liability if they reasonably follow instructions as provided. The person initiating the transfer generally bears the responsibility for instructing the financial institution to transmit funds to the intended party. Period. While the bulk of fed wires currently involve businesses and large amounts, a group of US senators have recently initiated a push to the CFPB to make the financial institution more accountable to have processes and disclosures in place for all digital money transfers that protect the consumer against the ever-constant presence of fraud.
As the Federal Reserve has noted in its FedNow program announcements the world is moving to real-time payments on 7x24x365 basis. Given this significant trend, financial institutions are increasingly needing to provide clarity to their customers who may initiate a real-time money transfer that it’s the customer’s responsibility to ensure the accuracy of the provided instructions. We’re working to provide access to Protected WireSM through every financial institution or through a variety of partnership channels.
Clearly, if a business or a consumer is making a real time transfer of more than $10,000 (which is also the Anti Money Laundering (AML) transaction threshold, having a Protected WireSM protects the bank and the customer for all the associated risks.