Fast payments are robbing us of billions?

Speaking at the Scam Summit in Sydney this week made me realise that although scams are widely known, the solution is not.

At the Summit I provided empirical evidence that the introduction of Fast Settlement Services (real time payments) has a direct link to the massive increase in moneys lost to scams since its introduction in 2018. (please see graph at the top of the story)

And what’s more Australia is not an isolated example of this, more on this below.

JIM CHALMERS, TREASURER recently said “Let’s be blunt. Our regulatory frameworks and infrastructure have not kept up with the big trends and transitions happening in finance — especially when it comes to the digital economy and payments.“

 So Minister, you and the RBA can mandate T + 2 with the stroke of a pen, lets see if you walk the talk.  

The NPP (New Payments Platform) has been revolutionary for businesses in Australia and was heralded by the Reserve Bank of Australia at the time of its launch.

However instant payments provide scammers with an ideal environment to carry out their illicit activities due to several key factors. 

In the 10 years between 2009 and 2019 Australians reported losing $2.5 billion to all scams

And by 2022 (four years after the introduction of the FSS) and in only one year, Australians lost $1.5 billion to Investment Scams and 3.1bn overall

In the ten years leading up to the FSS we saw a combined 10 year loss of $2.5bn.

And then five years later after the introduction of FSS we lost the equivalent to the previous 10 years in only 10 months.   

What is blatantly clear to me is that more needs to be done, and it needs to start with the Australian Government and the Reserve Bank who played a significant role in establishing the broad direction of the industry’s efforts.

The RBA built the settlement component of the NPP, known as the Fast Settlement Service (FSS), which allows transactions to be settled individually on a 24/7 basis, in close to real time. The Bank is also a participant in the project, with its Banking Department using the NPP infrastructure.

Launched in February 2018, the New Payments Platform (NPP) was lauded as open access infrastructure for fast payments in Australia. The NPP was developed via industry collaboration to enable households, businesses and government agencies to make simply addressed payments, with near real-time funds availability to the recipient, on a 24/7 basis.

Banks have a range of data and tools available to try and detect a customer transaction that may relate to a scam. They also have partnerships, including with the Australian Financial Crimes Exchange (AFCX), where they share intelligence on scams. Once suspicious activity is identified, banks can take steps to stop scam transactions from proceeding. For example, the bank can notify and make further inquiries of the customer before completing the transaction.

In April 2023 ASIC released Report 761 noting:-

“Historically, high value transactions have usually been conducted through an assisted service channel, such as in a branch or by phone.

This gives bank staff the opportunity to identify unusual transactions— such as those consistent with scam typologies—and to make inquiries with the customer before executing the transaction.

Among other benefits, the move to digital payment channels has made it quicker and easier for customers to make payments.

However, it has also increased the speed of moving scam proceeds, and reduced the opportunity for banks to identify and intervene in some types of scam transactions.

In this environment, banks should consider the benefits that appropriately designed levels of friction may offer, to allow:

• customers more opportunity to identify that they have been the victim of a scam and enable them to seek recovery of the funds before the funds leave the bank, and
• the bank to make reasonable inquiries with their customer, if the bank is on notice that the transaction may relate to a scam.”

The ASIC report also noted:

• ‘During the period 1 July 2021 to 30 June 2022, a total of $845 million in scam transactions were made by customers across the four major banks. Of this, around $109 million in payments were detected and stopped by the banks (approximately 13% of scam payments).
•  The proportion of payments detected and stopped by each individual bank varied between 5 and 18%. There are a range of factors to explain the difference in detection rates, such as differences in data quality or recording, the way that products and services are provided, and the operation of scam and fraud prevention systems.’

This is utterly unacceptable. The banks only stopped between 5 and 18% of financial scams that occurred on their platforms.

Between 1 July 2021 and 30 June 2022, more than 31,700 customers of the four major banks collectively lost more than $558 million through scams. This was an increase of 49% in customers and 50% in financial losses compared to the previous 12-month period. During the same period, banks paid approximately $21 million in reimbursement and/or compensation payments to customers who fell victim to a scam.

 As scams are increasing in volume and sophistication, causing significant financial and other harm to Australian consumers, including the most vulnerable people in our community. It is absolutely incumbent upon the banks that they immediately act to mitigate this scam epidemic.

As such the Treasurer, Assistant Treasurer and the Reserve Bank must immediately move to change the requirements of the FSS that any new transfer on a customers account be held for 48 hours or what is known as T + 2.

This would stop a vast majority of the Phishing Scams that are affecting customers and save almost $1 bn of lost savings from vulnerable Australians. 

So lets see if Australia is an outlier in terms of scams and use of FSS, lets look at Singapore.