Striking a Balance.

In August this year I presented a paper at the inaugural Scam Summit in Sydney and called on the Reserve Bank of Australia and Jim Chalmers to immediately re introduce T+2 for first time payments, it appeared at the time that this fell on deaf ears, however in the past 4 months I think some people and the banks have been listening, as last week at the Australian Payments Network (AusPayNet) summit Reserve Bank Governor Michele B.mentioned the reintroduction of ‘friction’ which put a very big smile on my face however elicited a low level grown from the audience.

Scammers use the speed and anonymity of fast settlement services to their advantage, making it difficult for victims to halt transactions or recover their funds once the scam is detected.

Financial institutions and regulators are working to enhance fraud detection and prevention measures to combat scams but in reality these scams are facilitated by fast settlement services.

Mandating T+2 settlements would introduce a 48-hour holding period for any new transfer on a customer’s account to a new payee. This measure can significantly reduce the success rate of fraudulent transactions.

In the ever-evolving landscape of the banking industry, the pursuit of efficiency and convenience has driven the adoption of digital technologies and real-time payment systems.

While these advancements have undoubtedly transformed the way we manage our finances, they have also given rise to significant challenges, notably the surge in financial scams.

As is evidenced in the graph below there is a direct correlation to use of FSS and the rise of scams. Interestingly this graph is the same in every other country FSS has been introduced. Singapore, Hong Kong and UK etc.

This updated article explores the idea of reconciling the need for enhanced security through T+2 settlements while reintroducing controlled friction into the banking system for stability and accountability.

Striking this balance is essential for safeguarding both the efficiency and integrity of our financial ecosystem.

The Drive for Frictionless Banking

Over the past decade, the banking industry has been on a relentless quest to minimize friction.

The introduction of online banking, mobile apps, contactless payments, and instantaneous fund transfers has redefined the way we interact with our finances.

This evolution has been driven by a desire to enhance customer experience, reduce operational costs, and remain competitive in a rapidly changing market.

The Benefits and Pitfalls of Frictionless Banking

Convenience: Frictionless banking has made it easier than ever for individuals and businesses to access and manage their funds. Transactions can be completed within seconds, irrespective of geographical boundaries.

Cost Efficiency: It is argued by some that automation has significantly reduced operational expenses for financial institutions, allowing for lower fees and better interest rates for customers.

Financial Inclusion: Digital banking has enabled financial institutions to reach a wider audience, reducing financial inequality.

Innovation: The pursuit of frictionless banking has spurred innovation in financial technology, leading to innovative products and services.

However, this relentless pursuit of frictionless banking has its drawbacks:

Security Concerns: The speed and convenience of digital transactions make them vulnerable to scams and fraud. The lack of friction can undermine the security of financial transactions.

Accountability: As banking processes become increasingly automated and complex, it can become difficult to trace and address issues related to errors, disputes, or unauthorized transactions. This lack of accountability can and has eroded customer trust.

Reintroducing Friction for Stability and Accountability

To mitigate the potential downsides of a frictionless banking system, there is a compelling case for reintroducing controlled friction. Simultaneously, enhancing security through T+2 settlements for all ‘First Time Payments’ can provide a critical safeguard against the rising threat of financial scams.

Striking a balance between efficiency, security, and accountability in the banking system is crucial for a healthy financial ecosystem. Reintroducing controlled friction through enhanced authentication, transparency, and regulatory safeguards, along with the implementation of T+2 settlements, can help achieve this equilibrium.

It is imperative that both the government and financial institutions act decisively to protect consumers from the growing threat of financial scams while ensuring the stability and integrity of the banking system. This approach ensures that we continue to enjoy the benefits of modern banking while safeguarding the security and trust that underpin it.

To protect themselves, individuals should exercise caution, verify the authenticity of requests, and be skeptical of unsolicited communications or offers that require immediate payment.

About the Author.

Rob Neely, as the Director of Securely Holdings Pty Ltd, is a thought leader in the realm of digital security and scam mitigation. He has developed Securely Certified™, a patented data orchestration technology for Social Media Identity Securitization (SMIS), which is the first orchestration of its kind that links a social media profile to a existing bank account, setting a new benchmark in the financial industry for authenticating and protecting user identities online.

In September 2023, he lodged a provisional patent for Social Media Identity Securitization, signalling a significant milestone in digital security.

Recently in the Trade Press it was hailed as beating Elon Musk to the punch, an innovative approach is to be licensed to banks and Payment Service Providers (PSPs), as pivotal in securing the relationship between buyers and sellers, making a profound impact in the fight against online fraud and scams.