Financial Services

Adapting to the Rise of Real-Time Payments - Compliance Challenges and Solutions

Digitalisation in finance has transformed traditional banking in several ways. One of the most revolutionary impacts of digitisation in the banking sector is Real-time Payments (RTP). Real-time payments facilitate round-the-clock banking transactions to be completed online. Real-time payments have become extremely popular among users. Data reveals that the real-time payments market reached a whopping $25.92 billion in 2024 and is expected to reach $116.23 billion by 2029.

How RTP Works

Step 1: The payer initiates the payment through online banking platforms, mobile banking apps, and scanned QR codes.

Step 2: The payer’s bank authorises the payment through various security measures like biometric data, passwords, two-factor authentication and any other bank-specific method.

Step 3: After authentication, the bank sends payment instructions through the RTP system. The RTP system is a central network operated by a group of banks or financial institutions.

Step 4: Once the payment is complete both payer and payee receive notifications.

Step 5: The payer’s bank transfers the amount to the payee’s bank and funds are instantaneously available.

While real-time payments have paved the way for the immediate transfer of funds 24/7, they have also made these transactions vulnerable to financial fraud. Crimes such as phishing, wire fraud, identity theft and others, are just the tip of the iceberg in the realm of financial crimes.

Finding fraud solutions for banks is the need of the hour!

Some financial fraud solutions to tackle financial crimes are:

Leveraging technology

Fraud detection tools powered by technology help to detect and prevent fraudulent transactions. Technologies at the forefront of financial crime prevention and mitigation include:

• AI (Artificial Intelligence) and Machine Learning (ML) algorithms detect fraudulent patterns in real-time. For example, banks use AI to analyse spending patterns and flag spurious activities.
• Blockchain’s transparency and immutability can help prevent fraud in transactions, especially in areas like digital currencies and cross-border payments.
• Data encryption and Multi-factor Authentication (MFA) make it much harder for cybercriminals to access sensitive financial data or accounts.
• Financial fraud detection software like Actimise, SAS, and ACI are widely used in the banking and financial sectors to monitor transactions, detect irregularities and respond in real time.

Regulatory measures

Financial institutions are required to adhere to financial crime compliance and risk management standards.

• Stronger financial crime compliance standards like the General Data Protection Regulation (GDPR) in Europe or The Financial Action Task Force (FATF) which is valid in over 30 countries and territories. Regional bodies like the Eurasian Group, Asia Pacific Group, Middle East and North African Task Force, etc. ensure enforcement of FATF guidelines at the local level. These guidelines help set standards for fraud prevention and ensure that institutions comply with strict controls.
• Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures are processes where financial institutions are required to verify the identity of their customers and monitor transactions for suspicious activity. These measures help prevent fraud related to money laundering and terrorist financing.
• Financial markets are closely regulated by bodies like the Securities and Exchange Commission (SEC) that monitor financial transactions and ensure compliance with anti-fraud laws.

Employee training and awareness

• Ensuring that employees are aware of fraud schemes, like phishing or social engineering, and know how to report suspicious activities is crucial. Even the most sophisticated technology can’t prevent fraud if employees aren’t trained to recognize risks.
• Implementing Segregation of Duties (SoD) helps reduce the risk of internal fraud like embezzlement because it ensures that no one individual has access to all aspects of a financial transaction.

Data monitoring and auditing

Advanced data analytics tools are used to track transactions and financial activities to spot anomalies. Tools also analyse vast volumes of financial data and identify patterns of fraud.

Periodic internal and external audits identify vulnerabilities that can help to prevent fraud attempts.

Customer protection

Informing customers about common fraud tactics like phishing, investment scams, and card skimming can protect them from becoming victims.

Financial institutions may offer insurance products, such as fraud protection insurance, to help customers recover losses if defrauded.

Preventing cybersecurity attacks

Robust firewalls, intrusion detection systems (IDS), and intrusion prevention systems (IPS) are crucial to defend against cybercriminals.

Financial institutions simulate attacks to identify and address vulnerabilities to prevent hacking attempts in their systems.

In conclusion

Real Time Payments offer seamless and instant money transfers which have made financial transactions convenient and simple. However, RTPs are vulnerable to financial fraud. Therefore, banks and financial institutions need to ensure that they follow financial crime compliance and risk management processes and other security measures for safe transactions.

How can Infosys BPM help?

Infosys BPM offers finance and accounting outsourcing services that manage and support a digitally powered environment to facilitate RTP transactions. We ensure a safe and secure environment by implementing effective financial crime solutions.