In 2022, I wrote a white paper that recommended several controls banks could deploy to reduce financial scams in Zelle. Some of these recommendations involved slowing down the transactions including:

• Delay execution of payments for new payees. For the first new payee, or additional new payees where the payment amount is over a certain threshold, delay the payment for a short amount of time. A four-hour delay is recommended as that allows enough time for a scammer to disengage with a customer (the phone call ends) and the spell to be broken.

• Make the default setup option for Zelle=NO. Customers should be required to turn the Zelle service on and require a short waiting period before it can be used.

Slower faster payments. It is an oxymoron, and at the time, I had lively debates with some people in my network that perhaps thought I did not understand what faster payments really meant. After all, it is about the customer having all the control to quickly send immediate real-time payments. So, my ideas were dismissed. 

Well, fast forward two years, and here we are talking about putting “sand in the gears” to slow down faster payments. Well, why is that?  The answer is simple: Consumer financial scams are out of control. In the U.S., the FTC and the FBI Internet Crime Complaint Center (IC3) recently reported that a record number of consumer fraud and scam complaints were reported last year with potential losses exceeding $12.5 billion. The actual number is likely much higher as this only accounts for the victims who report the crime. And so far, the only country planning to mandate reimbursement of consumer scams is the UK. 

Slowing Down Faster Payments

As this is a global problem, let’s take a global view. Here is how several countries are now slowing down faster payments to reduce the likelihood of customers being scammed.

United Kingdom (UK)

Even in the UK, with APP scam reimbursement set to start in October 2024, banks realize that it takes time to work with customers once there is a scam alert. In March 2024, a bill was introduced to Parliament that would allow banks to extend the time to complete a faster payment by 72 hours when there is the belief the transaction is a scam. Now that reimbursements will be mandatory (including for impersonation, romance and investment scams, and more), banks understand it can take time to explain to a customer they are being defrauded and get the customer to believe it. Plus, banks have to worry about and assess real first party fraud. 

Australia

In Australia, where the term “sand in the gears” was coined as part of faster payments, we see similar concerns about slowing transactions down. In November 2023, the Australian Bankers Association introduced the Safe-Scam Accord, which includes more warnings and delays when paying someone new or increasing payment limits. In January 2024, Sky News reported the now famous quote: “Australia’s banks will put ‘sand in the gears’ of its once vaunted real-time payment system as it looks to wind back the immediacy of money transfers and combat the explosion of scams.”

Government mandated controls for banks will come out later this year. There could be more ‘sand’ on the payment rails.

The Netherlands

Last year, the Dutch Bankers Association introduced limitations on transferring large amounts of money online. As one Dutch banking expert explained, “The limit was lowered for all customers from typically €50,000 to €5,000, where the customer has the possibility to change it to a higher/lower amount. The limit can be changed at any time, but it has to be authorized and with a 4-hour delay if increased.” Bankhelpdeskfraude (impersonation) scam losses in the Netherlands are down almost 50% because of this control, and crooks that get arrested for scamming customers are getting longer sentences. 

Singapore

In Singapore, the Monetary Authority Singapore (MAS), working with local banks, introduced Money Lock in November 2023. Developed as a safeguard against scams, bank customers can mark a certain amount of their deposits that cannot be transferred digitally. More than S$5.4 billion ($4 billion USD) has been ‘locked’ so far. MAS has not come out for authorized transaction reimbursement, but they are aggressively pushing bank controls to reduce scam losses. 

European Union (EU)

In February 2024, the European Council adopted regulation to approve Instant Payments in the EU. Money must transfer within ten seconds. Previously, the EU announced reimbursement for Instant Payment bank impersonation scams.   As Instant Payments is not yet live, I expect before the launch the EU will look at The Netherlands and the UK to consider limits and transaction delays on alerted transactions because of the likelihood of financial scams.

United States (US)

In the US, the primary true faster payment system, FedNow, has limited bank adoption and too few transactions to be a scam problem yet. When it starts to see an uptick in usage, it will look like faster payments in the UK. 

With Zelle transactions, bank can move a transaction to next day, if they are alerted to a suspicious transaction. Average dollar amounts are much lower than true faster payment systems.

I still think the Zelle controls I mentioned at the beginning of the blog would be valuable to add to the Zelle control stack. Maybe they could be controls the customer can choose. And I was surprised to see one of my banks, where I rarely use Zelle, just deactivated me from Zelle due to my recent lack of use. Kudos to that bank.

Brazil

For several years, PIX, the Brazilian instant payment solution, has restricted daily transfer limits and transaction size in the evenings to prevent robberies/kidnappings. Also, if the receiving banks suspects fraud, it can block the transaction for up to 72 hours.

Summary

True faster payments for consumers must be delivered with a ‘grain of sand.’ Customer fraud and scam losses cannot be ignored. Smart friction is a mandatory feature for these payments, especially when, other than in the UK, most of these losses are not reimbursed to the customer. Faster payments is a really good product, but there must be proper fraud and scam controls. As the losses mount, the regulators will become more active. And ironically, it seems only when the regulators get aggressive do we see the better controls being added. When the regulators just watch, there are fewer controls.

From a risk management perspective, it is not about reimbursement for losses, but having the right controls, including money mule management at the receiving bank, to limit the amount of these losses in the first place.