By Ray Birch
SUNNYVALE, Calif.–With FedNow launched, one credit union that is already part of the Federal Reserve’s new 24x7x365 real-time payments network is stressing it’s even more critical to get members involved in the fraud fight.
As CUToday.info has extensively reported, criminals are taking advantage of the speed at which money is increasingly moving, often getting away with funds before fraud tools can stop money from being taken from member and customer accounts.
With FedNow now live, the $10.1-billion Star One Credit Union has introduced Instant Pay, which allows payments to be made and received in seconds through its online banking or mobile banking application. Funds are settled between participating financial institutions in real time.
Raising the Bar
CEO Gary Rodrigues told CUToday.info FedNow requires the credit union and its members to raise the bar on fraud fighting.
“Your fraud tools have to be stronger now. You have to make sure that you have the proper fraud mitigation tools in place so when the money moves all those checks are happening behind the scenes to validate that our members are sending the money to whom it is intended,” Rodrigues said. “I think that's probably one of the biggest hurdles that other financial institutions part of FedNow are experiencing—the fraud mitigation.”
One of the fastest-growing types of crimes, according to analysts, has been the stealing of consumers’ identities and the creation of synthetic IDs, all in an effort to trick victims into sending money. The crime is known as authorized push payment (APP) fraud.
Mastercard is among those that have identified the problem as a significant growing threat in the U.S.; it is already a major issue in the U.K. In response, the payments giant has introduced a new solution that uses AI to quickly generate a “risk score” for transactions to evaluate the legitimacy of the person on the receiving end of a digital payment, with a goal of stopping crooks before they receive the money.
Gary Rodrigues
What Tools are Targeting
“There's several things we work on to address (false ID),” said Rodrigues, explaining that includes having the Star One’s fraud detection tools look for specific behavior patterns in transactions that might indicate a member is not sending money to the intended person. “But what we focus on a great deal is providing member education. We build in solutions within applications that alert members to make sure they’re aware of these scams. We see these scams often because we’re in the payments industry, but we want our members to be better educated on what to do and what to look for when they move the money.
“Plus, we have things like one-time passcodes, which allow our members to make sure they validate the transaction themselves before they send the money,” Rodrigues continued.
Putting Limits in Place
Star One also places transaction limits.
“We put in place limits based on the relationship we have with our members,” Rodrigues said. “If you're a brand-new user of FedNow, the limits are lower than if you have been using the service for a while, and know better who we're dealing with. There's a series of controls that we put in place that limit the risk.”
The credit union sends electronic and print information to members through the channels they prefer to use.
“We educate our members on different types of scams and frauds to be aware of,” said Rodrigues. “We host internal webinars that teach members about potential fraud schemes. This is an ongoing issue and we try to hit as many channels as we can whenever we can. We see this as an important part of being a financial institution in today's market.”
An Easy Decision
The move to FedNow was an easy decision, said Minal Gupta, Star One’s vice president of remote services.
“We've always been progressive in providing technology services, especially with payments. We heard about what the Federal Reserve was doing and we became one of the early participants,” Gupta said. “And faster payments is something that our members are always looking for—faster more efficient payments. It made a lot of sense for us to participate in FedNow.”
Gupta added that Star One believes FedNow will change the payments industry.
“When we first learned about it we knew there was a potential for our processes to improve and provide a way for our members to move money much faster and more efficiently. So, we jumped right on it. This is a way to make it easier for members to do business with us, and we thought this is an opportunity that we cannot miss,” Gupta said.
‘We Raised Our Hand’
Star One began its FedNow application process in 2019.
“It was the first time we were made aware of the project and we raised our hand and said, ‘Absolutely this is something we want to do’,” Gupta said. “You have to understand that in 2019 it was just the concept that the Federal Reserve was working on. So, a lot of the time that it took for us to actually go live was mostly waiting for the Federal Reserve. Our experience in becoming live on FedNow is a lot different than what a financial institution would go through today, because they have a finished product.”
Strong Member Response
Star One launched FedNow July 20 and member reaction has been good, Rodrigues said.
“They really like the product and the solution,” he said. “They say it’s easy to use. Some members have reached out saying it is really moving fast. So, no negative feedback. It was the right move.”