Innovation in the Fintech industry is about so much more than creating faster transactions or more convenient payment methods, as there are certain security precautions which need to be taken into account as well. If Fintech startups can’t provide adequate security measures, there is no point in coming up with new and creative ways to conduct payments. Banks are struggling to deal with innovation and fraud prevention at the same time, which is why Fintech startups need to step up their game in this department.
Fighting Fraud In The Payments Sector With Fintech
Real-time payments sound very exciting on paper, as it would allow for consumers to transfer funds to anyone else in the world in a matter of seconds. Banks are looking at various ways to allow for faster transactions, while keeping the costs at the same level as now, or even possibly lower them. But when transactions take a split-second to complete, how can financial institutions protect consumers from fraud?
That is the big question a lot of banks are trying to deal with right now. Most of the major US banks are flocking to one and the same company to take care of this problem, which is creating even more centralization in the financial sector. However, the problem remains as to whether or not the Early Warning’s ClearXchange network can scale properly to accommodate all of these real-time payments taking place in the future.
A higher amount of transactions hitting the network will inadvertently lead to higher fraud rates as the two can never be mutually exclusive in traditional finance. Figuring out where fraud threats are coming from is just the first step along the way, though. For now, the plan seems to be to inject authentication and ID services into mobile finance apps, while still monitoring individual transactions for any anomalies.
Moreover, there is an important distinction between getting real-time payment confirmations and payments completing in a matter of seconds. Despite these potential discrepancy, banks are fairly confident customers will be able to spend funds as soon as they receive a payment confirmation, regardless of whether or not the settlement has taken place.
This is where the Fintech industry comes into the picture, as there are plenty of startups and entrepreneurs looking for ways to allow for instant transaction verification. Sticking to traditional financial solutions might not be the right way to go, and innovative projects can help SMEs fight fraud rates when real-time payments show up.
Using third-party service providers always carries the risk of exposing consumer details to hackers and other internet criminals. While it is difficult to develop in-house solutions, there is no reason for companies not to work together with Fintech players for custom-tailored solutions.
Do you know of any Fintech companies exploring the security side of real-time payments? Let us know in the comments below!
Source: Bank Innovation
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