Fraud Prevention in the Era of Instant Payments

The Verification of Payee (VOP) scheme aims to confirm that payments are sent to the intended recipient. Currently in the EPC consultation phase, the final VOP rulebook is expected by September 2024, with banks having until the end of 2025 to implement it. VOP is especially effective against fraud schemes like payment diversion, where fraudsters redirect invoices or impersonate payees. Countries like the Netherlands and the UK, which already have similar “Confirmation of Payee” services, have seen significant reductions in such fraud cases.

However, VOP alone cannot address all evolving fraud tactics. It should be regarded as the first layer in a broader, multi-faceted fraud prevention strategy.

Unlike traditional SEPA payments that could be paused for manual review, instant payments require the funds to be credited to the recipient within 10 seconds, making recalls difficult. Fraud detection systems now must evaluate transactions almost instantaneously – a major challenge for banks still relying on overnight batch processes.

Banks use data points from customers, such as IP addresses, timestamps, and behavioural patterns, to detect anomalies. However, these insights only represent one side of the transaction and do not provide a full picture of fraud risk.

To effectively mitigate fraud in instant payments, banks need comprehensive, high-quality data from both sender and recipient sides. Achieving this holistic view requires collaboration across the banking ecosystem, especially as fraud prevention is a non-competitive issue.

Promisingly, EBA CLEARING, working with its participants, has developed the Fraud Pattern and Anomaly Detection (FPAD) functionality. This tool offers banks extended network insights into fraud risks on the recipient side, which is a novel approach for account-to-account payments in Europe. FPAD could thus empower banks to make faster, better informed fraud decisions in real time and strengthen trust in instant payments.