New Challenges Emerge From Payment Rail Innovation

While new payment rails are designed to tackle some of the biggest legacy pain points of the financial services industry, innovative infrastructure is also opening the door to new challenges. From fraud to FinTech exclusion, this week’s Payment Rails Innovation roundup explores some of these potential pitfalls.

FedNow Pilot Program Expands

The Federal Reserve’s ongoing development of a new real-time payment rail, the FedNow service, continues with the addition of FinTech Finastra to its pilot program. A press release issued this week said Finastra will lend support to the development, testing and adoption of the service, joining other banks, credit unions (CUs) and payment technology firms in the initiative to launch the U.S.’ first new payment rail in decades. Finastra’s own technology helps financial institutions strengthen their own back-office operations and modernize payment capabilities, including by looping those entities into real-time payment schemes.

“Finastra has deep expertise and knowledge of instant payment schemes globally, having enabled financial institutions to process payments and implement associated overlay services for instant payment schemes in 12 countries across four continents,” the FinTech’s Vice President, Product Management, Payments Product and Platform Ohad Chenkin said in a statement.

Featurespace Explores Real-Time Fraud Prevention

With both existing and emerging payment rails increasingly prioritizing real-time transaction capabilities in the U.S., industry stakeholders are turning their attention toward fraud prevention in a real-time ecosystem. Discussing the topic with PYMNTS this week was Featurespace Senior Vice President of Global Product Management Dena Hamilton, who reflected on lessons learned from wire transfer fraud to identify the biggest threats for businesses in the form of high-dollar losses and reputational damage.

“With the introduction of faster payments, we’ve seen an abbreviated window in which customers are able to dispute or retract a payment,” she stated, also pointing toward the experiences of the U.K. and Europe, geographies in which real-time payments have reached a higher level of maturity compared to the U.S. Overseas, the window of opportunity to identify and prevent a fraudulent transaction has gone down “from days to two hours.”

Anti-money laundering (AML) efforts must become faster as transactions accelerate, she said, and financial institutions can no longer rely on a batch strategy to assess fraud risks at the end of the day in a real-time environment.

Rails Face Pressure To Streamline Cross-Border Transactions

PYMNTS’ latest report in collaboration with Visa, Innovating Cross-Border Payments: What US and UK Businesses Need to Know, highlights the intensifying demand among businesses that send and receive cross-border payments for those transactions to accelerated. According to the report, the average days sales outstanding (DSO) for cross-border B2B payments was 55 percent longer than those of domestic payments. As businesses increase their adoption of real-time payment rails, expectations for speed in their global transaction activity grow, too.

Canadian FinTechs Raise Real-Time Payments Doubts

Canada is making headway on its own real-time payments roadmap through the launch of the Real-Time Rail (RTR), but recent reports are highlighting growing doubts among FinTechs that are unsure of how the real-time payments infrastructure will benefit them. According to iPhoneInCanada.ca reports, only deposit-taking financial institutions will initially be allowed to join Payments Canada, the entity that will operate RTR, meaning FinTechs will only be able to access the rail via their FI partners. Though regulators have reportedly vowed to change legislation to open up the infrastructure for direct access by FinTechs, lawmakers have yet to make progress on the matter.