Reduce fraud and enhance trust in Instant SEPA Payments

In the ever-evolving landscape of global finance, the introduction of the Instant SEPA Payment regulation in 2017 has revolutionised the way we conduct cross-border transactions. Despite the large number of use cases and the associated optimism for a fast deployment, only 2 in 3 European payment service providers currently offer euro instant payments, and today only 11% of all euro credit transfers in the EU are instant [1]. This reality has created the need for regulatory intervention. It seems very likely that by the end of 2023 this regulation will be adopted and will make it mandatory for all banks to send and receive Instant Payments. Another essential component of this new regulation is the Beneficiary IBAN Name Check. 

Motivation behind the Beneficiary IBAN Name Check

The rational of adding the Beneficiary IBAN Name Check into this regulation is driven by the goal of reducing the looming risk of new types of fraud related to the instant execution and the fully irrevocability of instant payments. This makes it impossible for the payer to cancel an initiated payment, whereas  it is still possible to cancel an initiated traditional credit transfer (before settlement) at most banks.

Fraudsters are taking note of the increasing numbers of instant payments and we are seeing a dramatic increase in so-called APP (Authorised push payment) fraud. In this fraud pattern a fraudster tricks victims into willingly making large bank transfers to an account controlled by the fraudster. One example: the fraudster, posing as someone from your bank, claims that you have been a victim of fraud and says that you need to move your money to a different bank account quickly. In the UK, where faster payments have been live for some time, APP fraud has increased by 44% in the first semester of 2023, compared to 2022 [2].

To counteract this type of fraud, the regulation obliges the payer's payment service provider to allow the payer to check the given beneficiary IBAN and name with the beneficiary bank before executing the payment. In the current version of the regulation this check will only be mandatory for Instant Payments, but we also see discussions ongoing to extend that obligation to all SEPA credit transfers in the future.

Benefits for Payers

For payers, the introduction of the Beneficiary IBAN Name Check brings more certainty that the payment data of the beneficiary is correct, before sending money to that account.

This feature is especially important for corporate payments where the transferred amount could be significant. Besides fraud reduction the Beneficiary IBAN Name Check also identifies wrong payment data due to incorrect input. In both situations the introduction of this service should result in fewer challenges for the payment service provider and the payer, and most importantly, reduce the chances of the payer losing money to fraud or accident.

As a result, payers can make payments with greater confidence, knowing that their transactions are secure and less prone to human error.

Benefits for Payees

Payees, too, stand to gain numerous advantage from the Beneficiary IBAN Name Check. The verification process ensures that payments are correctly linked to their bank accounts, reducing the occurrence of failed or delayed transactions. This efficiency enables payees to receive funds faster, streamlining their cash flow and enhancing financial planning capabilities. Additionally, payees can enjoy increased protection against fraudulent activities, safeguarding their financial interests and increasing payer satisfaction (payers are often the customers of the payees).

Benefits for Banks and Payment Service Providers

Banks play a pivotal role in the entire payment process, and the Beneficiary IBAN Name Check offers them several benefits as well. Firstly, this verification system significantly lowers the number of customer inquiries and complaints related to misdirected payments, leading to improved customer satisfaction. Additionally, by reducing the risk of fraudulent transactions, banks can protect their reputation and enhance the overall trustworthiness of their services.

Moreover, the Beneficiary IBAN Name Check bolsters the efficiency of banks' operations. With a more accurate and streamlined payment process, banks can optimise their resources and reduce manual intervention, ultimately leading to cost savings.

Conclusion

The implementation of the Beneficiary IBAN Name Check as part of the new Instant SEPA Payment regulation marks a significant advancement in international financial transactions. By addressing the concerns related to transaction accuracy and security, this innovative feature benefits payers, payees, and banks alike. Payers can enjoy a higher level of confidence when making payments, payees can receive funds promptly and securely, and banks can optimise their operations while ensuring compliance with regulatory standards.

As the financial landscape continues to evolve, the Beneficiary IBAN Name Check sets a precedent for enhanced security and efficiency in cross-border payments, fostering trust and reliability in the global financial system.

IBAN name check is a complementary service that Worldline provides its customers to enhance their fraud management as well as facilitate their compliancy with the SCT Inst regulation. Learn more about Worldline instant payments and Beneficiary IBAN Name Check.

References

[1] European Commission (2022).

[2] Annual Fraud Report 2023, UK Finance.