• Milos Dunjic

In The Future World Of Real Time Payments Those Who Can Quickly Resolve Disputes Will Win

What should we care more about as consumers - having cool mobile apps with sleek UX or that our financial services provider of choice actually has our back when crisis strikes?

As industry keeps rapidly moving toward the world of instant and real time payments, we are bombarded by stories that shiny objects like sleek mobile apps and frictionless payment experiences will be the main differentiating factors in the future world of financial services. Even very legitimate need for Strong(er) Customer Authentication is being flagged as potential negative development and something that should be resisted and avoided.

However, despite what futurists, fintech and pundits may be saying, security is clearly one of the core concerns and challenges that would naturally emerge in the real time payments ecosystems. The ability to move funds quickly, both locally and internationally, opens new opportunities for dishonest players and allows criminals to enjoy and exploit the lack of traditional friction points, which are present in today payment rails.

For example, the existing friction, present in today's card and ACH payment flows, may in fact be considered beneficial, as it is for sure helping deter and limit fraud levels by slowing down the actual money movement and settlement, allowing FIs and payment processors enough time to resolve eventual transaction disputes.

But once increased automation and frictionless ambient commerce (on the front end), get plugged into real time payment rails (on the backend), the future payment processors and service providers would not be able to count on this useful 'friction cholesterol' anymore, to help them with slowing down and dealing with fraud. In frictionless world, with ultra fast money movement and immediate settlement finality, players will have to mainly rely on machine learning models to detect and recognize unusual interaction patters and distinguish legitimate from fraudulent transactions - all in real time. And quite possibly it will turn into a war between good guys' and bad guys' machine learning models, at much larger scale than today.

Which one will prevails, time will tell. Machine learning as a discipline is constantly evolving and is highly dependent on the quality and availability of vast amount of relevant data and skills of data scientists that are in charge of fine tuning the parameters of their underlying model representations.

In highly internationally interconnected world of real time payments in the future, it would not only be important to prevent fraud on local but also on global level. The fraud prevention arms race may create elevated need for global cooperation and data sharing between key players.

Regardless how successful and organized the new real time payments ecosystem gets, we can only expect that fraud forms will be evolving as quickly as the payment rails themselves, which will result in many new types of fraudulent transactions going undetected. Since money movement (both legitimate or fraudulent) will be happening at lightning speeds and without delayed settlement friction, the ability to efficiently analyze past transaction data and resolve disputed transactions after the fact, will become highly important and potentially the single main differentiating feature separating charlatans from serious trustworthy players. Those able to do that quickly and efficiently, with great transparency, will be the clear winners of the frictionless payment era. In other worlds, regardless how sleek and frictionless our payment experiences become, trust will always stay as something that will attract customers.

In conclusion, as Gordon Gekko declared in iconic movie that "greed is good", depending how quickly this fascinating industry evolves, it may look back one day at its desire to eliminate friction from the process, with great nostalgia ... and conclude that "friction was good" too.

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