Instant Payments: Credit Unions’ Expanded Frontier

The interest in using instant payments, driven by both businesses and consumers, continues to accelerate, fueled by a growing expectation for immediacy and seamless user experiences. Just as consumers now anticipate near-instant access to digital content like streaming videos or downloaded files, they now expect payments to be equally swift and effortless. This global push for real-time payments is reshaping industries, enabling faster fund transfers, reducing cash reliance and improving business cash flow. As digital security advances, ensuring the security of these rapid transactions becomes paramount. With instant payments projected to experience a Compound Annual Growth Rate (CAGR) of over 35% globally over the next six years, accounting for more than one-third of all payments by 2030, the need for robust anti-fraud solutions to safeguard financial security is more critical than ever.

Digital payments are reshaping consumer behavior, as evidenced by McKinsey’s State of consumer digital payments in 2024, which highlights a steady rise in digital payment adoption in both the U.S. and Europe. This year’s survey is the first to assess both regions, showing that consumers are not only using various digital payment methods more frequently but are also increasingly starting their buying journeys with these options. Platforms like Buy Now, Pay Later (BNPL) and offer marketplaces are examples where digital payments are the starting point of consumer decision-making, rather than merely a checkout tool.

Credit Unions Use of Instant Payments Can Make It Hard to Limit Fraud Risk

The surge in digital payments, including instant payments, has increased fraud risks. Unregulated channels like cryptocurrency exchanges and P2P platforms offer new opportunities for fraudsters. The rapid nature of instant payments limits verification time, making real-time fraud detection crucial.

Instant payments present unique challenges in managing authentication and fraud risk due to their rapid settlement requirements, often occurring within less than a second.

This tight timeframe limits the opportunity for banks and financial institutions to conduct in-depth verification and confirmation of both the payee and transaction details, leaving limited room for fraud detection before the payment is finalized. The rapid pace of these transactions can increase exposure to fraud if real-time protections are not implemented effectively, making instant payments a high-stakes area for risk management.

The ambiguity around liability for losses in instant payments also creates a complex risk landscape for credit unions. In jurisdictions without clear guidelines, determining responsibility for covering fraud-related losses can be challenging. This can expose credit unions to financial risks and potentially damage their reputations if members bear the brunt of fraudulent transactions. This lack of clarity underscores the urgent need for regulatory frameworks and industry-wide standards to define accountability and create consistent consumer and institution protections.

Relying on Regulatory Standards for Fraud Identification

FedNow, launched in July 2023, is a service from the U.S. Federal Reserve that allows credit unions and banks to offer instant payment services to their members and customers. Of the approximately 10,000 financial institutions in the U.S., more than 1,000 have already joined the platform, which allows members to offer instant payment services. NAFCU and CUNA, which used to be two of the largest trade associations representing credit unions in the U.S. before they merged in 2024 to form a single organization called America's Credit Unions, today actively promote instant payments and provide resources to credit unions to facilitate their adoption.

While FedNow relies on credit unions to be the first line of defense in fraud detection, it does offer some risk mitigation services. However, it relies on the institutions themselves to monitor and report fraud activity to be shared among member organizations.

The Power of Instant Payments

While the shift toward instant payments may present certain complexities, it offers credit unions a unique opportunity to elevate member service s , significantly boost satisfaction and retention, and introduce innovative services like Authorized Push Payments and Request to Pay.

The European Commission mandated that all EU banks and credit unions (most of which are part of the European Network of Credit Unions) must be equipped to receive instant payments compliant with the SEPA SCT-Inst standard within nine months of the December 2024 deadline. Moreover, they must be capable of sending SCT-Inst payments 18 months after this deadline.
To ensure the security of these transactions, credit unions are obligated to implement robust measures to protect members from fraud and liability. In response, EBA Clearing and the European Network of Credit Unions has introduced FPAD (Fraud Pattern and Anomaly Detection), a cutting-edge fraud detection and prevention service designed to safeguard both banks and credit unions, and their members and customers, in this new era of instant payments.

Strengthening Security With FPAD

Launched in March 2024, this game-changing service draws on the billions of transactions processed by EBA Clearing annually, providing credit unions and other financial institutions with a comprehensive understanding of payment and beneficiary account behaviors. The added value of the FPAD service goes beyond individual institutions’ efforts in fraud prevention. By utilizing a network view, the FPAD service offers credit unions or PSPs an enhanced view of risks, allowing for more precise risk management. Enhancing in-house fraud prevention systems with FPAD’s analytics and detection capabilities can significantly reduce the number of false positives, streamlining operations and improving overall efficiency. Additionally, the EU has announced the introduction of Verification of Payee (VoP) services from March 2024, with credit unions facing the obligation to introduce VoP for customer accounts no later than October 2025.

VoP services enable clients to check that their money is going to the right account – an important security measure for instant payments, where transaction and settlement should take place within 10 seconds.

Editor’s note: Stay tuned for part two of this article on Jan. 31, which discusses the future of instant payments.