The banking industry may be about to fix one of the long-standing cracks in anti-fraud protections. The failure to match account names and numbers before allowing online payments to be made.
In 2020, UK banks finally introduced a system that sends a warning to people making an online payment, if the name of the bank account and the account number they enter do not match.
The system was designed by retail payment authority Pay.UK to stop people accidentally paying the wrong people by mistyping an account number, but also to make it harder for cyber criminals to dupe people.
But in New Zealand cases of payments going awry continue to blight lives, illustrated by a recent case handled by the Banking Ombudsman in which a woman lost $150,000 after sending it to the wrong account.
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The woman, who the Banking Ombudsman called Briar to conceal her identity, was building a new home, with her bank releasing funds in tranches as the work progressed.
She forwarded the builder’s invoices to the bank when they fell due, and the bank would release loan funds to her.
But in August last year, she was due to pay a $150,000 invoice, but her email appeared to have been hacked, and crooks monitoring it, sent her an email claiming to be from her builder saying it had a new bank account.
She paid the money online from the money released by her bank, only to learn shortly after that she had been defrauded.
She complained the bank should have spotted the account number and name did not match, but banking ombudsman Nicola Sladden said banks could not check that an account number and name match when processing a customer’s instructions.
When people made online payments, banks required them to enter the name of the payee, and their account number, but customers were wrong to assume banks checked they matched, Sladden said.
“Many New Zealanders incorrectly assume their bank will warn them if they send money to the wrong person.”
“However, banks cannot check whether a recipient’s name and account number match. This means transposing errors can result in lost funds, and scammers can impersonate others,” she said.
That could change, as work has begun to modernise the payments system by Payments NZ, the New Zealand equivalent of Pay.UK.
Payments NZ’s Payments Modernisation Plan was first unveiled in September 2020.
“By 2030, customers are highly likely to want world-class, safe and secure real-time payment systems that are also data-rich”, the plan says.
The banking industry did not yet have a shared tool to manage and monitor payments fraud, or the ability to support interbank notifications of fraud, he document said.
The plan noted that in order for a payment to go to the right place, a customer often needed to enter a string of 15 digits correctly.
In future it would include systems to increase people’s confidence they were paying the right person.
Payments NZ chief executive Steve Wiggins said he had not been approached by banks to say ”hey, we need to coordinate to work out a solution for that”.
Payments NZ is owned by ANZ, ASB, Bank of New Zealand, Citibank, HSBC, Kiwibank, TSB Bank and Westpac.
But, Wiggins said cross-checking account numbers and names was referred to in Payments NZ’s payments modernisation plan.
He had not seen any data on the amount of misdirected payments, but Pay.UK said in 2018 that it may affect as few as one in 20,000 transactions, though it noted “the impact on victims can be significant, and in the worst cases life-changing”.
The UK system temporarily blocks payments, and sends a warning to people making payments, if the account name and number do not match.
An ANZ spokesperson said the current system of processing transactions by account number provided an efficient, reliable and secure way of making payments.
“Any changes would be complex and need to be standardised across all banks,” the spokesperson said.
A Westpac spokesperson said matching names to payments would involve new processes and systems across the payments industry. It could also result in payments being delayed or rejected if names were not entered correctly.
Wiggins said it would be a multi-year programme.
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