Prioritising the development of a new way for customers to confirm the identity of who they are paying could reduce the risks associated with payment error and fraud, according to the latest World Class Payments report, published by Payments UK today (7 April 2016).
The new report, A focus on Confirmation of Payee for customers making payments, highlights the potential benefits of developing a new ‘beneficiary identification’ capability for electronic payments.
The development of beneficiary identification would give any consumer or business making an electronic payment the ability to check the beneficiary’s details of the account they are paying before confirming the payment – this might be the name or some other information. The process could involve the payer using a ‘proxy’ such as the beneficiary’s mobile phone number or email address, instead of having to enter an account number and sort code.
Currently, although the sort code and bank account number entered by the payer are often checked behind the scenes to help ensure that they are a usable combination, the name associated with the destination bank account is not used to process the payment or to direct it to the correct account.
Whilst the opportunity to validate the beneficiary’s identity could not guarantee a payment would reach the intended recipient (e.g. many names are common) it would significantly reduce the risk and likelihood of payments being sent to the wrong account.
The World Class Payments analysis identifies a number of existing and emerging Confirmation of Payee products in the UK and around the world. It goes on to suggest that one way of achieving ubiquitous beneficiary identification would be to extend a capability similar to the name check currently provided by the mobile payments service, Paym.
Anyone sending a Paym payment simply enters the mobile number of the person they want to pay into their mobile banking app or online banking service to initiate a ‘look up’ of the central database. Provided the mobile number has been registered, the central proxy database provides the name registered to the payee’s account, giving the opportunity to verify the name before deciding whether to confirm the payment.
Tim Yudin, Payments UK’s Director of Design and Delivery, said:
“Electronic payments are more popular than ever, representing an integral – and growing – part of how we move money today. Offering payers the ability to confirm who they are paying before they make a payment could help stop money being accidentally sent to the wrong account, make life more difficult for fraudsters and give customers even more confidence when making payments.
“While we already benefit from some world-leading services that seek to address this issue here in the UK, a new Confirmation of Payee capability could offer big benefits to both businesses and consumers.”
Any Confirmation of Payee capability would supplement the existing improvements that have been developed and implemented by the payments industry in the UK. These include measures introduced in January 2016 by the Faster Payments and Bacs payment schemes to help customers recover payments sent in error, and work being carried forward by Payments UK to improve advice for banks and customers on how to reduce the risk of errors across online and mobile banking channels.
To achieve a Confirmation of Payee solution, the report suggests work to prioritise agreement on a funding model that would support delivery of a ubiquitous, interoperable proposition. Payments UK believes this would maintain industry momentum and help to address challenges relating to the collaboration needed between competing industry players across a divergent payments market.