Safety and efficiency through payment pre-validation: spotting issues before money moves
Highlights
- Payment pre-validation (PPV) enhances safety and efficiency by validating payment details before transactions are initiated. This process minimises errors, mitigates fraud risks and enhances compliance, while simultaneously improving user experience, trust and operational efficiency. The G20 South African Presidency and the Committee on Payments and Market Infrastructures (CPMI) also recognise the potential benefits of PPV.
- While PPV has demonstrated clear advantages for domestic payments, its adoption in cross-border contexts remains limited due to differences in legal, regulatory, technical and operational frameworks. Addressing these challenges is crucial to realising PPV's potential in enhancing cross-border payments.
- The success of PPV in cross-border payments hinges on the implementation of international standards and guidance to ensure interoperability across jurisdictions, strong governance frameworks, robust privacy safeguards and international collaboration. Furthermore, wider adoption will benefit from transparent pricing structures and consumer education initiatives.
Introduction
Identifying obstacles to the smooth and efficient processing of cross-border payments at an early stage increases the likelihood of resolving issues, assists in preventing financial crime and enhances the overall safety and efficiency of payments. Payment pre-validation (PPV) services are specifically designed to verify the accuracy, validity and completeness of payment information before initiating a cross-border payment. As a first step in the payment initiation, the payer provides the necessary details, which are then checked against the actual data. The payer proceeds only when a result is satisfactory, by confirming the payment and transferring the funds. These services help ensure that transactions meet all necessary technical, legal and regulatory requirements before processing, clearing and settlement. For instance, the confirmation of payee is a specific pre-validation service that authenticates the payee's information, typically based on at least a name and account identifier (such as an account number or a proxy like a phone number). This service is also referred to as verification of payee or beneficiary check.
Pre-validation significantly improves the chances of successful payment execution while reducing costly rejections, returns and the need for manual interventions along the payment value chain. It also plays a critical role in mitigating fraud (eg authorised push payment (APP) fraud) and non-compliance risks. Consequently, the widespread adoption of PPV services can help address many root causes of cross-border payment frictions, particularly those impacting the speed and transparency of such payments. Furthermore, pre-validation can also serve as a foundation for payment service providers (PSPs) to improve the user experience by displaying transfer costs, execution times and reporting requirements up front, thereby improving transparency.
An increasing number of fast payment schemes support pre-validation checks by PSPs. In some jurisdictions, PSPs are mandated to offer the confirmation of payee feature, whereas in others, its adoption is encouraged on a voluntary basis. While current pre-validation solutions primarily support domestic fast payments, their international rollout could significantly enhance cross-border payments. The CPMI's harmonisation recommendations for application programming interfaces (APIs) underscore the importance of interoperability among PPV solutions across jurisdictions.
