In mere months, coronavirus lockdowns and social distancing have completely transformed the payments landscape. Face-to-face transactions have largely given way to more card-not-present (CNP) transactions driven by new and emerging digital payment modalities.
It’s no surprise fraudsters are exploiting the accelerated shift to digital payments. The relative anonymity of digital channels helps facilitate their nefarious pursuits. The result, according to a recent study by Javelin Strategy and Research and SAS, is a global, multibillion-dollar surge in payments fraud.
While digital payments are fast, fraud moves just as fast. Banks must adapt their mitigation strategies or risk increasing losses.
The digital dilemma
As revealed in the Javelin fraud study, global fraud trends differ by region. Latin American financial institutions, for example, have seen increased fraud via mobile SIM swapping, digital wallets and counterfeit cards. In the U.S., firms have reported a rise in CNP fraud, account takeovers and lots of scams. The common denominator across geographies? Most of the interactions and funds transfers are now digital, necessitating advanced technological complexity and sophistication to safeguard them.
Another commonality is that, as new payment products and capabilities are introduced, they’ve tended to debut without the appropriate anti-fraud measures in place. In the early days of the pandemic, this was no doubt due, in part at least, to the speed by which businesses and financial firms pivoted in reaction to government-enacted shutdowns and shelter-in-place orders.
A global pandemic is no time to leave the virtual door unlocked. With the expansion of instant payments, fraudsters will move money the fastest way possible. But on the bright side, when it comes to fraud, an ounce of digital prevention is truly worth a pound of cure.
To manage fraud and credit risk and deliver on their customer experience goals, banks have become mini IT companies, creating massive tech divisions. They continually invest in their ecosystem capabilities and align them to strategic priorities. In recent years, this has demanded ever larger amounts of multi-source internal and external data.
And therein lies one of the biggest challenges: how to quickly bring together vast amounts of digital data in the right place, at exactly the right time, to make informed, risk-based decision. In the fraud-fighting realm, the bank must accurately assess whether this digital customer is who they purport to be. And the data must be in real time because today’s consumers expect real-time transactions and applications.
To tackle the data challenge and deliver on these expectations, financial organizations need layered technologies and robust analytical capabilities to identify and respond to threats in real time.
Balanced, layered fraud protection
Balancing security with a low-friction customer experience requires a diverse array of analytic tools to detect fraud at three intersections:
One set of tools at the time of enrollment or application;
Another layer of different tools once the applicant becomes a transaction customer or returns to the website; and
Yet another set of tools for case investigation and link analysis.
For this fraud prevention gauntlet to work, IT professionals must orchestrate multiple sets of data from various systems and deliver them as the application or transaction occurs.
In the card environment, anti-fraud best practices include the use of rules and models combined with a business posture that leverages automation, machine learning and visual analytics. Technology-enabled processes and controls must be pushed into continuous monitoring, capable of proactively identifying and suggesting countermeasures. The payoff is reduced staffing, improved efficiency and reduced losses. But the data, and getting to the data, is always the linchpin.
Capabilities will vary based on technological maturity, but financial organizations at all stages need as much real-time data as possible to make effective decisions. They can boost data ingestion capacity by deploying cloud infrastructure for fraud management.
The speed at which an integrated chip processes an instruction is increasing. In fact, chip speed doubles about every two years, so the line graph charting this progression isn’t linear but rather exponentially steepening.
That means the technological acceleration the industry experienced over the past decade will occur in roughly five years. Technology is advancing at an unprecedented pace – and not just for the fraud fighters, but the bad guys, too. Whatever elaborate schemes the crooks devise in 2025, firms that invest today in their digital transformations and anti-fraud capabilities will be poised to remain a step ahead.
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