To Win The War On Fraud, FIs Must Become FPs (Financial Protectors)

We’re all using apps more than ever before – especially to bank, make payments and get money into the hands of friends and family with the tap of a screen. In 2020, there were more than 1.3 billion global mobile payment users.

Dena Hamilton, SVP of global product management at Featurespace, told PYMNTS that the market impact of the recent increase in digital payment volumes, as it pertains to fraud, will require banks and issuers to continue to step in as protectors – especially since fraud rates show no sign of falling.

The conversation came against a backdrop where Square’s Cash App reported gross payment volume increases in the latest quarter of roughly 230 percent year on year. But data from Apptopia, for example, found that fraud on mobile payment apps was up more than 300 percent year on year, as measured in the first quarter. And, per TransUnion, fraud threats against businesses were up 46 percent year on year, and one in three consumers across the globe have been targeted by digital fraud. Social engineering scams are also proliferating.

Call it a field day for fraud, said Hamilton – a surge of malevolent actors taking advantage of the exploding global app economy. She noted that apps are appealing, in general, as vehicles for moving and storing money. Above all, they’re convenient, offering criminals a relatively quick and easy path toward ill-gotten gains, whether they’re stealing money or data.

The pandemic has only exacerbated the situation. Look at the reported cases, said Hamilton, and common themes emerge: Fraudsters are always seeking to prey on vulnerable targets that are beset by financial insecurity and loneliness. As economies open up and as we get fully back into our “normal lives,” the fraudsters will follow us there, too, she predicted.

Investing in advanced enterprise fraud and financial crime software solutions are among the only ways in which a business or financial institution (FI) can protect itself and its customers, Hamilton stated. Firms are already doing so, as revenues for providers of independent security, orchestration, automation and response (also known as SOAR) are up double-digit percentage points from 2019 levels.

But, as Hamilton told PYMNTS, even though high-tech has its place, it’s not enough.

Focusing On Consumer Experience

“A lot of the complaints that we see in the industry center on responsiveness to customers, in addition to having the right technology in place,” said Hamilton. Those consumers need help and guidance when they do encounter fraud, and when uncertainty arises. In terms of process, she said that FIs need to prioritize protection and then strive to create an environment that can walk consumers through their concerns with as little friction as possible – which in turn ensures that they keep their customers (and keep their revenue streams in place).

In the fight against advanced fraud techniques, which target apps, Hamilton said that FIs’ “best course of defense” lies in the combination of rules and machine learning models that can accurately assess and score the risk tied to transactions in real time. She pointed to Featurespace’s development of algorithms that can leverage a wide stream of data points to detect fraud. Examining alternative data sources, scoring risk and determining intent enables FIs to reach out to consumers with text messages or warnings that in turn foster an environment of trust.

After all, as Hamilton noted, consumers see banks, issuers and credit card networks as responsible for protecting them against fraud. Fostering that trust will be especially critical as payments get faster and digital payments volume swells, she predicted – and as implementation times for new products and services shorten, recourse windows will shut faster.

Hamilton cautioned that fraud attacks and new vectors of attacks will shift over time – but they’ll never decline, at least not without a new, high-tech approach. After all, fraud moves based on wherever the vulnerability may be – whether that’s a consumer vulnerability or a technology vulnerability, she said.

“The only way they could even begin to drive those numbers down is with a financial institution using an advanced enterprise fraud and financial crime solution that uses deep learning – which understands what’s happening when it’s happening,” she told PYMNTS. “You need to stay in step with, or slightly ahead of, fraud.”