Banks and CFOs Need Data-Sharing Plans to Fight Fraud

The fraudsters are wily, determined, acting in packs and probing for weaknesses.

The best defense might be a collaborative approach — one where CFOs and their financial providers (banks and FinTechs among them) share the most precious resource that builds a defense against the bad actors: data.

PYMNTS Intelligence data shows that about a third of Big Tech and FinTech firms have experienced fraud in recent months. And as we found in collaboration with Hawk AI, about 43% of FIs in the U.S. experienced an increase in fraud this year relative to 2022, resulting in a rise in fraud losses increasing by about 65% from $2.3 million in 2022 to $3.8 million in 2023.

The Faster Payments Council, in a bulletin released at the end of last month, took note of the growth in authorized payment fraud, where authorized parties and account holders are manipulated into sending payments, including faster payments, to fraudsters.

PYMNTS Intelligence has found that a mid-teens percentage point of authorized payment fraud took place via scams based on relationship or trust — as, for example, a fraudster might impersonate an IRS agent, or pretended to be the account holder.

The data shows that a third of FIs not using advanced technologies such as machine learning and AI have faced increased fraud. But there’s some heartening findings in the mix, PYMNTS found, as 47% and 42% of FIs have been relying on cloud-based fraud and financial platforms and financial risk scores offered up by their payments processors, respectively. 

Data Sharing Via Platforms 

That aforementioned financial risk score is dependent on several aspects: the person sending the money, the behavioral aspects of the person receiving the money, and the relationship between the sender and the recipient. Elsewhere, in an interview with PYMNTS, Nick Fleetwood, head of data services at Form3, said that a “collaborative network” facilitates data sharing that, based on behavioral and other characteristics, can pinpoint fraudulent behavior in real time. 

And Jeff Gipson, director of payment product management at Discover® Global Network, told PYMNTS that platforms can collect and synthesize data — so that each time an individual logs into a merchant website or app, the platform gleans information about IP addresses, email addresses and other data that provides context about individuals’ behavior and whether authentication or other friction must be injected into the mix of payment flows.  

PYMNTS found that 63% of CFOs surveyed reported using some level of specialized automation for fraud prevention in the last six months. There’s been an increasing awareness of the value of using technologies to wage the war against the fraudsters. Since the dark days of the pandemic, as reported here, disruptions and the shift to digital channels as a chief way of conducting business resulted in 56% of companies investing in more robust fraud defenses.