New Approaches to Fraud Prevention Needed as Card Issuance Ecosystem Expands

The expanding ecosystem of card issuance demands a new approach to defending against fraud as criminals become more sophisticated and employ advanced technologies to steal card data or hide behind synthetic identities.

The PYMNTS Intelligence report “Credit Unions and Community Banks Gain Credit Card Issuing Momentum” found that most consumers opt to get their cards from their primary banks — chiefly through larger, national players. But smaller firms, including community banks and credit unions, are making inroads, as are digital-only enterprises.

Seventy-seven percent of consumers said they expect financial institutions to embrace artificial intelligence to fight fraud, and 70% of financial institutions are doing so.

Late last year, the PYMNTS Intelligence report “The State of Fraud and Financial Crime in the U.S.” found that the costs of transaction fraud were on the rise, averaging about $3.8 million for financial institutions in 2023, a 65% increase over 2022.

For all manner of firms — but particularly smaller companies — the cost of taking fraud-fighting efforts in-house can be prohibitively expensive. Linking with payment networks and platforms can help streamline and bolster defenses.

The nature of the tools themselves is changing, underpinned by the same advanced tech that fraudsters love, so in effect, both sides are dueling with equal firepower. An advantage that the payment networks have for their issuer clients comes partly with scale, with a global, real-time worldview that can use an intelligence-based approach rather than a reactive one.

The Deals and Benefits of AI

This month, Visa announced its acquisition of Featurespace in a deal that will help client firms, a roster that includes issuers, to manage fraud in real time while protecting payments. At a high level, Featurespace uses AI to help financial institutions (which are also issuers) detect anomalies and patterns of activity that are tantamount to fraud. It’s worth noting, however, that issuers need not be banks, and Visa also works with nonbanks through its In-App Provisioning API.

Meanwhile, Mastercard announced its own acquisition of threat intelligence company Recorded Future. The announcement promised a “broad set of data sources” to provide visibility into potential threats to help customers take action to prevent risks. In the wake of the $2.7 billion deal, which adds to cybersecurity defenses, the company’s offerings include Identity Intelligence and Payment Fraud Intelligence.

In an example of the ways in which enhanced analytics can be a proactive tool — stopping fraudsters in their tracks before transactions commence — Mastercard has taken a new tack to identify compromised payment cards through a combination of generative artificial intelligence and graph technology (Recorded Future also uses graphs to map patterns). Mastercard’s efforts identify the card credentials being sold online, taking steps to block those possibly suspect cards before they can be used.

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