An Enterprisewide Approach to Payments Fraud Prevention

Even as banks introduce increasingly sophisticated payments offerings, fraud in the space remains as much of a challenge as ever. And while criminals continue to develop ever-more complex schemes to outsmart banks' defenses, consumer demand for quick and convenient payments and service is intensifying, and regulatory requirements are growing more stringent. How can banks balance the need to provide customers with the latest payments products and services while preventing fraud? Where are the risks of payments fraud most acute, and what approaches are banks adopting to identify and prevent it? And what kinds of tools and technologies can best help banks meet both new regulatory mandates and new risks? --Peggy Bresnick Kendler

It's not easy to be responsible for fraud prevention in a financial institution these days. Innovation in products and delivery mechanisms is rapid, and often new products are rolled out without thorough consideration of the downstream fraud impacts. At the same time, fraudsters are better than ever at identifying points of vulnerability and capitalizing on them.

In a recent Aite Group survey of fraud prevention executives, debit card fraud, check fraud and malware were ranked as the top three fraud issues facing financial institutions today. These threats represent two different ends of the technological spectrum. Malware, which preys upon vulnerabilities in end users' systems, is increasingly sophisticated and changes so quickly that it is very difficult to guard against. Most of the methods for perpetrating check fraud and debit fraud, however, are relatively low tech, but no less costly to banks.

Increasingly, financial institutions are recognizing that an enterprisewide approach to fraud prevention can help them be more effective and efficient in fraud mitigation. Financial institutions have recognized that while they are heavily siloed by product type, fraudsters' activity is not contained to any one channel. By integrating both technologies and organizational structures, financial institutions can more quickly spot patterns of behavior across channels and take action.

The other significant stride forward many financial institutions have made is to take fraud management practices that were traditionally batch-based and move them to a real-time environment. This enables financial institutions to provide consumers with the immediacy of access that they have come to expect, while still protecting them.

Julie Conroy McNelley is a senior analyst with Boston-based Aite Group .