Banks Seek to Strike Balance with Payments Fraud Detection Tech Investment

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

The motivation to do something about current fraud is tempered by the fact that the fraud numbers aren't awful and the ability to invest is constricted. Banks must look at fraud losses and cost on one hand, and then they look at the technology investments necessary to perhaps mitigate some of that fraud.

Bankers in the payments world are facing various technology challenges, including replacing core systems; integrating their back rooms so that positive pay, stop pay and fraud detection work; and more. But banks are struggling to get those investments onto their IT priority lists, as investments in security rarely make it to the top of the list unless something awful happens.

The question for banks is, how do you strike a balance? They're going to look for the place where they see the biggest losses and the biggest vulnerability for future growth in losses and try to spend some money there. But they're not going to be able to put in a comprehensive soup-to-nuts solution all at once.

Banks have invested quite a bit to protect the card world, and they will have to continue those investments. For the most part, issuing banks bear the liability for card losses and, as a result, there's been a big investment in fraud detection systems, intelligence systems and learning engines, for instance, in the space. It's clear that banks recognize this as a top priority. In addition, investing in technologies -- such as chip and PIN cards and mobile payments -- to be used both for point-of-sale and Internet purchases, and for better access controls for their home banking and home banking payment applications, will also be important going forward.

Richard Oliver is EVP and director of the Retail Payments Risk Forum for the Federal Reserve Bank of Atlanta.