The Challenges & Opportunities in Electronic Payments Fraud

The risks of electronic payments fraud are real and multiplying every day. In 2013, three out of every five organizations were subject to attempted or successful payments fraud, according to an Association of Financial Professionals survey, and 63 percent of organizations reported either adopting new security measures or plans to do so in the near future. As check, ACH, wires, and credit/debit cards are increasingly vulnerable to a growing array of fraud risks, banks are challenged to provide a sophisticated technology strategy for fraud detection and prevention.
 
As consumers’ preferences continue to shift toward mobile and apps for daily banking activities, financial fraud has become increasingly complex and recurrent across all banking channels. Criminals today coordinate fraud schemes across all transaction channels and threshold detection systems often cannot keep up with the wide array of attacks on data and data sources. The wide range of access points for financial information -- including smartphones, tablets, office, and home computers -- gives fraudsters an array of options to plan and execute their attack. To keep up with this rapidly growing threat, banks must evolve from the traditional, siloed method of fraud detection to a proactive, analytic approach.
 
A strategic approach to electronic payments fraud prevention will help banks move away from the ineffective and inefficient manual processes still widely in place today. Many institutions perform manual reviews of transactions prior to initiation, an approach that is laborious, not scalable, and significantly more error-prone than an automated strategy. For electronic payments fraud prevention strategies to be successful, the processes must be tightly integrated with transaction processing systems. This integration enables real-time interdiction, reduces "swivel chair" activity between systems and creates tailored actions that are called automatically, based on policy. Automated systems can provide a more comprehensive view of customer behavior by leveraging analytic calculations and algorithms to detect and flag suspicious payments activity. Furthermore, these capabilities deliver very low false positives.
 
As financial criminals evolve, so too must electronic payments security models. A layered security model is one answer to this challenge. Layered security is characterized by the use of different controls at different points in the transaction process so that a weakness in one control is generally compensated for by the strength of a different control. For example, behavior profiling and fraud alerts are two critical components of transaction monitoring, while phishing site detection and pre-emptive forensics are typically involved in mitigating website fraud. Should one of these capabilities be compromised, the others are still in place, working together to detect and prevent the financial fraud action or attempt.
 
Despite considerable advances in digital payments technology, the risk of financial fraud remains and, in fact, is growing daily. For banks to stay ahead of these increasingly sophisticated criminals, robust, responsive, and automated technology is key. Banks that implement an integrated real-time fraud detection and prevention system with data analytics capabilities will be well positioned to repel malicious attacks using their strengthened electronics payments fraud defenses.

Mike Urban is Director of Financial Crime Risk Management Solutions at Brookfield, Wisc.-based Fiserv. He has more than 18 years of experience in financial crime management. He analyzes financial crime issues and trends to provide continuous ... View Full Bio