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The following is a transcript of the podcast episode hosted by Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com and Patrice Lee, Senior Product manager for CO-OP Financial Services
Can you tell me how much of a problem fraud mitigation is for card issuers today?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
Ryan, simply put, it’s a problem. Payment losses due to fraud are not declining at all. So really, the effort to combat fraud is just as important now, if not more so, than in years past. Particularly as we’ve seen the landscape of fraud change in payment and financial services.
I’m glad that you brought up this whole landscape of fraud changing. Throughout history, fraud is really this cat and mouse game. Can you get into a little bit more detail about how the landscape of fraud has changed in recent history?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
You bet. I think we’re all familiar with some of the fraud schemes from years past that are tied to traditional payments, right?
We have heard many stories of fraudsters who are willing to dumpster dive, shoulder surf, and skim. All of those are known, common, and alive and well today, but as new transaction methods are enabled, that leads to new fraud tactics, and we absolutely know that fraudsters are always looking for a new opportunity. Those new touchpoints afford those opportunities that fraudsters are looking for. So if we think a little bit about the digital age, right now much of the conversation revolves around how things are moving and transitioning to the digital space, and many companies are looking at how to introduce their solutions via digital, or improve what they’re already doing. A lot of the information that’s available is in use digitally across sectors.
Obviously, we’re talking about payments here, but there are other industries like healthcare and social media, just to name a few. Think about the massive amounts of data that are associated with those channels, with many breaches that we hear about in the news where data is compromised. That information becomes available for sale online. So we’re seeing a rise in online or card-not-present fraud. We’re seeing account takeover and application fraud, and what we’re really trying to do is stay ahead of those new schemes. Artificial intelligence and machine learning can help us in that fight.
Now let’s put a finer lens on it and look at credit unions. Can you tell me about the ways that CO-OP Financial Services works with credit unions to detect and stop payment fraud?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
Sure. Let’s dive into that. I think we can say with fraud, unfortunately, there really is no silver bullet. It’s really about having a layered approach: a suite of tools along with people, because there’s absolutely a human element that comes into play with fighting fraud and how that lines up with the tolerance for risk.
There’s a balance involved in allowing those valid and good transactions to process while preventing the fraudulent ones, so that credit union members have a good experience when they’re shopping, traveling, dining and so on.
From a CO-OP perspective, it’s about what strategies we have in place, what technologies we are using for decisioning and scoring, and understanding what is happening in our credit union environment. Our tools can help manage the risk that we’re seeing across those areas to really verify and validate what’s looking good versus not so good, so that the credit union members have a positive experience whether they are transacting via a traditional method, or some of the new opportunities that are available with digital right now.
Speaking of tools, I’ve come to understand that CO-OP Financial Services has started to pilot test its fraud analyzer called COOPER. What can you tell us about that?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
COOPER is our new artificial intelligence and machine learning platform. Fraud Analyzer is the first release on the COOPER platform.
As you mentioned, Ryan, we are in pilot mode. COOPER involves rules decisioning, case management and reporting. What we are doing with that is evaluating the transactions that are coming in against the strategies we have in place to identify any activity that might be suspicious. We are working those cases with our pilot credit unions, monitoring the reports that are being generated as well as the overall performance of the platform. From the pilot, we will move to general availability for the entire Shared Branch network. That’s our focus now, but we are looking to expand the tools for fraud prevention and detection to also include business intelligence and member engagement.
Thank you for that. What I find kind of funny is that you have this powerful tool with AI and machine learning, but members are spoiled a little bit and say, “Well, what else can it do?” So, besides detecting the fraud patterns, what will COOPER enable credit unions to do and understand about their members?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
Great question. You are right, fraud is very important, but it doesn’t stop there. Beyond having tools to fight fraud, it is also about providing insights to credit unions on member behavior.
We look across the products and services to understand how they are being used or aren’t being used, and then take that information to find ways that credit unions can tailor and customize those solutions to their members. As you said, maybe consumers are becoming a little bit spoiled, if you look at Amazon, who is leading the space when it comes to digital and understanding who you are. Shopping trends and patterns and remembering what you bought, to recommend some other things you may be interested in. Having artificial intelligence and machine learning as core foundational pieces can really help a credit union really understand the member overall.
That’s one of the key differentiators that can help credit unions differentiate themselves and be competitive in financial services with the big banks that are out there.
Before we started the podcast, you and I were talking about AI in general and how it relates to the payments industry. Back in early September, you contributed a byline article to us called “AI in the Not-Too-Distant Future of Payments,” where you gave a 101 to AI and machine learning. We’re about a month later here, and a lot of things have changed in the AI space. Can you tell us how AI will reshape, the financial services and credit union industry as we look into the future?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
Sure. The opportunity with AI technology is huge for financial services. Obviously, it’s new technology. So I think there are a number of folks who are still trying to kind of wrap their heads around what AI is, what does it mean? How can I use it? Financial services, in particular, is not known for introducing new technology.
So the expectations from a member standpoint, driven by the standards that we see with digital, is knowing who I am, what I like, what I don’t like, and helping me have an improved experience. So we can use that technology to integrate across channels and product lines. It is really going to be the connective tissue that brings all those things together. In many cases, we see things are separated for many financial institutions. You may have the network business in one place, and the branch business in another. The data is siloed and segmented, so you won’t have a good picture or idea of Ryan as a member or Patrice as a member.
So how do we pull all of the disparate data into one tool? At a really simple level, let’s just think about when you go out shopping, you use your card. You never asked for cash back, but maybe when I go out I do all the time. So something as straightforward or simple as that can really help your financial institution reach out to you in a way that they may not reach out to me, because of your unique behaviors and patterns. When the data is siloed off you may not be able to make predictive decisions and recommendations to Ryan versus Patrice. And so that’s really going to be a game-changer. We have heard in a number of recent articles that data is being considered the new oil or better yetI heard a term last week: “It’s the new oxygen.” The data to break down those silos, understand those patterns, is really going to be transformative to support moving in a digital space for the credit union industry and movement long-term.
I certainly wholeheartedly agree with you there. And I think I’m going to have to borrow that that statement about the new oxygen because it really shows how critical it is, not just the data collection part of it.
As you mentioned, before data was siloed and we are able to break down those silos and really get a full picture. However, there’s also the need to keep this data secure. As you are breaking down those silos there could potentially be a risk for criminals getting access to that data.
Before we wrap things up, one last question. If credit unions want to learn more about COOPER, where can they go?
Patrice Lee, Senior Product manager for CO-OP Financial Services:
On our corporate website, credit unions can sign up there to receive updates on Cooper: www.coop.org/cooper