Fraud continues to pound embattled financial institutions, which are aiming to stay ahead of increasingly sophisticated attacks. More organizations are realizing that fraud prevention tools and strategies must remain top of mind, which means investing heavily on the most effective tools on the market today. Great strides have been made thanks to powerful tools such as analytics, artificial intelligence (AI), and machine learning, yet financial institutions are failing to capitalize on another vital tool they have in combatting fraud in the payments space: data sharing.
Bruce Diesel, Global Head of Product and Payments at Diebold Nixdorf, David Excell, Founder of Featurespace, and Marco Salazar, Director of Technology and Infrastructure at Mercator Advisory Group, discussed the delicate balance and challenges between enhancing the customer experience and delivering robust customer protection against fraud.
Greater Data Sharing and Its Implications for the Payments Space
Vital Customer Insights
Data sharing provides vital insights about customers and can also inform FIs on what solutions their customers are demanding. But it also plays a vital role in protecting customers from fraud.
“Data sharing enables the banks to protect the customer and create new experiences for that customer instead of [offering] new products and services to meet those real-time needs and requirements,” said Excell.
With the surge of customer information in circulation comes bad actors ready to swipe from the massive sea of data.
“Increased data sharing is increased opportunities for fraud,” added Diesel. “An increased volume of transactions means a bigger attack surface area for fraud.”
“Data sharing, if done correctly across business units and third parties, allows for broader detection of fraud before it even begins across a wider array of products,” said Salazar. “There’s this delicate fine balance that needs to be played when thinking about data sharing.”
Data Sharing and Fraud
Another reality that Excell pointed out is the proliferation of data sharing among fraudsters. It is through compromises that they get access to data in order to both share and sell data between themselves. He continued with proposing current solutions such as artificial intelligence (AI) and machine learning to use these data in order to protect customers in real-time environments.
Diesel also mentioned that the systems fraudsters use are far more agile than the systems used to mitigate them. He emphasized the importance of using the latest fraud technology to outpace fraudsters.
According to Salazar, a critical element is needed to use AI and machine learning systems effectively: “Those models just need large amounts of data to work properly. But this only happens if the data is standardized, is normalized.”
“You can’t build machine learning and AI on poor-quality data,” Diesel added. “It’s not a tool for improving the quality of data.”
Salazar continued, “In this case, you’re trying to improve the quality of the data from the onset and that’s going to help scale, not just scale these solutions, but increase their robustness.”
Customer Experience and Customer Protection: Striking a Balance
The latest innovation on fraud technology has kept up to pace to minimize the potential for fraud.
“The industry’s done well applying technology that has increased the level of authentication, which has meant things like account takeover and phishing type tactics are harder for the fraudsters to do,” said Excell.
However, when it comes to the end game of battling fraud, technology cannot do all the heavy lifting. The customer must play a central role.
“You can’t just rely on technology,” said Diesel. “I always advise to go back to consumer education and awareness.”
The newest fraud tools such as AI and machine learning have been an effective means of fraud protection. But certain consumer expectations do need to be curbed.
Friction within the digital payment experience is not popular with consumers, yet some friction must be tolerated to ensure fraud protection.
“There’s a balance point where consumers are prepared to accept an amount of friction to get the protection that they want and make them feel safe.” said Diesel. “The friction needs to be at a tolerable level to the consumer.”
“Data needs to be well shared, and it needs to be real-time shared between channels,” said Diesel. “Most banks are still operating in a very siloed manner in these channels. This creates a significant challenge.”
Another piece of the puzzle to mitigating fraud is consumer data and their use. Ultimately, consumers should have the final say as to whether their data can be accessed and for what purpose. When organizations are transparent about the gathering and use of consumer data, a bridge of trust and brand loyalty can be built. If organizations cannot prove the value of gathering consumers’ data, the result will be consumers revoking access.
“When a new payment method emerges, it’s going to need access to specific types of data,” said Salazar. “Once that’s established, the consumers are willing to try these new instruments. They understand that data needs to be shared in order to have these experiences. Firms have to be able to provide a permissioned access to data.”
But after these data are amassed, who’s responsible for them and who regulates them?
“Where is that data at the end of the day and under which regulatory body does it exist?” asked Diesel. “It’s very challenging.”
New Techniques and How They Impact Compliance and Regulatory Mandates
According to Salazar, new mandates take considerable time to reach the market. The example used is cryptocurrency companies and exchanges. Many of the companies within this market want to expand their reach. But they are hesitant to do so because a regulatory framework is absent from the market. These companies know that, in order to see mass adoption of crypto, consumers need to know that their experience will be a safe one.
Since there are no foreseeable mandates, financial institutions continue to sit out of the crypto game, as they do not want to incur any risk. Most organizations that want to operate within the crypto market desire to do so in a legal matter.
Also, by its very nature, technology tends to advance lightspeeds faster than any regulatory body can contend with.
Fraud Strategy as a USP
Consumers want to know that their payments are protected, with as little friction as possible. This will be the ongoing challenge that most organizations will continue to face. Diesel noted that financial institutions can communicate their fraud strategies in order to build trust with their customers.
“We’ve seen a number of financial institutions advertise what they do with fraud controls and educate consumers around scams that are taking place,” said Excell. “It’s the reputation of the financial institution and that brand loyalty that’s at risk. So I think it’s a huge differentiator for FIs to be able to protect their customers and keep their money safe, which is one of the main reasons why we want to use a bank rather than keep the cash under the mattress.”