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Protecting Against Digital Payments Fraud

Jul 06, 2021
Alan Nevels

The pandemic has certainly played a role in escalating fraud on a global scale and throughout many payment pathways—both old and new. The sudden cross-sectioning of these payment and transaction vectors has created increases in traditional fraud schemes such as Account Take Over (ATO) and social engineering fraud.

It has also resulted in new Artificial Intelligence (AI) products and tools that have made contactless transacting a convenient and non-contact alternative for consumers and a flourishing lifeline for fraudsters as well.

More than $1 trillion was lost globally to cybercrime in 2020, with ransomware attacks rising by more than 40 percent, and email-delivered malware attacks up by 600 percent compared to 2019, according to a Sift Trust & Safety Index report.

And in a separate 2020 Javelin Strategy & Research study one senior fraud executive noted "an increase of almost 35 percent in fraud attempts,” with criminals mimicking “normal behavior” to disguise fraudulent activity. The transformation of current and newly formed payment methods requires financial institutions, processors, and payment developers to recognize and protect themselves from digital fraud.

While there are some mitigation tools that will require additional time to develop, there are steps that can be taken in the short term to help identify and disrupt digital payments fraud schemes:

  1. Use of verification tools is imperative. The best and strongest protection practices use a broad and layered foundation that “identifies, engages, and authenticates.” Community banks should deploy tools that utilize end-to-end encryption; malware detection; and browser, app, and device identification and back-end authentication to help mitigate today’s payment scams.

  1. Multi-factor consumer authentication works. As fraudsters become more adept at creating synthetic identities using non-public information to evade old authentication metrics, banks should explore a multi-factor, out-of-band authentication approach, coupled with one-time password alerts, as an effective strategy to combat impersonation and ATO schemes.

  1. Friendly fraud continues to challenge. Transactions associated with the rise of digital and in-app payment platforms have caused more obscurity and customer confusion when determining authorized purchases on statements. The result is increased chargeback claims and dispute expenses. False claims of undelivered or stolen packages are also driving associated costs skyward. Investing in predictive AI solutions can help issuers and processors to drive smarter decisions by categorizing disputes and routing them to the most efficient resolution path.

  1. Consumer education remains key. The more your customers know, the better they are able protect themselves and your bank’s bottom line. In-app features tend to work well with updates and/or notifications of suspect activity, and can be a great tool in facilitating swifter reporting and protection measures.

The noticeable rise in global fraud serves as indication that criminals are more frequently communicating and exchanging non-public information and fraud methods. Fortunately, through our processing partners community banks now have an arsenal of tools and techniques they can deploy that fuse large bodies of data and unconventional analytics to help identify and stop fraud in real-time.

Alan Nevels is senior vice president of card risk and merchant services at ICBA Bancard.