Stop thinking you can catch fraudsters, start thinking how you can detect them – at any stage

Once a customer account has been opened, most firms turn their attention to protecting transactions when they should be focusing on account activity – or non-monetary transactions. Why? Because it will allow them to stop emerging threats, like fraudsters, earlier, rather than chase money after the transaction.

Chasing fraud post-transaction can be a heavy operational expense – labour-intensive and requiring skilled investigators to make split-second judgments about transaction legitimacy. Where high volumes of transactions are involved, investigators may err on the side of caution by blocking them automatically to allow more time for investigation.

But…investigations can be thwarted by fraudsters. Phone numbers can be forwarded through telecommunication and phone providers. They can change the numbers associated with an account earlier in the lifecycle and let that sit for 45 days so it looks like an established number on the account. When an investigator calls later to verify a transaction, they are calling the fraudster, not the actual customer.

Focusing in on account activity, gives organisations that critical initial filter, so that they can apply investments (skilled investigators) in downstream resources to review more sophisticated cases and perform rich link analysis. This means rather than working the events in the queue sequentially, investigators can focus on collective events and events across boundaries and relationships.

This also drives a ‘right-sized’ fraud approach, helping organisations reduce time wasted by possibly hundreds of investigators, as they will no longer need to review high volumes of false positive transactions just to identify a small number of fraudsters.

For e-commerce vendors, it is particularly relevant as loyal customers can make purchases without logging into their accounts, so there is no profile information with which investigators at the transaction stage can quickly ascertain whether the charge or purchase is legitimate. 

Card-not-present transactions are particularly susceptible to fraud as transactions are completely anonymous (requiring no face-to-face interaction with the customer). This broad and ever-expanding category now includes mobile wallets, digital wallets and online payments using a credit card. 

The following are some of the changing and challenging dynamics of card-not-present transactions: 

  • People are likely to adopt mobile wallet payments at a faster rate if EMV chip readers aren’t widely available. In fact, we may see payments through alternative devices, like wearables, thanks to the rise of the Internet of Things
  • However, people may use physical cards longer if mobile wallets are not accepted or are too difficult to use at common retailers, such as petrol stations, supermarkets and convenience stores
  • Payment methods associated with loyalty rewards may be seen as more valuable than convenience
  • The increasing use of mobile phones in financial transactions means unprecedented access to products and services for the unbanked population.

The mobile wallet is just one of the innovations that have challenged fraud detection at the point of transaction. When all emerging card-not-present scenarios are considered, it is clear that fraud teams need to be more agile in order to adapt and respond to the changed environment and customer expectations they operate in and with. 

The question is, how quickly will organisations adapt to balance the scales between fraud investigation and unlocked value?

By Gary McVie, Director of Fraud and ID, Experian