ACI Worldwide, Tanya Kopytina: How to put a stop to payment fraud

Tanya Kopytina, Senior Fraud Consultant at ACI Worldwide, writes for Payment Expert, sharing insight on the most impactful strategy to halting payment fraud as the threat continues to evolve. 

The last couple of years have taught us that we must be ready for change at a moment’s notice, and this should not be forgotten in the world of fraud. With consumer demands and behaviours constantly changing, and the rise in eCommerce and cryptocurrencies, there are myriad of new opportunities for fraudsters every day. 

The total value of alleged fraud reaching UK Crown Courts in H1 2022 was £532.6 million, up by 288% compared to H1 2021. Undeniably, fraud is a mounting issue. 

As fraud detection systems have become more intelligent, fraudsters have focused on the more vulnerable and unprotected part of the financial services chain – customers themselves. 

Fraudsters are opportunistic by nature, and many have started to take advantage of consumer vulnerabilities to execute scams. Combatting this kind of fraud will require cross industry collaboration, with fintechs and banks working together.

The main types of fraud in today’s age

There are many forms of fraud, but the two main types are channel fraud (authorised push payments (APP) fraud) and merchant fraud, for example investment scams.  

There were 195,996 incidents of APP fraud in the UK in 2021; an increase from 27% from the previous year. With people working from home more, spending longer online and doing more internet shopping, they became more susceptible to these types of scams.

Investment scams have also been on the rise, as alternate forms of payment such as crypto have risen to prominence in recent years giving scammers more opportunities. In 2021, the U.K. lost $200 million due to crypto fraud.

What roadblocks are financial institutions facing?

The biggest roadblock for financial institutions when attempting to protect customers is the social engineering element. Fraudsters are well versed in making consumers feel a false sense of security, allowing them to think that sharing their personal information or digital footprint is safe. This can lead to consumers not realising they are playing into the hands of a fraudster by providing them with one-time passwords, internet banking login details or phone access. This enables fraudsters to bypass fraud detection and card controls, often undetected. 

However, it is becoming harder to stop subsequent scam spending as scammers will often coerce their victims to verify transactions with bank representatives, which amounts to further losses. Banks have to fight scams on multiple fronts, repeatedly winning customers’ trust over scammers, while helping them protect their money.  

The need for industry collaboration

To combat this issue, industry collaboration is needed. Banks and fintechs need to work together to give banks access to sophisticated and tailor-made artificial intelligence (AI). When combined with their existing tools, it provides an even stronger barrier to fraud.  

Nearly half (46%) of fintechs, a figure that reaches 60% for those with revenue above £500m, view new technologies such as AI and advanced analytics as one of the most efficient ways to improve the fight against money laundering. Banks need to up their game and follow their lead by taking advantage of these new technologies to tackle financial crime.

AI can help to build scam detection systems by profiling fraud on all levels. Banks need to take advantage of fintechs’ capabilities as they are not encumbered by legacy systems, meaning they can quickly implement cutting-edge solutions to combat growing fraud and money laundering. 

Harness ML and AI to combat financial crime

Every bank and fintech needs to be able to predict a problem before it becomes a threat. The AI-powered solutions that many fintechs provide can detect advanced fraud and manipulation earlier and faster than ever before.

The use of ML and AI to combat fraud isn’t novel. It’s been around for a while, and these technologies bring a lot of unique strengths to the table. However, many of the AI and ML solutions being used by banks aren’t living up to the technology’s potential. 

AI and ML provide a more agile, adaptive system that doesn’t need to be completely refigured when fraudsters outsmart banks. While a banks’ data is complex and often siloed, the use of fintech’s AI-driven technology is sophisticated enough to present a true picture of risk and flag what’s most important. AI can help banks achieve the level of compliance that regulators expect for earlier detection of true risk, while achieving a reduction in false positives and tangible differences in the way AML monitoring works.

There isn’t a silver lining to the increase of scams in the last year. However, if financial institutions work together with banks to produce the appropriate technology, there will be more of an opportunity to stop scams from happening. Hopefully as a result other financial institutions will follow on from the example banks have made with the inclusion of AI and the harnessing of ML.