A Changing Fraud Landscape: Navigating the Risks Amid COVID-19
April 17th, 2020
While it’s clear that COVID-19 is bringing many short term challenges such as increased fraud rates and impacts on fraud models and operational capacity, there will also be longer term changes to manage.
Navigating Fraud Risks: The New Normal
As society adjusts to our new normal amid COVID-19, there are many changes that are likely here to stay. When it comes to financial services, there will be changes to both genuine customer and fraudster behaviour. In addition to new scams that are popping up, we are starting to see an increase in web and mobile banking registrations and increased used of P2P services, such as to repay neighbours for assisting us.
With that genuine increase, we’ll see the fraudsters too, but they will be harder to spot. Is that 70-year-old person’s online banking enrollment genuine, or fraud? Or is it a family member doing it for them? Changes to rules and models will be required to get this balance right to help support people to manage their finances remotely, without losing out to the fraudsters.
Managing the Changes
So what can firms do in the short term to manage these changes? Utilise or implement rules capabilities to reduce the impacts of model degradation and new or amended fraud typologies. Implement revised operational working practices using workflow capabilities to prioritise some actions over others, such as fraud tagging and blocking accounts, and split processes so skilled staff undertake investigations and less skilled staff do admin tasks.
The current situation is also accelerating a number of existing trends around increasing use of remote banking channels, contactless and mobile, and of course remote working. It is likely that we will not see a return to what was happening before as some changes stick for good.
Some examples may include:
- The person who previously avoided remote banking, but now that they’re forced to use it, have found that they actually like it.
- The business that hasn’t seen productivity drop with increased home working and is now wondering why they spend so much on an office that can hold all their staff at once.
- The FSO that found their new processes to offer better security, customer experience and efficiency.
So what does all this mean for FSOs managing fraud now and over the next few years?
FSOs need to find more ways to service customers remotely and deal with larger volumes of transactions, as these are often incremental and not just cannibalisation from other channels and payment rails. There is also the move to real-time payments, which is accelerating, although we may see some pause in rollout in the U.S. this year.
We will see increased remote banking users and transaction volumes, which means more enrolments for web, mobile, telephony, Wallets, Fintechs/TPPs, chatbots and voice. This extends to increased capabilities at ATMs and kiosks, including higher limits and more use of remote deposit for cheques.
This requires increases in authentication investments to correctly let as many genuine customers as possible through, while still blocking the frauds. By scoring enrolments and logins, FSOs can reduce friction by undertaking fewer step ups and drive limits and exemptions, such as blocking high risk activity.
Managing Authentication Methods
It’s not just authentication scoring, but also the types of authentication used. Replacement of authentication methods may include knowledge-based authentication (KBA) and sending people to the branch with documents along with SMS one-time passwords (OTPs). By moving to remote document verification, OTPs with Rich Chat Services (RCS) and push notifications, organisations can reduce friction, along with impacts on branches.
All this also requires more horsepower to process and manage, so organisations will need to move to the latest technologies that allow for a large increase in transactions and support real-time capabilities. This includes supporting elastic demand management and fast deployment of updates, but it is important and that can allow for profiles to be updated in real time.
But this is more than just people moving from a branch payment to an online payment. Firms need to accelerate investments in virtual servicing and applications. This could include increasing the branch services that can be done by video conference as Nationwide have done with mortgages for a few years, but mostly to a branch from a centre rather than to the customers home. This can offer cost reduction while meeting customer needs, but this also frees up staff.
An increase in remote transactions almost inevitably leads to more fraud and more alerts, at least without the right investments. Firms therefore need to invest in more automation. In the fraud arena, this should be about freeing up staff to talk to customers and do complex investigations, rather than doing admin. This can also be things like offering more self-service options, including in fraud for dealing with alerts where chatbots and messaging can help. The key is not to use chatbots for complex frauds. Ideally, this is all driven from the fraud platform and supports two-way data exchanges to allow for maximum automation.
That attacks the capacity issues, but what can be done to counter the impacts on model performance? Build capabilities to monitor and optimise fraud models for the ‘new normal’ and improve the speed to refresh these more often. This will help counter changes in trends and regulation such as Open Banking. By investing in the latest analytics capabilities, various types of machine learning can, provide the power of collective intelligence without sharing of data, detection to support new fraud types with low fraud volumes, automated model optimisation and incremental online learning to improve the speed of optimisation even further. Utilising this, expand model provision to cover all types of fraud, especially authorised as it continues to increase. This needs to go hand in hand with streamlining model governance so that time to value is sped up.
This can be taken a stage further by building out a Fraud Hub with multiple payment types and channels in one place. Combining multiple end point solution data, such as scores, intel and event alerts, removes silos and reduces false positives.
There are also the changes within FSOs themselves. Increased working from home brings benefits, but removes the ability to keep an eye on staff or restrict use of personal devices, for example staff can easily take pictures of screens to compromise data. This means that monitoring employees for anomalous behaviour is even more important than before.
This is clearly not an exhaustive set of strategy updates, but gives an idea of the level of investments required. The good news is, much of this technology is here already but not universally used. With COVID-19 is changing the world, the time to plan to tackle this is now.