Fighting Financial Fraud During Extraordinary Times: Part 1

Glenn Fratangelo, Head of Strategy and Marketing, ​Enterprise Risk Case Management​
Fighting Financial Fraud During Extraordinary Times: Part 1

Financial services organizations (FSOs) are confronting a number of challenges that are impacting the way they approach enterprise fraud management (EFM), and how they scale their fraud prevention strategies and agendas in a rapidly evolving threat environment. 

2020 was the year of the great digital adoption in the financial services space, particularly in real-time payments. 

More consumers are using mobile banking, real-time and P2P solutions, such as Zelle and Venmo, as virtual banking becomes mainstream. Growth of real-time payments transaction volumes is further evidence of the shift to digital banking. The RTP system from the Clearing House is experiencing substantial growth and currently running approximately 10 million transactions per month, with volumes further doubling every six to ten months.[1]

This pervasive adoption of instant payment channels and networks has opened the doors to more fraud while simultaneously making fraud prevention more difficult.

  • FSOs are adapting their infrastructures for third-party applications to enable payment initiations from various instant applications.
  • Fraudsters manipulate customers into using new platforms where transactions are authenticated or initiated in the third-party application that the bank doesn’t control.
  • Organizations struggle with the lack of end-point detection when customers use third-party applications.
  • Institutions face barriers to obtaining enough data and information to ensure risk engines can work as effectively as possible with the institution’s systems.

Instant Payments Drives New Fraud Trends

Fraudsters are incentivized by instant payments, which not only allows criminals to instantly get their cash to anyone, anywhere, but is shaping devastating new fraud trends. 

Unauthorized fraud is emerging as account takeover (ATO) issues, where the user issuing instructions to the bank to enact a payment isn’t authorized. Authorized fraud is manifesting as Authorized Push Payment (APP) scams, where the sender is manipulated into authorizing a payment that they ultimately don’t want once they comprehend the circumstances. 

Additionally, Peer-to-Peer (P2P) represents an ideal vehicle for fraudsters to get paid, which is why this fraud trend will only grow. In 2021, P2P fraud losses will reach their highest level yet as instant payment apps continue to emerge.

Changing the Game for Fraud Management

The adoption of faster payments is a game changer when it comes to fraud management. FSOs must examine their strategies around risk appetite vs. the customer experience, and reevaluate how to strike an optimal balance.

To secure instant payment channels while maintaining momentum of real-time and faster payments, FSOs need to reimagine their approach to EFM: 

  • Monitoring only money movement is often too late given the shift to real-time. All events that lead to money movement must be monitored, which requires accurate, continuously optimized models.
  • Many faster payments networks come with a 24/7 requirement for transitioning, which introduces substantial stress on fraud operations teams and dramatically shortens the window of investigation. As a result, there’s a need for smarter automation and more accurate, faster decisioning to equip analysts to work more efficiently.
  • Emphasize education on phishing schemes to increase consumer awareness regarding use of instant payment apps and help them to better protect themselves.
  • Adopt the appropriate risk-based approach, supported by data and advanced analytics, to identify behavioral patterns and optimize customer friction during instant payment transactions according to risk levels.

Evolving threats demand evolving fraud prevention and to win the fight against fraud in the long run, firms must come together and leverage data and insights from across the industry – not just from the limited view of the individual organization. This will be an integral aspect of every FSO’s fraud prevention strategy in the future, alongside analytics accuracy and agility to constantly improve fraud detection. 

Stay tuned for Part 2 of this series, where we’ll continue our deep-dive into the foremost concerns for fraud and cybersecurity teams and the areas that will impact fraud management today, and in the coming years.


[1] Lee Kyriacou, VP, Real-Time Payments, The Clearing House. Lee Kyriacou, VP, Real-Time Payments, The Clearing House. “Securing Existing and Future Real-Time Payments with AI.” Engage Live, session 4


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