By Jay Floyd, Senior Principal Financial Crime Consultant at ACI Worldwide

The Covid-19 pandemic has led to a rise in fraud globally, from authorised push payment (APP) scams and phishing attacks to fraudsters targeting the vulnerable on their doorsteps, the rate of consumers falling victim to crime is growing at an alarming pace. In 2020 alone, UK Finance reported that losses due to APP scams amounted to £479 million and fraud losses on UK-issued cards totaled £574 million.

The popularity of new digital payment methods during the pandemic – such as mobile wallets and P2P payments services – has led to an increasing adoption of real-time payments but it also has widened the window of opportunity for fraudsters to commit crime. Real-time means less time for financial institutions to stop fraud. Financial institutions need to respond rapidly, accelerating and reprioritising their shift to digital if they are to protect their customers.

The changing face of real-time payments fraud

 

European consumer adoption of digital services across industries significantly jumped from 81% to 94% in the first few months of 2020 – a rise that – under normal circumstance – would have taken around two to three years.

This dramatic shift away from cash saw 3.2 billion mobile wallet transactions made in the UK, a Year on Year growth of 25.5%, with mobile wallet adoption globally rising to an historic 46% in 2020, according to ACI’s Prime Time for Real Time report. It also found that Europe’s rates of card fraud versus real-time payments fraud were roughly on par only a couple of years ago, but today, “non-plastic” fraud is rising far faster.

APP fraud also continues to be a huge problem, as well as other scams such as CEO fraud which finds criminals impersonating senior management to authorise transactions. Money laundering also continues to be a rising issue. For example, throughout the pandemic, money launderers have consistently targeted vulnerable university students, creating fraudulent accounts within the banking network. And with young workers being hit the hardest by the Covid-19 crisis, this type of fraud needs to be rapidly stopped to help especially younger people get back on their feet.

The numerous and increasingly varied types of fraud make it difficult for financial institutions to detect fraudulent activity in such a fast-paced environment. Real-time payments require real-time fraud detection. And as an industry, we need to be moving conversations to focus on how to interpret and respond to individual customer behaviors – beyond simply securing payment processes.

 

Preventing tomorrow’s fraud, today

The most effective way for financial institutions to reduce real-time fraud is to integrate their payment screening solutions with other partner technologies. This way they can have greater access to valuable external data elements – such as identity checks, transaction activity, location and chosen payment methods. The real challenge is then applying these capabilities at speed. Growing payment types, rising transaction volumes and their increasing speed means financial institutions have more data to monitor, with little time to do it.

One solution which is extremely effective is working with data intelligence providers who can flag suspicious or bad IP addresses, and locate the exact e-fingerprint, along with geolocation, of recurring fraudulent activity. This narrows down the list of e-fingerprints that are likely to commit fraud.

Biometric technologies can also act as a vital tool in the defense against fraud. They can help identify and authenticate any customer from how they hold their smartphones or use digital devices. This means financial institutions can identify individuals based on their physical characteristics, the way they speak, or the way they behave to avoid the risk of accidentally engaging in fraud.

Finally, harnessing advanced Machine Learning (ML) can create a multi-faceted fraud prevention strategy. With ML, financial institutions have readily available access to data, allowing them to build bespoke approaches that will enhance their overall fraud management strategies.

Not only do these methods reduce the risk of fraud, but they offer frictionless experiences and build greater payment intelligence for that extra added value in customer relationships.

Fight back against fraud

 

Fraudsters will always be on the lookout for new ways to act on crime. So, for financial institutions, it pays to be prepared – and predictive – in the fight against fraud. By remaining forward-thinking and harnessing fraud management software – such as biometrics and data intelligence – financial institutions will be able to fight off tomorrow’s fraud, today.