Remarks – Jean Boivin
Deputy Governor of the Bank of Canada
Presented to: Montréal CFA Society
I am very pleased to be able to deliver this speech today to the Montréal CFA Society—my first speech in Quebec as a Deputy Governor of the Bank of Canada. As active stakeholders in the Quebec and Canadian economies, you are at the centre of the economic life of the country. Thus, I don’t have to tell you that the past few years have been challenging.
Barely three years ago, the financial crisis was a source of major concern worldwide. This unprecedented event had serious and costly repercussions, which we continue to feel today.
In the aftermath of the crisis, the global economy entered a recession that we can rightly characterize as “great.” Economic activity in the G-7 countries dropped by more than 5 per cent. According to the International Monetary Fund (IMF), the number of unemployed persons around the world jumped by more than 30 million, most of them from advanced economies.1 This is a striking figure, especially when we think of it as almost equal to the entire population of Canada.
The Canadian economy was not spared: It still faces major difficulties, and significant risks remain on the road ahead. Yet, it is also true that the country’s economic prospects have improved since the crisis, as we see in Montréal, which has enjoyed the strongest growth among Canadian urban centres. In fact, coming out of the recession, Canada is a leader among the G-7 countries. Employment and economic activity have surpassed their pre-recession levels. In light of the progress we have made, we can now ask: What was the real extent of this recession? What are the lessons to be learned, and what are the implications for the future?
The purpose of my speech today is to reflect on events that are still fresh in our minds. Let us remember, however, that the answers to these questions will become clearer over time, as new data and analysis become available.2
The Recession: First Impressions
At first glance, the answers seem simple. After all, a recession is defined as a generalized and sustained decrease of economic activity, of which the broadest measure available is GDP. It would then appear that our task is simply to measure the extent of the decrease in GDP during the most recent recession and then to compare this decrease with other, similar episodes in Canada, or elsewhere. Child’s play, you might think.
This could be the first approach that our descendants—future economists, yet to be born, with no inkling of what we just lived through— would take: to study and compare economic cycles in Canada. Examining the economy from this angle, they would observe that the recession of 2007–09 did not seem to be any more serious than previous recessions in Canada and that, in fact, it was much shorter (Chart 1). The behaviour of employment would seem to confirm such a diagnosis: employment losses were much less serious and, compared with other recessions of the past 30 years, jobs were regained much sooner (Chart 2).
But any diagnosis based on a narrow, mechanistic reading of statistical measures of economic activity could prove to be false, or at the very least, incomplete. If our descendants were open-minded enough, they might be led to examine some of the headlines from this time:
« L’Économie canadienne paralysée », La Presse, le 31 mai 2008
“A Financial Drama with No Final Act in Sight,” New York Times, 14 September 2008
« Nous sommes au milieu d’une crise grave », Le Droit, le 25 septembre 2008
“ It Couldn’t Get Worse, But It Did,” New York Times, 12 October 2008
« L’économie canadienne s’atrophie encore », La Presse Affaires, le 2 mars 2009
« Nous étions au bord de la catastrophe, » Le Devoir, le 18 juillet 2009
On the basis of their preliminary diagnosis, our descendants might wonder what all the fuss was about.
Let us hope, however, that curiosity spurs these future economists on to further inquiry. Behind this first impression hides a much more complex reality. Canada’s economy weathered a very violent storm, but thanks to wise precautions and appropriate navigation, it arrived safely in port, damaged perhaps, but still afloat.
The Global Economy on the Edge of the Precipice
But we cannot judge the severity of the storm on the basis of a safe arrival. Let’s go back to the autumn of 2008. Ministers of finance and central bank governors from around the world meet in Washington. The tension and anger in the air are palpable. After the credit bubble burst in August 2007, the financial crisis spread like wildfire. The liquidity crisis turned into a solvency crisis. In September 2008, the crisis worsened, and its effects were felt throughout the entire American financial system, triggering a series of events at breathtaking speed. In very short order, we witnessed the bankruptcy of Lehman Brothers and the nationalization of Fannie Mae and Freddie Mac.3 The contagion then spread to Europe, where key British, German and Belgian banks were either nationalized or needed major bailouts. Stock markets registered their greatest drops in more than 75 years.
The spectre of the Great Depression of the 1930s hovered on the horizon, reminding us that recessions following financial crises are usually longer and more difficult than others and leave behind indelible scars.4
Implications for Canada
Although Canada was not at the epicentre of the crisis, the contagion can spread through a number of transmission channels. The financial crisis was clearly leading to a massive slowdown of global economic activity, with a direct impact on foreign trade. Since three-quarters of our exports are destined for markets in the United States, experience taught us that when the United States sneezes, Canada catches a cold (Chart 3).
Further, with the increasing integration of the global economy, the fates of national economies are much more closely interrelated, even more than might be expected based on the scale of our international trade.5 A global financial crisis, therefore, can affect Canada not only through international trade, but also by weakening financial markets, shaking consumer and business confidence, and postponing capital investments, in light of the high level of uncertainty.6
Phase One: Sudden Slowdown
For all these reasons, the financial crisis was expected to have a significant impact in Canada, and for the first phase of the cycle, this was certainly the case.
During the last recession, GDP declined by 3.3 per cent over three quarters. In contrast, over the same period of time in the 1980s and the 1990s, it fell by 2.2 per cent and 1.9 per cent, respectively.
A prominent feature of the recent recession was the spectacular drop in exports. Exports were harder hit than in any previous recession, decreasing by 16 per cent over three quarters, while the most significant drop during the recessions of the 1980s and 1990s was only 8 per cent (Chart 4).
Investments were equally hard hit by the recession. There was a 22 per cent downturn in investments over just three quarters (Chart 5). Nothing like this has ever been seen. It took two years during the 1980s recession, and three years during the 1990s recession, before a downturn of comparable magnitude was recorded. This recent decline in investment is partly due to the exceptionally high levels of uncertainty haunting the global economy.
In sum, the recent recession was different from previous ones, owing to a more pronounced slowdown triggered by unusually steep drops in exports and investment. During its initial phase, the effects of the crisis in Canada—albeit to a somewhat lesser degree—were comparable to those in the United States and showed real signs of becoming a “Great Recession” (Chart 6).
Phase Two: Rapid Recovery
Despite the rapid slowdown, the recovery was faster than those that followed previous recessions. Why?
Neither exports nor investments can provide the answer. While GDP has recovered to pre-recession levels, business investment and exports have only recovered 45 per cent and 67 per cent, respectively, of the losses incurred during the recession.
If the recovery was speedier, despite weaker contributions from investment and exports, support for the recovery must have come from household and government spending. This was indeed the case. Household spending declined by only 2 per cent between 2009 and 2010, compared with 6 per cent during the previous two recessions. The contribution of government spending to growth was more than one percentage point in each year.
The greater strength of household and government spending reflects Canada’s favourable position at the outset of the recession. Major adjustments had been made to the structure of the Canadian economy. Business and household balance sheets were relatively sound, and the banking system was robust, managed prudently, and sufficiently capitalized. Canada’s monetary policy framework had been effective and was credible. The fiscal situation was favourable, and the social safety net and regulatory framework were effective. As well, household spending was boosted by the prosperity arising from strong demand for our natural resources and by improved terms of trade.
This favourable position gave Canada the flexibility it needed to respond strongly to the crisis without compromising the credibility of our public policy frameworks. Thanks to the expansionary monetary and fiscal measures adopted in concert with other G-20 countries, Canada was able to support domestic demand which contributed significantly to the economic recovery.
Important Lingering Issues
In Canada, then, we had room to manoeuvre to help us effectively absorb the aftershocks of the global economic crisis. It is essential to maintain this buffer in light of the elevated risks that still exist worldwide and the structural issues that persist in the Canadian economy, even after the recession. The standard of living that we will be able to sustain in the medium term will depend, in fact, on our ability to address these issues.
Allow me to address three of these issues: household indebtedness, international competitiveness and, more importantly, our productivity.
Let us start with household debt. Since the beginning of the recovery, household credit has increased at twice the rate of personal disposable income. In the autumn of 2010, Canadian household debt climbed to an unprecedented level of 147 per cent of disposable income (Chart 7).
The relatively healthy financial condition of Canadian households at the beginning of the “Great” Recession helped the Canadian economy to better withstand the initial shocks of the crisis. However, going forward, it is essential to maintain the necessary room to manoeuvre to keep household spending on a viable path. This leads us to believe that the rate of household spending will more closely correspond to future earnings, and certain signs to that effect have already been observed.
Canada’s International Competitiveness
The second issue is our ability to compete internationally. The slow recovery of exports is due in part to the sluggishness of global economic activity. It is also due to the continued erosion of Canadian business competitiveness over the past ten years. This erosion can be attributed to the appreciation of the Canadian dollar and Canada’s poor productivity performance. Thus, Canadian exporters are seeing their market shares for a wide range of goods drop in the U.S. market—by far the most important market for Canada—while exporters in other countries, such as China and Mexico, are gaining ground (Chart 8).
As global economic growth continues to take root, we are seeing early evidence of a recovery in net exports. But, at this point, exports are still weak when compared with previous recessions. And in a world of growing international competition, we should not assume that the forces causing the erosion of competitiveness through the previous decade will simply fade away because of a global recovery.
This situation highlights the need to diversify our export markets and increase our ability to compete, not only with American producers, but also with other foreign exporters.
Productivity and Investment
This brings us to the third issue. As I just discussed, international competitiveness is based on our ingenuity, the efficiency with which we produce, or, for short, productivity. But beyond its influence on international competitiveness, productivity is a fundamental determinant of our economic well-being. To improve productivity, we need investment.
The slow recovery of investment in this cycle is particularly surprising in light of relatively favourable financial conditions: interest rates remain low, and the exchange rate facilitates imports of machinery and equipment.
The elevated level of uncertainty experienced during the recession, especially from a global perspective, was a major hindrance to business investment. This uncertainty was not confined to our borders: the link between uncertainty and business investment was clearly evident in the economies of the United States, Germany and the United Kingdom.7
Yet heightened uncertainty is only part of the explanation. Although the recession in the United States was more serious and Americans faced at least the same degree of global uncertainty as we experienced in Canada, Canadian business investment in machinery and equipment lags behind that of the United States (Chart 9). In 2009, Canadian workers had access, on average, to approximately half the capital expenditures in machinery and equipment and information and communication technologies (ICT) of those available to their American counterparts. This is not a new phenomenon. In fact, between 1987 and 2009, Canadian investment in machinery and equipment and ICT per worker represented, on average, 77 per cent and 59 per cent, respectively, of similar American investments.
It is true that business investment started to recover at the end of 2009. Yet much progress remains to be made: less than half of the extraordinary drop in investments of the last recession have been recovered. With the increasing globalization of markets and the demographic challenges we face, maintaining our standard of living will require improved productivity. We must continue to innovate and to invest in promising projects.
Conclusion: Perception vs. Reality
We are fond of repeating the old adage: “An ounce of prevention is worth a pound of cure.” Recent experience expands the notion and shows that good prevention measures can also make the cure more effective. Before the Great Recession, Canada was able to protect itself by ensuring that it had room to manoeuvre to absorb the shocks of the crisis. The lessons we learned from the past were reflected in the adoption of sound public policy frameworks. A solid position, combined with the relatively healthy state of Canadian households, gave us the flexibility to withstand the worst effects of the global shock.
Future economists studying the 2007–09 recession in Canada may find it difficult to go beyond their first impressions and assess its true impact. Some will undoubtedly surmise that the economic activity of this time did indeed reflect, not only the extent of the shock, but also our ability to absorb it. The storm we weathered was a major one. We should not forget that it could have struck at a time when we were more vulnerable and less flexible. Things could have unfolded very differently, with disastrous results.
It is some comfort to know that, collectively, we were able to limit the damage. We must proceed with the strategy that has served us so well: continue to learn from our experiences to ensure better prevention and, when necessary, a better cure. For this, we must strive to deal with the issues that confront us with strength and determination.
- M. Dao et P. Loungani (2010), "The Human Cost of Recessions: Assessing It, Reducing It," IMF Staff Position Note No. SPN/10/17, International Monetary Fund, 11 November. [←]
- With the publication of the national accounts for the first quarter of 2011, scheduled for 30 May, Statistics Canada will begin a historical review of the past four years. [←]
- Officially, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. [←]
- In the decade following a financial crisis, growth of annual GDP is usually one percentage point lower, while the unemployment rate is generally five percentage points higher. See C. Reinhart and V. Reinhart (2010), “After the Fall,” National Bureau of Economic Research Working Paper No. 16334. In a recent study conducted with its international partners, the Bank estimated that the costs of a financial crisis for an economy represent about 63 per cent of GDP. See Strengthening International Capital and Liquidity Standards: A Macroeconomic Impact Assessment for Canada (Bank of Canada, 2010). [←]
- Empirical studies show that the links between countries are particularly tight when countries simultaneously sustain the same shock. See, for example, J. Boivin and M. Giannoni, "Global Forces and Monetary Policy Effectiveness," in International Dimensions of Monetary Policy, J. Gali and M. Gertler (eds.) (Chicago: University of Chicago Press, 2008). [←]
- Recent research at the Bank of Canada has empirically demonstrated that the financial channel plays a key role in the transmission of shocks originating from the United States. See K. Beaton and B. Desroches, “Financial Spillovers Across Countries: The Case of Canada and the United States,” Bank of Canada Discussion Paper No. 2011-1 (2011); and K. Beaton, R. Lalonde and S. Snudden, “The Propagation of U.S. Shocks to Canada: Understanding the Role of Real-Financial Linkages,” Bank of Canada Working Paper No. 2010-40 (2010). [←
- See R. Bachmann, S. Elstner and E. Sims, “Uncertainty and Economic Activity: Evidence from Business Survey Data,” National Bureau of Economic Research Working Paper No. 16143 (2010); N. Bloom, “The Impact of Uncertainty Shocks,” National Bureau of Economic Research Working Paper No. 13385 (2007); and N. Bloom, J. Van Reenen and S. Bond, “Uncertainty and Investment Dynamics,” National Bureau of Economic Research Working Paper No. 12383 (2006). Many older studies on this issue are also available. See, for example, B. S. Bernanke (1983), “Irreversibility, Uncertainty, and Cyclical Investment,” The Quarterly Journal of Economics 98 (1): 85–106. [←]
Source: Bank Of Canada www.bankofcanada.ca
To take the nation’s financial pulse, we must go digital
By Pete Bulley, Director of Product, Aire
The last six months have brought the precarious financial situation of many millions across the world into sharper focus than ever before. But while the figures may be unprecedented, the underlying problem is not a new one – and it requires serious attention as well as action from lenders to solve it.
Research commissioned by Aire in February found that eight out of ten adults in the UK would be unable to cover essential monthly spending should their income drop by 20%. Since then, Covid-19 has increased the number without employment by 730,000 people between July and March, and saw 9.6 million furloughed as part of the job retention scheme.
The figures change daily but here are a few of the most significant: one in six mortgage holders had opted to take a payment holiday by June. Lenders had granted almost a million credit card payment deferrals, provided 686,500 payment holidays on personal loans, and offered 27 million interest-free overdrafts.
The pressure is growing for lenders and with no clear return to normal in sight, we are unfortunately likely to see levels of financial distress increase exponentially as we head into winter. Recent changes to the job retention scheme are signalling the start of the withdrawal of government support.
The challenge for lenders
Lenders have been embracing digital channels for years. However, we see it usually prioritised at acquisition, with customer management neglected in favour of getting new customers through the door. Once inside, even the most established of lenders are likely to fall back on manual processes when it comes to managing existing customers.
It’s different for fintechs. Unburdened by legacy systems, they’ve been able to begin with digital to offer a new generation of consumers better, more intuitive service. Most often this is digitised, mobile and seamless, and it’s spreading across sectors. While established banks and service providers are catching up — offering mobile payments and on-the-go access to accounts — this part of their service is still lagging. Nowhere is this felt harder than in customer management.
Time for a digital solution in customer management
With digital moving higher up the agenda for lenders as a result of the pandemic, many still haven’t got their customer support properly in place to meet demand. Manual outreach is still relied upon which is both heavy on resource and on time.
Lenders are also grappling with regulation. While many recognise the moral responsibility they have for their customers, they are still blind to the new tools available to help them act effectively and at scale.
In 2015, the FCA released its Fair Treatment of Customers regulations requiring that ‘consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale’.
But when the individual financial situation of customers is changing daily, never has this sentiment been more important (or more difficult) for lenders to adhere to. The problem is simple: the traditional credit scoring methods relied upon by lenders are no longer dynamic enough to spot sudden financial change.
The answer lies in better, and more scalable, personalised support. But to do this, lenders need rich, real-time insight so that lenders can act effectively, as the regulator demands. It needs to be done at scale and it needs to be done with the consumer experience in mind, with convenience and trust high on the agenda.
Placing the consumer at the heart of the response
To better understand a customer, inviting them into a branch or arranging a phone call may seem the most obvious solution. However, health concerns mean few people want to see their providers face-to-face, and fewer staff are in branches, not to mention the cost and time outlay by lenders this would require.
Call centres are not the answer either. Lack of trained capacity, cost and the perceived intrusiveness of calls are all barriers. We know from our own consumer research at Aire that customers are less likely to engage directly with their lenders on the phone when they feel payment demands will be made of them.
If lenders want reliable, actionable insight that serves both their needs (and their customers) they need to look to digital.
Asking the person who knows best – the borrower
So if the opportunity lies in gathering information directly from the consumer – the solution rests with first-party data. The reasons we pioneer this approach at Aire are clear: firstly, it provides a truly holistic view of each customer to the lender, a richer picture that covers areas that traditional credit scoring often misses, including employment status and savings levels. Secondly, it offers consumers the opportunity to engage directly in the process, finally shifting the balance in credit scoring into the hands of the individual.
With the right product behind it, this can be achieved seamlessly and at scale by lenders. Pulse from Aire provides a link delivered by SMS or email to customers, encouraging them to engage with Aire’s Interactive Virtual Interview (IVI). The information gathered from the consumer is then validated by Aire to provide the genuinely holistic view of a consumer that lenders require, delivering insights that include risk of financial difficulty, validated disposable income and a measure of engagement.
No lengthy or intrusive phone calls. No manual outreach or large call centre requirements. And best of all, lenders can get started in just days and they save up to £60 a customer.
Too good to be true?
This still leaves questions. How can you trust data provided directly from consumers? What about AI bias – are the results fair? And can lenders and customers alike trust it?
To look at first-party misbehaviour or ‘gaming’, sophisticated machine-learning algorithms are used to validate responses for accuracy. Essentially, they measure responses against existing contextual data and check its plausibility.
Aire also looks at how the IVI process is completed. By looking at how people complete the interview, not just what they say, we can spot with a high degree of accuracy if people are trying to game the system.
AI bias – the system creating unfair outcomes – is tackled through governance and culture. In working towards our vision of a world where finance is truly free from bias or prejudice, we invest heavily in constructing the best model governance systems we can at Aire to ensure our models are analysed systematically before being put into use.
This process has undergone rigorous improvements to ensure our outputs are compliant by regulatory standards and also align with our own company principles on data and ethics.
That leaves the issue of encouraging consumers to be confident when speaking to financial institutions online. Part of the solution is developing a better customer experience. If the purpose of this digital engagement is to gather more information on a particular borrower, the route the borrower takes should be personal and reactive to the information they submit. The outcome and potential gain should be clear.
The right technology at the right time?
What is clear is that in Covid-19, and the resulting financial shockwaves, lenders face an unprecedented challenge in customer management. In innovative new data in the form of first-party data, harnessed ethically, they may just have an unprecedented solution.
The Future of Software Supply Chain Security: A focus on open source management
By Emile Monette, Director of Value Chain Security at Synopsys
Software Supply Chain Security: change is needed
Attacks on the Software Supply Chain (SSC) have increased exponentially, fueled at least in part by the widespread adoption of open source software, as well as organisations’ insufficient knowledge of their software content and resultant limited ability to conduct robust risk management. As a result, the SSC remains an inviting target for would-be attackers. It has become clear that changes in how we collectively secure our supply chains are required to raise the cost, and lower the impact, of attacks on the SSC.
A report by Atlantic Council found that “115 instances, going back a decade, of publicly reported attacks on the SSC or disclosure of high-impact vulnerabilities likely to be exploited” in cyber-attacks were implemented by affecting aspects of the SSC. The report highlights a number of alarming trends in the security of the SSC, including a rise in the hijacking of software updates, attacks by state actors, and open source compromises.
This article explores the use of open source software – a primary foundation of almost all modern software – due to its growing prominence, and more importantly, its associated security risks. Poorly managed open source software exposes the user to a number of security risks as it provides affordable vectors to potential attackers allowing them to launch attacks on a variety of entities—including governments, multinational corporations, and even the small to medium-sized companies that comprise the global technology supply chain, individual consumers, and every other user of technology.
The risks of open source software for supply chain security
The 2020 Open Source Security and Risk Analysis (OSSRA) report states that “If your organisation builds or simply uses software, you can assume that software will contain open source. Whether you are a member of an IT, development, operations, or security team, if you don’t have policies in place for identifying and patching known issues with the open source components you’re using, you’re not doing your job.”
Open source code now creates the basic infrastructure of most commercial software which supports enterprise systems and networks, thus providing the foundation of almost every software application used across all industries worldwide. Therefore, the need to identify, track and manage open source code components and libraries has risen tremendously.
License identification, patching vulnerabilities and introducing policies addressing outdated open source packages are now all crucial for responsible open source use. However, the use of open source software itself is not the issue. Because many software engineers ‘reuse’ code components when they are creating software (this is in fact a widely acknowledged best practice for software engineering), the risk of those components becoming out of date has grown. It is the use of unpatched and otherwise poorly managed open source software that is really what is putting organizations at risk.
The 2020 OSSRA report also reveals a variety of worrying statistics regarding SSC security. For example, according to the report, it takes organisations an unacceptably long time to mitigate known vulnerabilities, with 2020 being the first year that the Heartbleed vulnerability was not found in any commercial software analyzed for the OSSRA report. This is six years after the first public disclosure of Heartbleed – plenty of time for even the least sophisticated attackers to take advantage of the known and publicly reported vulnerability.
The report also found that 91% of the investigated codebases contained components that were over four years out of date or had no developments made in the last two years, putting these components at a higher risk of vulnerabilities. Additionally, vulnerabilities found in the audited codebases had an average age of almost 4 ½ years, with 19% of vulnerabilities being over 10 years old, and the oldest vulnerability being a whopping 22 years old. Therefore, it is clear that open source users are not adequately defending themselves against open source enabled cyberattacks. This is especially concerning as 99% of the codebases analyzed in the OSSRA report contained open source software, with 75% of these containing at least one vulnerability, and 49% containing high-risk vulnerabilities.
Mitigating open source security risks
In order to mitigate security risks when using open source components, one must know what software you’re using, and which exploits impact its vulnerabilities. One way to do this is to obtain a comprehensive bill of materials from your suppliers (also known as a “build list” or a “software bill of materials” or “SBOM”). Ideally, the SBOM should contain all the open source components, as well as the versions used, the download locations for all projects and dependencies, the libraries which the code calls to, and the libraries that those dependencies link to.
Creating and communicating policies
Modern applications contain an abundance of open source components with possible security, code quality and licensing issues. Over time, even the best of these open source components will age (and newly discovered vulnerabilities will be identified in the codebase), which will result in them at best losing intended functionality, and at worst exposing the user to cyber exploitation.
Organizations should ensure their policies address updating, licensing, vulnerability management and other risks that the use of open source can create. Clear policies outlining introduction and documentation of new open source components can improve the control of what enters the codebase and that it complies with the policies.
Prioritizing open source security efforts
Organisations should prioritise open source vulnerability mitigation efforts in relation to CVSS (Common Vulnerability Scoring System) scores and CWE (Common Weakness Enumeration) information, along with information about the availability of exploits, paying careful attention to the full life cycle of the open source component, instead of only focusing on what happens on “day zero.” Patch priorities should also be in-line with the business importance of the asset patched, the risk of exploitation and the criticality of the asset. Similarly, organizations must consider using sources outside of the CVSS and CWE information, many of which provide early notification of vulnerabilities, and in particular, choosing one that delivers technical details, upgrade and patch guidance, as well as security insights. Lastly, it is important for organisations to monitor for new threats for the entire time their applications remain in service.
On the Frontlines of Fraud: Tactics for Merchants to Protect Their Businesses
By Nicole Jass, Senior Vice President of Small Business and Fraud Products at FIS
Fraud isn’t new, but the new realities brought by COVID-19 for merchants, and the rising tide of attacks have changed the way we need to approach the fight. Even before the pandemic broke out earlier this year, the transition to digital payments was well underway, which means fighting fraud needs a multilayered, multi-channel approach. Not only do you want to increase approval rates, you want to protect your revenue and stop fraud before it happens.
A great place to start is working with your payment partners to refresh your company’s fraud strategies with emerging top three best practices:
- AI-based machine learning fraud solutions helps your business stay ahead of fraud trends. Leveraging data profiles to model both “good” and “bad” behavior helps find and reduce fraud. AI-based machine learning will be increasingly essential to stay ahead of the explosive and sophisticated eCommerce fraud.
- Increasing capabilities around device fingerprinting and behavioral data are essential to detect fraud before it happens. While much of the user-input values can be easily manipulated to look more authentic, device fingerprinting and behavioral data are captured in the background to derive unique details from the user’s device and behavior. Bringing in more unique elements into decisioning, can help authenticate the users and determine the validity of the transactions.
- Prioritize user authentication. User authentication is a vital linchpin in any fraud defense and should receive even greater priority today. Setting strong password requirements and implementing multi-factor authentication helps curb fraud attacks from account takeover.
As well as working with your payment partners it’s more critical than ever to protect online transactions while not jeopardizing legitimate purchases. Fortunately, there are a few things you can do right now to address these concerns:
- Monitor warning signs
Payment verification is an important part of protecting your business. There are a variety of strategies to employ including implementing technology utilizing artificial intelligence and machine learning to help catch certain patterns. In addition to technology, here are a few other tips that may serve as warning signs. These are not a guarantee fraud is occurring, but they are flags to investigate.
o The shipping address and billing address differ
o Multiple orders of the same item
o Unusually large orders
o Multiple orders to the same address with different cards
o Unexpected international orders
- Require identity verification
Finding a balance between protection and ease of purchase will ultimately help you protect your customers and your business. The following tactics can make it more difficult for fraudsters to be successful:
o For customers that have a login, require a minimum of eight characters as well as the use of special characters in your customers’ passwords
o Set up Two-Factor Authentication that requires a One-time Passcode (OTP) via SMS or email
o Use biometric authentication for mobile purchases or logins
- Monitor chargebacks
Keeping good records is essential for eCommerce. If a customer initiates a dispute, your only available recourse is to provide proof that the order was fulfilled. Be prepared to provide all the supporting information about a disputed transaction. Worldpay’s Disputes solutions can connect to your CRM and provide you dual-layer protection against friendly fraud, first deflecting them before they arise and then fully managing chargeback defenses on your behalf.
- Monitor declines
Credit card issuers mitigate fraud by automatically declining payments that look suspicious, based on unusual card activity such as drastic changes in spending patterns or uncommon geolocations of spending. You can check your own declined payment history to help spot a potential problem. When volumes increase, the help of a payments fraud management partner is beneficial.
- Protect your own wallet
While you take the steps to protect your business, it’s also important to be mindful of your own protection—it’s incumbent on all responsible consumers to be vigilant about their data. Whether it’s simple awareness of how the fraudsters are operating today, sticking to trusted brands when shopping online, and thinking twice about what data you share and who you share it with, you’ll soon see how often you are sharing personal information about yourself.
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