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Will PSD2 Hinder Rather Than Help the Battle Against Fraud?

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Will PSD2 Hinder Rather Than Help the Battle Against Fraud?

Yogesh Patel, Chief Data Scientist Callsign

As part of the Open Banking movement, PSD2 (Revised Payment Services Directive) came into effect in January and has been heralded as a revolutionary way to help deliver the best services and deals to banking customers.

In tandem, part of the legislation requires a strong authentication process whenever a payment is initiated, or remote account access is requested – known as SCA (strong customer authentication).

SCA is being implemented primarily to reduce online payment fraud. For it to be achieved, authentication from two independent dynamic factors from the following is required:

  • Possession: something you own (e.g. mobile phone or tablet)
  • Knowledge: something you know (e.g. a password or PIN code)
  • Inherence: something about you, (e.g. a biometric fingerprint, facial scan, behaviour)

While this all sounds very positive for the consumer, SCA could bring with it a number of security and integration challenges, reason being that any financial institution that hold funds for payments are now accountable for managing their customers’ digital identities.

Yogesh Patel

Yogesh Patel

So, why is this an issue? Firstly, the new SCA method will need applying to a range of existing and potentially disparate channels. A majority of the channels in question normally lie across banks’ legacy systems, therefore, the probability that retail banks will already be facing an omnichannel authentication challenge is extremely high, even without the additional implications of the PSD2. With the added complexity of SCA and requirements for Transaction Risk Analysis (TRA), as well as current customer preferences, problems with security and integration could accelerate to the top of the agenda.

Additionally, there are a wide range of use cases to contend with. In fact, PSD2 actually states that SCA has to be applied whenever an online account is accessed, or electronic payment is carried out, or ‘any other remote access method that may expose the payer to fraud’, unless it is covered by an exemption. Compounding the problem is that different demographics are likely to be familiar with different authentication methods. For example, some individuals don’t have access to mobile phones, some don’t use banking apps, some prefer using a tablet over a desktop computer etc. Ideally, SCA should be intelligent enough to be able to provide the most appropriate solution depending on the type of device or application being used at that moment. It is important that a ‘one size fits all’ solution is avoided.

Ironically, this could end up with SCA leading to more abandoned transactions than usual if a more appropriate user authentication technology is not implemented, with the unfortunate knock-on effect of actually expanding the number of attack vectors a cybercriminal can exploit.

This problem is also complicated by adding the requirements of dynamic linking, whereby elements of authentication dynamically link the transaction to a specific amount and a specific payee. Whilst this adds an extra layer of security, there are additional regulatory requirements that must be met. For example, the payer must be made aware at all times of the amount of the transaction and of the payee and the authentication code must be specific to the amount of the transaction and the payee.

As users become accustomed to being prompted for credentials in circumstances other than direct online banking services, the opportunity for a new set of phishing attacks and the instrumentation of false authentication journeys is created. This exposes consumers to a new series of risks that don’t exist today –in spite of the fact that the intent behind the PSD2 is to decrease fraud and risk.

Combined, this creates something of a multi-layered predicament for banks. While they’re obligated to provide access to accounts through the PSD2, they’ll face significant penalties under the new GDPR if that access is breached. This explains why there’s a premium placed on getting the implementation of SCA right first time and on safeguarding that the digital identities of financial institutions’ customers are accurately managed.

However, it’s not all doom and gloom and banks shouldn’t view SCA as an additional hurdle. Having to act as a ‘gate-keeper’ to their customers’ data means banks will have full responsibility for identity verification whenever authorised third-parties request access to or initiate payment from a user’s account. Although this does bring with it a vulnerability to GDPR penalties it also creates a huge opportunity for them to develop a fully-federated identity service, which can itself be used to leverage new business opportunities, along with the chance to profit from that SCA solution to third parties.

A common issue facing any company that requires its customers to go through an authentication process is the added friction to the customer journey. At first glance, this is particularly problematic for third-parties as implementing two-factor authentication can be extremely costly. However, recent developments in identity technology means that a disrupted customer experience will soon be a thing of the past. These new solutions don’t just benefit the customer, but banks and third-parties too. By banks offering their SCA to third-parties for a small price, third-parties would avoid the need to implement their own costly authentication processes and gain from the awareness customers already have with the bank’s authentication process, avoiding common pitfalls such as frequently forgotten credentials. What this means for banks is that they can offset the costs of PSD2 with this new revenue stream.

Intelligence-driven, adaptive authentication solutions that create a unified, seamless digital identity for each customer is now at our fingertips and will become a key pillar for banks’ success in customer satisfaction. By using an authentication tool that incorporates both hard (facial recognition, fingerprints, iris scanning) and soft (behavioural characteristics e.g. how people type, move their mouse or hold their smartphone) biometrics, such as Callsign’s Intelligence Driven Authentication solution, banks can now deploy the most appropriate authentication action for the user while maintaining a frictionless user interface, enabling customers to get on with their digital lives.

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To take the nation’s financial pulse, we must go digital

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To take the nation’s financial pulse, we must go digital 1

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.

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The Future of Software Supply Chain Security: A focus on open source management

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The Future of Software Supply Chain Security: A focus on open source management 2

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.

Emile Monette

Emile Monette

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.

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On the Frontlines of Fraud: Tactics for Merchants to Protect Their Businesses

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On the Frontlines of Fraud: Tactics for Merchants to Protect Their Businesses 3

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:

  1. 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.
  2. 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.
  3. 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:

  1. 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

  1. 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

  1. 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.

  1. 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.

  1. 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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