Risk and Fraud: Trends for 2017

Money is moving quicker than ever before. Global payment infrastructures are adopting faster payments and real-time settlement. High speed transactions make it much more convenient for consumers to move their money locally and around the world. However, the ability to move money swiftly is one thing; moving it securely is another.

As financial institutions (FIs) continue to meet the needs of customers who expect wherever, anytime services, the focus in the year ahead will be on FIs providing the right security and KYC risk scoring that keeps up with the speed of transactions.

People and businesses want faster settlement systems, multiple channel options and easier access to payment initiation. But as settlement risk is reduced, fraud risk increases. The threat of greater fraud looms because with real-time settlement, there's less chance to recover a fraudulent payment. Once the money has gone into the market infrastructure and potentially moved among multiple parties quickly, recovery becomes very difficult.

As the industry welcomes these technological trends in the year ahead, it also must be ready for the following factors which will have an impact:

• Customers demand more from their financial services. People want quick access to payments, but also want peace of mind on security with that speed. A survey from Fiserv this year found 68 percent of respondents have needed immediate access to money from a check. While, eighty-one percent ranked security over convenience in payment methods. Speed and security go hand-in-hand and are crucial from a financial management standpoint.
• Fintech companies will continue to disrupt the industry with innovative technology. As those companies flourish and offer different services, FIs must assess the effects of these technologies on their payments business. Those alternatives may come with a higher risk, which could then lead to reduced trust from consumers in the whole process. Some Fintech companies will have to play catch-up to reach the level of security required for managing payments.
• Financial criminals will become more sophisticated. As more payment channels are used, malicious software that monitors initiations could become a greater threat. Once criminals get hold of the money, they often funnel it through legitimate assets, making it harder to identify the original theft.

FIs must strike the right balance between keeping customers safe from criminal threat and providing a positive experience. They need to safeguard against fraud but also avoid negative customer service, such as a card being blocked or people not being able to access their money. This new environment demands greater efficiency and stronger management of false positives so that the customer receives a great experience.

People and businesses want mobility, convenience and speed without their fraud prevention raising red flags when none are necessary. Fraud detection tools that set arbitrary barriers, such as flagging transactions when they are above a certain amount, can often lead to false positives. The security put in place by FIs should improve, rather than hinder, the customer experience.

How can FIs achieve the right balance? Through the use of hybrid analytics. This is a sophisticated technique that leverages a broader set of data from a consortium of institutions to analyse transactions in real time. The process identifies the nuances of behaviours that indicate fraud in an operationally efficient way.

By using hybrid analytics, a series of layered checks and balances can be established across a transaction‘s lifecycle to help ensure that when a payment is going through it is consistent with pervious outcomes and isn’t out of the ordinary. Solid fraud protection requires monitoring of the entire flow of the transaction, rather than targeting one specific point. Hybrid analytics helps to provide that holistic view.

As consumer demands for faster payments continues in 2017 and new payment technologies enter the market, FIs need to meet these needs whilst protecting themselves and their customer’s money. While slow payments can be frustrating, having payments going into criminal accounts is worse. Striking the right balance means customers can bank how they want, safe in the knowledge their money is secure.