New payment rules - new mindset!

As of 1st January 2012, the three-day wait for fund transfers will be over. Banks must ensure that for all electronic payments (e.g. online banking transfers), the money reaches the payee’s account in a much more timely manner.

This is likely to cause problems for banks and may well identify weaknesses in their approach to fraud management in terms of keeping pace with the skill of today’s fraudster.

At the moment, if a bank spots unusual activity on a customer’s account (such as an unusually high amount being transferred) it currently has a three-day window in which to speak to the customer to check whether the transaction is genuine or fraudulent. However, despite this, banks already struggle to balance dealing with fraud effectively and managing their False Positive ratio.

As the time window shortens from three days to one in the New Year, this situation is only going to get worse. Banks may wave through fraudulent transactions, but the likelihood is that they will err on the side of caution if fraud is suspected and simply reject the more dubious transactions straight off, just in case they are fraudulent.

These so-called ‘false positives’ (genuine transactions declined because they are deemed potentially fraudulent) could increase dramatically and as a result call centres will need to grow exponentially to deal with the ensuing problem, customer satisfaction will hit an all-time low, costs will explode and revenues will implode, all of which is of course bad news for issuing banks.

The solution, however, is simple. At the moment, banks rely on historic data to see trends and patterns in transaction behaviour, but this system falls flat when a customer makes a transaction that is outside their own norm. Use of real time information would greatly improve this situation. Proximity correlation logic uses information about the cardholder’s mobile phone to anonymously determine the likelihood of the transaction being genuine or fraudulent. This isn’t a tracking device, so there are no worries over privacy. The system simply detects, within a fraction of a second, whether the card is in the same vicinity as the phone – or rather, if it ISN’T. Thanks to the ubiquity of the mobile device, banks can dramatically reduce their false positive rates this way. If the phone is not in the same vicinity as the card, there is a good chance the card is not being used by the card holder and hence the bank can concentrate on that (much more likely) potential fraud.

With the new rules taking effect in the New Year, the good news is that banks now have a new tool to add to their armoury to help in the fight against the fraudster. How long will it be before such checks become commonplace? In my opinion, not long at all and 2012 will see this become de-facto!