Combating Fraud – A Journey From Good to Great

Albert Einstein once said, “The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.”

Financial Institutions are in a similar situation. A lot has changed in the last few years. Fraud activities and losses are on the rise. FIs need to act or face the consequences – higher fraud losses, loss of public trust and declining customer loyalty. Given the risk, it is imperative that risk leaders adjust their fraud strategies to adapt to the new reality.

In this article, I will talk about the evolution of current fraud prevention infrastructure at FIs, the recent shift in trends and the impact of those changes. Finally I will provide recommendations that should be considered while developing fraud prevention strategies.

Current Fraud Prevention Environment

At first, FIs developed in-house system to manage fraud. As they encountered more and more fraud, they either built or bought solutions to address specific fraud issues. These are rule-based systems that detect fraud based on a set of rules, the patterns observed during past fraud activities. Over time, they have multiple fraud systems, each designed for a specific product and/or channel.

These systems have limitations. They work in silos and share little to no data with other fraud systems. This limits fraud detection capabilities across products or channels. The fraudsters take advantage of this gap. They execute attacks on one channel to obtain user information and use it to gain access to other channels and commit fraud.

Shifting Trends

During this time, the industry has evolved and witnessed a major shift. The covid-19 pandemic, changing customer behavior, and new payment methods are driving this change.

Customer Behavior & Expectations

There has been a push to attract younger customers such as Millennials and Gen Z. Unlike traditional customers, the new age customers are more tech-savvy. They prefer digital channels and expect faster processes and a whole new level of customer service.

The covid era also accelerated digital adoption. A lot of traditional customers shifted to online platforms during lockdowns. Most of the customers who shifted to digital channels are there to stay. They want to do everything online that they were able to do at the branch and much more.

Besides enhanced services and excellent customer support, the customer expects banks to provide 24/7 service and full protection against any fraud or scam.

Payment Platform

The payment landscape is changing. There has been a concerted effort to make payments faster. Payment solutions such as Same Day ACH, P2P, and TCH RTP are all part of faster payment initiatives. Depending on the speed of the transaction and fund availability, different terms such as “faster”, “real-time” and “instant” payments are used to describe those solutions.

The rise of Open banking and Bank API is also disrupting financial services and boosting fintech growth. Banks and Financial Institutions no longer hold the monopoly in the payment space. There are new entrants such as PayPal, Square, and Stride, who collaborate with the FIs to provide better services to the customers.

Impact of Recent Changes

Increased Fraud Activities

The fraudsters are closely monitoring these developments and exploiting gaps and vulnerabilities in the new environment. The speed and convenience of digital payments are also attracting fraudsters. The faster the speed, the less time FIs get to detect and prevent fraud. The fact that most of these payments are irrevocable makes it even more attractive.

An uptick in data breaches in recent years has also contributed to the problem. The cases of identity theft and account takeover fraud are increasing consistently. Non-face-to-face interaction and easy availability of PII data over the dark web make it easy for fraudsters to create synthetic identity, a primary reason for new account fraud.

Evolution of Innovative Solutions

The industry is reacting to those challenges. The line between online fraud detection, identity proofing and authentication is blurring. The ecosystem is evolving with innovative approaches and point solutions across bot mitigation, device management, geo-location intelligence and behavioral biometrics.

There are numerous initiatives to collaborate and share data across the industry to identify and prevent fraud. Confirmation of Payee (CoP), a name checking service for UK-based payments, is a step in the right direction.


Risk management leaders are under constant pressure to increase ROI, reduce operational costs and keep fraud losses under control. They need to become more customer-centric and implement new technologies and strategies to fit in the changing landscape.

Below are some of the recommendations to keep in mind while developing your fraud detection strategies.

  • Implement a centralized fraud platform as the base with orchestration capabilities. Choose a platform that can provide omni-channel protection and integrate with other point solutions to incorporate their risk signals and enhance overall fraud detection capabilities.
  • Execute a comprehensive fraud strategy that supports identity proofing and user authentication use cases. This will help secure your front doors and reduce account takeover and new account fraud.
  • Monitor all the events continuously across the customer digital journey – right from account opening to new service enrollments to all monetary and non-monetary events.
  • Leverage advanced analytics, AI, and machine learning to analyze risk and trust signals and unearth new fraud patterns quickly.
  • Use a risk-based approach to identify suspicious behavior to provide broader coverage. Each event should be evaluated, and risk-scored. Fraud detection strategies should take risk score into consideration while making decisions.
  • Engage with customers early. Educate them about the risks, loss liability and reimbursement policies associated with the new products/services.

Remember, this is a journey and not a destination. You got to break the status quo and be persistent to get better. Take small steps and evolve your fraud strategy to stay relevant!!!

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