Trends in Fraud Analytics

Fraud: How big is the challenge?

Quarter of a million people are impacted the fraud each year in UK alone and overall losses will be in billions.

Fraud Trend UK

Financial Institutes have to be vigilant to manage the fraud. Fraud has more than monetary impact. It affects customers trust on the financial systems overall and a specific financial institute. Considering vulnerability of online “Identify” theft, the financial institutes are taking extra measure to keep the customer confidence. 

Card Fraud: How is it being tackled?

Two-factor authentication:  Two factor authentication is a two-step security process to verify the personal identity. First verification is Personal Identification Number (PIN) or Password and second is physical device or token such as card or RSA Security token.   Banks and credit card provider has implemented the two factor authentication process and it did help the financial organizations to manage the fraud [2].

security device

There is also discussion to go with three factor authentication process which also requires biometric information in some form.  Of course, the user has to carry additional security device if the financial institution has provide a security token.

Chip & PIN:  Chip & PIN technology helps in increasing security of card transactions not only at Point of Sale (POS) but also when it is lost.  Due to Chip, it is difficult to create a duplicate version of the card as compared to that of magnetic strip card.  card with chip

When a card holder swipe a card at a Point of Sale (POS), it will ask for PIN, making a transaction extra secure.   The card holders require remembering their PIN and not all the Point of Sale (POS) machines are Chin & PIN enabled.  

Peer-to-peer fraud-reduction network: Similar to credit bureau – where all banks are sharing information about the customers who have default on an obligation (e.g. credit, personal loan or mortgage payment)- in case of Peer to Peer fraud reduction, merchants and  financial institutions share information such as IP address of the fraudsters .  RBS and Ethoca signed a deal on data sharing to manage fraud [1].

Case management systems: HSBC has worked with SAS to developed Case management system to manage the fraud[4].  Similarly there are a number of Case Management systems which screen the transactions and make a decision on whether the transaction is fraudulent.  Fraud Case Management from Pega, Intelligent Investigation Manager from IBM, Computer-Assisted Subject Examination and Investigation Tool (CASEit®) from PwC, FICO® Falcon® Fraud Manager and Aithent Case Management Solutions are a few examples.  These systems require analytics team to define the rules or flagging a transaction as potential fraudulent transactions.  Fraud Analytics and Modeling team works on building predictive models using diverse data sources and statistical & machine learning techniques.