Preventing authorised fraud: the delicate balancing act of managing risk and customer experience

A surge in social engi­neer­ing scams, where vic­tims are tricked into send­ing funds to fraud­sters’ accounts, is esca­lat­ing. Banks and oth­er pay­ment providers face the per­fect storm caused by the speed in which funds can be trans­ferred and con­sumer demands for fast, fric­tion­less pay­ments. This has proven to be a fer­tile ground
for crim­i­nals.

Such is the extent of these autho­rised push pay­ment (APP) scams in the UK that they led to £583m in loss­es in 2021, accord­ing to UK Finance, a 40% increase com­pared with 2020. The trade asso­ci­a­tion states that the coun­try faces an “epi­dem­ic of fraud” and more action needs to be tak­en as cyber­crim­i­nals quick­ly adapt their meth­ods to suit shift­ing con­sumer lifestyles and behav­iour.

Near­ly 196,000 cas­es of APP fraud were report­ed in the UK last year in what UK Finance is call­ing a “nation­al secu­ri­ty threat.”

“There’s a very short time win­dow — a mat­ter of sec­onds — in which a bank or pay­ment provider has to decide whether a trans­ac­tion is gen­uine and either accept or decline. The rea­son why APP fraud is so hard to iden­ti­fy is because the vic­tim ini­ti­ates the trans­ac­tion. The lev­el of sophis­ti­ca­tion being employed for social engi­neer­ing scams is now astound­ing, and the vol­ume of attempts is on an unprece­dent­ed scale,” explains Fred­dy Arthur, fraud strat­e­gy leader, EMEA, at NICE Actim­ize, a glob­al mar­ket leader in finan­cial crime and com­pli­ance solu­tions.

Through its Finan­cial Ser­vices and Mar­kets Bill, the UK gov­ern­ment is work­ing on leg­is­la­tion that makes banks and oth­er pay­ment providers respon­si­ble for reim­burs­ing APP scam loss­es. Its aim is to ensure cus­tomers who are vic­tims of fraud through no fault of their own are not left pay­ing for it. Con­se­quent­ly, busi­ness­es will have to do more to pro­tect their cus­tomers from this new wave of fraud.

“There’s a lot of pres­sure on banks to get on top of this issue. Yet our rela­tion­ship with our devices, banks and busi­ness­es from which we buy has evolved sig­nif­i­cant­ly, catal­ysed by the pan­dem­ic,” says Arthur. “We’ve all auto­mat­ed and sub­con­tract­ed whom and what we trust, with a key focus on tech­nol­o­gy. At the same time, we increas­ing­ly believe what we see on social media and the inter­net.”

Arthur sees a widen­ing gap between the grow­ing amount of fraud and the abil­i­ty to com­bat it. He says: “This cre­ates an incred­i­ble oppor­tu­ni­ty for cyber­crim­i­nals who aren’t just engag­ing the younger gen­er­a­tion, the dig­i­tal natives, and Gen Z. Every­one is encoun­ter­ing these crim­i­nals. Regard­less of dig­i­tal flu­en­cy, British con­sumers are falling vic­tims to these sophis­ti­cat­ed scams at an alarm­ing rate. This is not just an epi­dem­ic of fraud—it is an assault and an attack on our soci­etal norms.”

At the same time, finan­cial insti­tu­tions are in a race to cre­ate the opti­mal cus­tomer expe­ri­ence, one that pro­vides instant grat­i­fi­ca­tion to the pur­chas­er and fric­tion­less pay­ments for busi­ness­es that want to facil­i­tate sales, poten­tial­ly dis­re­gard­ing pos­si­ble risk in the face of com­pet­i­tive dif­fer­en­ti­a­tion. It is not enough to be fric­tion­less, busi­ness­es must pro­vide a ‘fric­tion right’ expe­ri­ence. It is an extreme­ly fine bal­ance between risk, trust and seam­less authen­ti­ca­tion where expec­ta­tions from all play­ers have risen, along with the shift in lia­bil­i­ty to ensure the cus­tomer is being pro­tect­ed.

“We’ve seen bank­ing oper­a­tions teams dou­ble or even triple in num­ber over the past three years to deal with the spi­ralling fraud asso­ci­at­ed with the expo­nen­tial growth in dig­i­tal trans­ac­tions. The num­ber of fraud alerts has spiked. It takes a lot of time to val­i­date scams where vic­tims have been social­ly engi­neered to make the pay­ments them­selves,” explains Arthur.

“We’ve also seen a pro­lif­er­a­tion in point solu­tions by finan­cial ser­vice providers to con­tin­u­al­ly address new and emerg­ing threats. It’s crit­i­cal to have a holis­tic view of risk or intel­li­gent fraud pre­ven­tion. This is why we use machine learn­ing and AI to analyse bil­lions of data points glob­al­ly to scan trans­ac­tion behav­iours and spot anom­alies.”

Hun­dreds of key indi­ca­tors — data gath­ered along every cus­tomer jour­ney across a vast port­fo­lio – can now be mea­sured. These key indi­ca­tors, embed­ded with­in advanced machine learn­ing, can detect the known and unknown risks and eval­u­ate anom­alous behav­iour for real-time deci­sion-mak­ing.

“We have some of the largest pools of data world­wide and col­lec­tive intel­li­gence gath­ered from the largest glob­al finan­cial insti­tu­tions. The com­bi­na­tion of these sources enables our solu­tions to adapt to new and emerg­ing threats,” says Arthur. “To get ahead of this fraud epi­dem­ic, it’s impor­tant to use a solu­tion from a trust­ed provider. NICE Actim­ize is trust­ed because of our glob­al exper­tise and ongo­ing inno­va­tion.”

Go to niceactimize.com/emea to learn more about how the smartest AI can solve the most com­plex fraud

Pro­mot­ed by NICE Actim­ize