Raconteur

Fighting Fraud 2019

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R A C O N T E U R . N E T 05 be from law enforcement or a bank and asking the victim to transfer money into a supposedly safe bank account. But financial fraud is tak- ing on many increasingly sophisti- cated guises. The challenge to stay safe is becoming like a burdensome game of tag. An extensive report on the matter published by KPMG earlier this year found that banks across all regions of the world consider cybercrimes, notably hacks and data breaches, to be the greatest challenge in the field of fraud risk. The report also highlights that the pace of techno - logical developments means con- stant innovation is critical to safe- guard defences. "In the context of a changing global banking landscape, where the demand for face-to-face bank- ing is decreasing, volumes of dig- ital payments are increasing and payments are being processed in seconds, fraudsters are crea- tively finding new ways to steal from banks and their customers," according to Natalie Faulkner, KPMG's global fraud lead. "Banks need to be agile to respond to new threats, and embrace new approaches and technologies to predict and prevent fraud." Appetite for new technologies to help combat this rise in cyber - crime is something a whole spec- trum of organisations, from large, established businesses to fledgling startups, is capitalising on. Several companies are exploring the use of biometrics and tokenisation to safeguard customers' sensitive personal information, particularly among millennials. In tokenisation, each transac- tion is completed by generating a unique token which allows a cus- tomer's sensitive data to be stored remotely. NatWest, meanwhile, in early October announced it was launching a three-month trial of biometric fingerprint credit cards in partnership with Mastercard and the software company Gemalto. The bank says the credit cards would offer contactless payments using fingerprint verification for transactions up to £100. Previously, NatWest had launched a trial for transactions up to £30. "This is the biggest development in card technology in recent years and not having to enter a PIN not only increases security, but also makes it easier for our customers when paying for goods or services," says Georgina Bulkeley, director of strategy and innovation at NatWest. Bob Reany, executive vice pres - ident for identity solutions at Mastercard, echoes this. "Feeling confident that your informa- tion is protected is paramount," he says. "Biometrics are more secure, more trusted and better suited to a world that requires more frequent authentication." Though there is evidence that digital banking has made customers more susceptible to financial fraud, Monzo says its technology has actually made it easier to spot anything unusual and take swift action against any form of risk. The more than three million customers of the challenger bank get instant notifications the moment they pay for something, enabling them to spot an unauthorised use of their card immediately. They can then freeze their card instantly in the Monzo app. Natasha Vernier, Monzo's head of financial crime, says that because of this technology her team has been able to spot signs of a data breach at other companies before these have even been made public. For example, the company alerted Ticketmaster in April last year when it detected high levels of suspicious activity in bank accounts used to make payments to the ticketing business. Ticketmaster later confirmed that a breach had occurred, affecting thousands of its customers. "When British Airways was affected by a similar data breach, we identified the 1,300 Monzo customers who had been affected and ordered them replacement cards as a precaution," says Ms Vernier. Monzo has also built a proprietary 3D Secure system which verifies online purchases in-app. "More generally, Monzo does not rely on passwords to access the app, but just on the customer's PIN to make payments, because passwords are inherently insecure. Who hasn't used the same password twice?," says Ms Vernier. "And we never contact our customers by SMS as this is easy to spoof and a route for a large amount of social engineering scams." Monzo Ascannio/Shutterstock Commercial feature he payments ecosystem has been transformed with new technologies offering more choice to consumers who now demand faster, frictionless transactions. Most investment has focused on the front- end of payments to increase the speed and frequency of transactions. In comparison, historically there has been little to no investment in supporting the 2 per cent of trans- actions that result in chargebacks, since the original chargeback plat- form was developed in the mid-1970s. This is despite predictions from Chargebacks911 that so-called friendly fraud, whereby consumers seek to abuse the chargeback system to get a refund, will cost merchants upwards of $250 billion a year by 2020. This lack of investment spiked a change in 2018 when Visa launched its Visa Claims Resolution programme. Now the conversation is changing and the industry is realising it can no longer write off the cost of charge - backs for fear of upsetting their cus- tomers, whether on the merchant or issuer's side. Even with these new systems being put into place, chargeback growth in the UK is outpacing the growth of online trans - actions threefold, fuelled by the fact that two out of five consumers who commit friendly fraud do it again within 60 days. "The problem costs both issuers and merchants," says Monica Eaton- Cardone, chief operating officer at Chargebacks911, a chargeback man - agement solution that helps online Intelligence is vital when dealing with 'friendly' fraud With "friendly" fraud growing rapidly, merchants should see chargebacks as an opportunity to improve the consumer experience businesses and institutions minimise loss, mitigate risk, recover lost revenue and enhance the customer experience. "We've seen a 20 per cent growth in chargebacks year on year, with friendly fraud doubling. Yet only 18 per cent of claims are estimated to be disputed, since most merchants and acquirers don't have the technology or resources to manage the costly disputes. "The dispute process is still quite archaic. It takes a lot of time, it's not codified, there's a lack of intelligence and there are no standardised proce - dures in place. Three quarters of banks we surveyed in Europe said their entire processing department for charge- backs and disputes was manual. "There is no way you can scale this without some kind of intelligence and consistency. Consequently, consum- ers are exploiting that gap. This is the Achilles' heel in the mission of protecting consumers, scaling at the rate required to match the surge of online growth." While it's crucial that merchants and acquirers are able to challenge charge- backs in a cost-efficient and stream- lined way, it's important they see these claims as an opportunity to improve the consumer experience, rather seeing customers as the enemy. In a world of emerging payment methods, chargebacks are a huge dif- ferentiator for card associations. No other payment method offers such a mechanism for assurance. Chargebacks911's tools work exclu- sively in the post-transaction environ- ment, helping to increase the speed at which disputes and chargebacks can be shown to be valid or invalid. The company's platform lev- erages artificial intelligence and machine-learning to identify the source of the chargeback before sub - mitting the evidence to the acquirer, card scheme or issuer. This intelli- gence helps merchants retrieve lost earnings from friendly fraud, ensure consumers are given a fair solu- tion and provides issuers with valu- able feedback that improves future decision-making in this area. It's a win-win-win. "We also provide feedback to the fraud filter so you don't run the risk of blacklisting every customer who files a chargeback," says Ms Eaton-Cardone. "Not all chargebacks are equal. "Because we're enabling fair and bal - anced decisions for everyone, we're also able to help repair the relation- ship between merchants and their cus- tomers who'll, hopefully, not only stop attempting friendly fraud, but also con- tinue to do business with that company. "Everything we do is data driven and we have invested a terrific amount in automating virtually every cycle of a payment dispute to improve quality and consistency across the board. We help foster a more digital environment so, instead of waiting for legacy sys- tems that require a lot of manual work and lag 30 to 60 days before disputes are resolved, you can use intelligence right after that transaction settles. "We will continue to help revolu- tionise and streamline the process, investing in intelligence that helps all counterparts in their unified mission to protect the consumer experience." For more information please visit chargebacks911.com T Chargebacks911 predicts friendly fraud will cost merchants upwards of $250 billion per year by 2020 of chargebacks are estimated to be disputed, since many merchants and acquirers don't have the technology or resources to manage the costly disputes $250bn only 18% consumers who commit friendly fraud do it again within 60 days 2 out of 5

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