Learning the language of fraud and instant payments

With so much change within payments in recent years, there has been a corresponding change in the amount of regulatory scrutiny and considerations for fraud prevention. In particular, existing fraud prevention systems must be augmented to accommodate the new requirements of instant payments.

In a Banking Exchange hosted webinar, Mike Cook, VP of Commercialization, Fraud Solutions at Socure, and Mark Majeske, SVP Faster Payments at Alacriti, discussed the current and future state of fraud in the instant payments landscape, as well as strategies for protection to combat evolving fraud trends.

Here are some important fraud terms and their status that were discussed during the webinar:

Synthetic fraud

An interesting fact about Mike Cook is that he actually came up with the term ‘synthetic fraud’ in 2002 while doing research during fraud investigations. While looking at applications, he noticed that not only were a lot of the fake identities coming from the same household, but the names would look the same, and the social security numbers would all have an identical base in the number. Cook then went on to sit on the task force the Fed created to put a definition on it. Synthetic fraud boils down to creating a fake identity for financial/personal gain.

Money mules

On instant payment rails, the majority of fraud experience is through account takeover. However the second is mule accounts. A money mule is someone who transfers money or moves illegally acquired money on behalf of someone else. Money mules are not always prioritized. The reason is thought to be that not only is there not necessarily a loss to the financial institution, but they also fall under the radar and are not easily detectable. Mules slip through for a number of reasons. For instance, because the credit union missed them because their third-party cut was low at origination, they didn’t have synthetic in place because they were relying on CIP (Customer Identification Program), etc. If ATO (Account Takeover Fraud) is happening and credit unions aren’t paying attention to changes of address, change of phone, or other non-monetary changes, it creates mules.

First-party fraud

Socure has seen an increase in first-party fraud, which is when a person knowingly misrepresents their identity or provides false information for financial gain. It appears that the stigma of committing first-party fraud has gone away, with people justifying it due to the economic downturn.

Second-party fraud

Second-party fraud is a relatively new definition. In this instance, the first fraudster allows the second fraudster to perpetrate fraud through their account, and then the first fraudster tells the bank it wasn’t them. Socure expects to see more of that happening. Especially if the dollar losses are taken on by the bank—consumers will see a way to take advantage of it. It’s difficult to validate which individuals are actually victims.

Strategies to protect your credit union

A layered approach to fraud detection is still recommended and was number one on Socure’s list of recommendations. It’s also necessary to become an expert in friction. Fraudsters can give an identity with a real person, and as soon as they get approved, they go to the back end and change the address and phone number. However, you don’t want to add a lot of friction to members. The challenge is to apply friction to the member in a way they’re used to. So, for instance, KBA (Knowledge-Based Authentication) is now an old technology where consumers have to answer a bunch of questions. Consumers today are used to a more modern approach, such as taking a picture of the front and back of the drivers license.

To find out more about the need for fraud prevention when it comes to instant payments, watch the full webinar, Navigating Fraud in the World of Instant Payments: Strategies for Success, featuring Socure and Alacriti.

Contact the author: Alacriti

Contact the author: Alacriti

Kristen Jason

Kristen Jason

Kristen is responsible for marketing strategy and content for Alacriti while staying abreast of industry trends. She offers over 17 years of marketing experience, including 8 years of experience in ... Details