If you skip regular medical screenings, you assume the risk of not identifying diseases in their early stages – when they may be treatable.
I believe this is an appropriate metaphor for fraud in financial institutions. Identity-related fraud rings lurk beneath the surface like a disease, growing and spreading without obvious indications of their presence. Unless institutions conduct the appropriate screenings, these rings may not be detected until they do irreparable damage.
Take synthetic identity fraud for example. Aite Group found that these frauds regularly avoid detection until they become part of the collections queue, after months of eroding the institution’s financial health.
These days, financial institutions need a comprehensive fraud-detection strategy that includes robust data and sophisticated tools that scrutinize both monetary and non-monetary transactions.
Account Takeover and New Account Fraud
Fraudsters invade financial institutions through two non-monetary events: 1.) fraudulent new-account openings; 2.) account profile changes that set up account takeover.
To detect these threats, institutions must have three levels of preventive screening. Specifically, they must have controls and systems to detect common schemes, variations on those schemes, and emerging threats from well-organized fraud rings.
Level #1: Common Schemes
Classic schemes for account takeover (ATO) and new account fraud (NAF) are alive and well. Massive data breaches and credential spills have made it easier for fraudsters to find success, often sailing past security questions and traditional ID verification solutions. Fortunately, many institutions have adopted systems that combine predictive data, sophisticated analytics, risk and decisioning rules, to predict the likelihood of these common schemes.
Level #2: Variants on Common Schemes
Fraudsters make subtle changes to their schemes in order to avoid being detected by existing controls. To identify variants on common schemes, institutions should have a method for screening newly entered data (application or email, address, or phone number change) singularly as well as in combination with other identity data. This illuminates out-of-pattern behavior, which should be immediately placed in the investigative queue.
Level #3: Emerging Fraud Rings and Schemes
To connect the dots that reveal fraud rings and complex schemes, it takes a holistic data science approach bolstered by a vast network of identity and shared financial institution data.
In this approach, a fraud-detection platform applies sophisticated machine learning and analytical tools to draw inferences and deep connections among millions of seemingly unrelated data elements. Then the platform applies unsupervised anomaly detection to unearth any emerging patterns and data groupings data that could indicate NAF or ATO.
Platform-based solutions, accessed via API or core processor relationship, run automatically behind the scenes. They examine, analyze, and score the non-monetary events, delivering them to a case-management system within seconds – so investigators can prioritize their investigations on the most suspicious activity.
The most efficient and effective platform-based solutions will be able to screen non-monetary transactions across:
- Institution consortium data – to see velocity and fraud-ring behavior
- Branch, call center, and digital channels – to uncover cross-channel attacks
- Multiple datasets of identity information – to reduce false positives that create member friction
Additionally, there shouldn’t be limits as to how or how often an institution can alter its decision rules or risk tolerance within the platform solution. Fraudsters, like viruses, are continually mutating and evolving their attacks. Institutions must have the flexibility to ensure that their detection and inoculation approaches are also evolving. The financial health of the institution depends on it.
About the Author
Jack Sundstrom is ID Insight’s Chief Product and Marketing Officer. For the past 25 years he has built advanced analytic solutions on behalf of Fortune 500 clients across a variety of industries including financial services, telecommunications, retail, consumer packaged goods and automotive. Contact him at