Our bank clients use impressive fintech solutions to identify fraud attempts when money is changing hands. They also understand the importance of scrutinizing non-monetary transactions, like customer profile changes, to prevent account takeover fraud (ATO).
ATO is happening in real time
Years ago, when the predominant ATO scheme was an address change followed by a card request, banks had several days to discover the fraud, prevent losses, and preserve customer trust. Those days are gone.
Today, criminals have multiple real-time pathways in which to set up and achieve ATO. To protect the institution and its customers, high-performing banks use real-time methods to scrutinize every profile change. This includes changes to email addresses, physical addresses, and phone numbers.
What real-time profile screening reveals
Much like they did with address changes, criminals change phone numbers and email addresses to intercept the bank’s communication to its legitimate customer. By taking over the communication channel, they can effectively carry out the ATO.
To prevent bogus profile changes, effective real-time solutions validate and verify credentials, identify out-of-pattern activity, and return a risk score. This real-time screening catches suspicious activity like:
• A 1,500-mile move to a mail-forwarding facility in a high-crime area
• A phone number change from a big wireless carrier to a pre-paid line (i.e., burner phone) with an area code hundreds of miles away from the mailing address on file
• An email change to a server domain located in Belarus
Taken on their own, these events might be viewed as odd but harmless. However, when compared to past patterns of customer behavior, the new profile change could reveal something more sinister. Looking at profile changes in conjunction with other data enhances the ability to uncover ATO attempts.
Not just for compliance anymore
There are clear FACT Act Red Flag compliance requirements that govern address changes. Yet the rules are less clear as to how banks should screen phone number and email changes. Now that customers (and criminals) use online and mobile banking, fraud has evolved to the point where a cash-out doesn’t necessarily require a physical address change. That’s why banks should apply the same rigor to screening phone and email changes as they do to scrutinizing address changes.
Part of a layered approach
No single fraud detection system is a silver bullet for keeping criminals out of the banking system, and that’s why ATO is rising. In a recent Aite Group survey, 43 percent of respondents reported that ATO fraud attempts for DDAs were up over the past year; 41 percent said they experienced higher losses in DDAs because of ATO.
To maintain some semblance of control as ATO fraud schemes evolve, banks need a layered fraud-fighting approach that uses real-time data and technology at multiple monetary and non-monetary access points.
Fine-tuning this layered approach will require analysis to determine which combination of provider solutions and operational procedures most effectively combat ATO while achieving the greatest ROI. Getting it right means that banks and their customers win, and the fraudsters lose.
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, retail, telecommunications, consumer packaged goods and automotive. Contact him at email@example.com.
The quickly evolving nature of fraud schemes is taking its toll on banking’s bottom line. That’s why it was no surprise when research by Aite Group confirmed that new account fraud (NAF) is one of the top fraud concerns (and planned areas of investment) among retail banking executives today.
In my recent article for Bank News, I discuss what it will take to solve retail banking’s NAF problem. My recommendations address the organized, automated, and devastating nature of current and emerging fraud dynamics.
Yes, high-tech criminals are accessing breached data and deploying computer scripts (bots) to outsmart your systems. But often, while you’re focused on stopping those attempts, they’ll resort to low-tech strategies, like opening fraudulent accounts via your contact center.
It’s critical to have multi-layered systems that identify suspicious activity and risky behavior patterns across all your access points. And with so many types and variations of identity-related fraud, you’ll need predictive models with multiple scorecards and business rules.
You’ll also need new account inquiry velocity. A consortium of retail banking DDA inquiry data shared among many different financial institutions helps to protect your institution, uncover fraud rings, and keep criminals out of the banking system.
Additionally, the most effective front-end screening solutions scrutinize a vast array of identity attributes and identify out-of-pattern behaviors. For example, physical address changes can reveal important factors related to fraud, including long moving distances and previous fraud behavior at specific addresses. Other data elements and access points – such as email address, phone numbers and IP address – should be analyzed to reveal velocity.
To read more about recommendations for creating strategies to fight NAF, please read the full article.
About the Author
Adam Elliott is founder and president of ID Insight. He has more than 20 years of experience creating solutions for the financial services and direct marketing industries. A recognized name in data science and analytics, Adam has also held leadership positions at ChexSystems, Deluxe and Time Life. Contact him at firstname.lastname@example.org.
Which schemes, scams and trends are financial fraud investigators seeing most often in 2018? We joined the International Association of Financial Crimes Investigators (IAFCI) Minnesota/Dakotas Chapter at their annual conference to learn more about the most compelling topics in fraud-fighting today.
The IAFCI Fall Conference is attended by multiple fraud investigators from the private sector, in addition to white-collar crime investigators from law enforcement. The conference focused on insights from industry leaders in financial services, including Ameriprise, Allianz, U.S. Bank and more. Key discussion topics included:
Fraud across multiple channels
Investigators revealed how fraudsters exploit different communications channels to perpetrate financial fraud, primarily account takeover (ATO). Fraudsters are using phone centers, along with stolen customer credentials, such as SSN and DOB. Attendees also reported online fraud using stolen or hacked login information, as well as forged paper documents used to open new accounts and change personal information within existing accounts.
Data breaches are powering fraud
Retail banks are seeing victims of high-profile data breaches become victims of financial fraud. Conference attendees advised banks to take a multi-layered approach to fraud detection and prevention, using a series of ID verification and ID proofing technologies – as well as an internal “blacklist” of known frauds across DDA and credit accounts – to ensure they stymie more ATO fraud schemes before they can hit customer accounts.
Manual schemes that use social engineering are growing
A financial institution attendee reported an uptick in fraud from phone centers, focused on callers phishing for information about customer credentials. This company is revamping its customer service training to detect people phishing for information. These callers frequently have bits and pieces of customer identity they use to perpetrate the fraud, often acquired through data breaches. The company is also exploring solutions that identify IP addresses with high rates of fraud or past fraud losses as a way to better identify callers at the other end of the line.
Mobile and peer-to-peer payment fraud is an emerging concern
Attendees discussed the rising tide of mobile wallet and peer-to-peer payment fraud schemes, using Zelle, Apple Pay, Venmo and other payment systems to gain access to customer profiles that are tied to DDA or credit accounts. Investigators stressed the need for real-time fraud tools that would help detect more mobile payment fraud by screening email addresses, IP addresses and other digital “fingerprints” that may not currently be tracked by financial institutions.
While fraudsters have become more organized and are implementing technology to automate their schemes, we are encouraged that the industry is fighting back with technologies to thwart these nefarious efforts. Today, many banks are using a several data sources (including industry consortium data) – compiled and delivered quickly – in addition to their own data sets to catch fraud before it results in losses. Banks also need to be ready not just for today’s schemes and scams, but for a now-unknown set of future fraud risks. Therefore, banks and credit unions require solutions that will give them the power to add capabilities, integrate new data sources, and configure business rules—all to help ensure that the bank’s assets and customers are well-defended from fraud attempts.