Five ways fraud detection analytics improve data protection

Financial Services Writer

Fraud detection analytics was a highly discussed topic during the recent International Fraud Awareness Week, because banks and other organizations are continuously trying to detect and stop fraud to minimize losses. While fraud instances are down from a few years ago, it continues to be a prominent problem. Research from J.P. Morgan revealed that 62 percent of companies were targets of payment fraud in 2014.

Here are five steps that banks can take to reduce fraud incidents and detect threats faster:

1. Be proactive

Analytics enables banks and other financial companies to be proactive in the fight against fraud by automating searches for abnormal transactions, detecting patterns that suggest fraud and uncovering suspicious activity.

One invaluable capability of fraud detection analytics is finding transactions that are not normal for a customer. For example, credit card issuers should look for instances when a card is used outside the area where the individual lives or if there is other suspect activity. Analyzing account activity will quickly alert banks to:

  • Transactions that bypass authorization limits
  • Duplicate transactions
  • Patterns of even-dollar transactions
  • Other indicators of fraud outlined by the IRS

Analytics can help banks identify suspicious patterns that may seem innocent when examined individually, or are too discrete for the human eye to catch.

2. Establish hiring procedures

Analytics can also help banks hire people with the right skills to further their fraud-fighting efforts. For instance, Wells Fargo uses predictive analytics to find the right personnel for jobs in its banks, call centers and online operations, according to the Predictive Analytics Times. The company's analytics tools use data such as a candidate's background, work experience, past performance and skills to predict whether they will be successful in a given role. Since implementing this strategy, personal banker retention at the organization has increased by 12 percent.

This method of screening employees can be applied to fraud detection specialists, as well. Adding predictive analytics to the hiring process may help banks find talented, driven employees who will bring the company's fraud prevention efforts to the next level.

3. Train employees

In a Credit Union Journal article, Jim Oakes, director of financial crime for Wynyard Group, discusses the importance of educating all new employees about fraud protection policies and each individual's responsibility to report suspicious behavior. Oakes recommends that management explains company policies to staff not just during orientation sessions, but also through regular communication reinforced by supportive messages. For instance, the bank can outline fraud policies and the organization's ethical standards on screen savers or log-in pages. Oakes also stresses the importance of data analytics to identify risks and prioritize risk reduction measures.

Anne Bacher, senior advisor of Global and Treasury Payments at Silicon Valley Bank, recommends training employees to follow established processes and question suspicious requests, regardless of whom they come from. Analytics will enhance this type of training by detecting and reporting when employees fail to follow established processes. Some individual incidents may be minor, but analytics will show if they represent a pattern.

4. Implement a fraud hotline

A fraud hotline provides insiders and outsiders alike a way to anonymously report fraud or suspicious activity. According to Baker Tilly, tips are one of the most common ways that banks discover asset misappropriation, corruption or financial statement fraud schemes.

Banks need to educate their customers, employees and industry peers about the hotline to promote use. The system should then be hooked up to the organization's data analytics tools. While some hotline tips may seem inconsequential on the surface, analytics will show when multiple tips suggest a pattern of potential fraud.

5. Make it company culture

Fraud detection needs to be a mainstay of any financial institution, and this goal should be incorporated into corporate culture. The Alacer Group suggests that banks:

  • Incorporate fraud prevention goals with manager performance measurement and performance-based compensation
  • Invest in analytics and other fraud prevention technology
  • Aggressively communicate commitment to fighting fraud to employees, vendors and customers

Fraud threats from inside and outside sources will continue to challenge banks and other organizations, but by using the five tips above, banks can catch fraud sooner and minimize their losses. Learn more about using analytics for fraud prevention and fraud management in a demo video.