Fraud analytics power counter fraud management efforts

Financial Services Writer

An estimated $16 billion was stolen from 12.7 million identity fraud victims in 2014, according to Javelin Strategy & Research. Because of the threat fraud poses to the banking industry, experts recommend that firms adopt the latest fraud analytics technologies to protect themselves and their customers.

"The occurrence of identity fraud hasn't changed much over the past year, and it is still a significant problem," said Al Pascual, Javelin director of fraud and security. "The criminals will continue to find new ways to commit fraud, so taking advantage of available technology and services to protect against, detect and resolve identity fraud is a must for all individuals and corporations."

Luckily, fraud analytics and counter fraud management technologies are enabling banks to combat threats like account takeover, credit card fraud and more, all while optimizing their customer service offerings.

Internal and external data fortify fraud analytics

Fraud analytics leads counter fraud capabilities by measuring and analyzing actual and attempted fraud by product, channel, fraud type and other factors. Beyond collecting and analyzing data from the bank's own resources, such as historical customer transactions, a comprehensive system to counter fraud should also analyze data from third-party resources. example, Hari Gopalkrishnan, a managing director at Bank of America, recently told American Banker that the bank is detecting fraudulent activity in mobile banking by leveraging knowledge about malware, information about whether mobile devices are jailbroken, geographical data from remote log-ins and other pertinent information.

Collecting and analyzing data from internal and external sources also helps banks uncover details about new types of threats and shifting concentrations of fraud attacks. Armed with this analysis, banks can take action to ensure they are protected and notify customers about potential threats. For instance, if Twitter is flooded with conversations about a new phishing attack, the bank can quickly move to alert customers to the potential danger so they can be vigilant about their own actions. Inviting customers to be active participants in their own security prompts two-way communication about any potential issues and establishes the bank as a defender of the customer's security.

Balancing fraud prevention and customer service

Analytics separates transactions into three categories: those that are likely fraudulent, those that should get a second look and those that are likely legitimate, allowing banks to balance their fraud-frighting efforts with customer satisfaction. For example, Bank of America doesn't question every mobile transaction, which would be inconvenient for customers and would require excessive resources. Rather, the bank flags multiple transactions from different geographic locations as a potential fraud indicator. Similarly, many credit card issuers will not authorize point-of-sale transactions outside of the user's region unless the cardholder has notified the issuer about travel plans.

The bottom line is that banking fraud prevention is an ongoing process. Data collection and subsequent analysis will continue to provide banks with detailed and timely information, but fraudsters will continue to revise their attacks to find weak points. Banks must leverage analytics to determine how attacks are shifting and how well their defenses are responding to those attacks. The banks can then make the necessary improvements, which starts the cycle again.

The advanced analytics within IBM Counter Fraud Management enables clients to spot new financial crime patterns earlier, adapt sooner and have additional control to rapidly apply countermeasures. Learn more about preventing, detecting and mitigating fraud and financial crime with IBM Counter Fraud Management.