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CEO’s Corner

Digital Payment Security: Combating Fraud Real-Time with a Proactive Approach

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Businesses today are trying to play catch-up with increasingly sophisticated fraudsters. When it comes to combating digital payments fraud, deploying a proactive approach, is what will help businesses stay one step ahead of the fraudsters.

The payments landscape has changed — and will continue to evolve at a record pace.

With the onset of the pandemic, we’ve witnessed an upward trend in digitization, especially in the field of payments. In a bid to replace in-person interactions, consumers have been quick to make the shift to digital channels. This explains why contactless payments along with the likes of digital wallets, cash apps, card-not-present transactions (CNP), and peer-to-peer (P2P) transactions have been on the rise. The universal presence of mobile devices is another factor that is driving the growth in non-cash transactions.

With all this in the backdrop, there’s no doubt that we’re accelerating toward a digital future. Going by the Visa Back to Business Global Study 2022, 59% of small businesses and 41% of consumers plan to use only digital payments in the next two years.

Source: Visa Back to Business Global Study 2022 Small Business Outlook

With global lockdowns in play, home-confined consumers have been forced to shop online and opt for contactless payment modes, more than ever before.

The number of mobile proximity payments users in the US has skyrocketed to over 100 million. CNP and P2P payments have taken off too, making these new-age digital payment modalities the norm.

Fuel to fire: Fraudulent activities have been rampant

Meanwhile, as consumers are getting all too familiar with digital payment modes — fraudsters, are only getting more sophisticated and creative with their tactics.

According to a recent study by Javelin Strategy and Research and SAS, this rapid digital shift has spurred a multibillion-dollar surge in payments fraud, globally.

If you think about it, this doesn’t come as a surprise at all. Owing to the relative anonymity of digital channels, fraudsters are finding new ways to exploit the accelerated shift to digital payments. This anonymity has only facilitated their nefarious plans, allowing fraudsters to step up their game and expand their arsenal of tricks.

Stories of fraudulent activities have been making the headlines for a while now. Turn on the news, and you’re likely to come across a story of identity theft or stolen financial data.

Fighting fraud in real-time

So, here’s the thing, in the face of emerging digital payment options, traditional rules-based fraud solutions will no longer hold good. Financial institutions that are deploying reactive approaches based on limited, historical data end up missing new fraud patterns.

While currently, the odds may seem to be in favor of the fraudsters— taking on a more proactive and holistic approach to fight fraud is the way forward.

Proactive fraud detection may more or less seem like a quantum leap from legacy fraud solutions that primarily work with rules and historical data. But take it from me when I say that you can no longer afford to wait and respond. Reacting to fraudulent activity is more like damage control.

What businesses need today is moment-by-moment data insights, in other words, real-time data. Artificial Intelligence and Machine Learning technologies can be leveraged to fetch real-time data from across the entire customer account lifecycle. Holistic data analysis is the perfect solution in detecting evolving fraud patterns.

Proactive fraud solutions will help you detect fraud right at its infancy. Let me break this down…

Perpetrators of fraud move very quickly, and they employ numerous technologies to conceal their fraudulent schemes, in order to make them appear as routine transactions. When you start analyzing real-time data, you’re ensuring that fraud checks occur very early on in the transaction process. This gives you the ability to detect fraud just as they emerge, saving you from the risk of losses reaching critical levels.

So, what’s your call – reactive or proactive?

Legacy fraud solutions, simply fail to keep up with the rate of innovations in the payments landscape. In the coming months, the pace of payment innovation is only going to accelerate.

To sum it up, I’d say, if you’re looking to stay one step ahead of the fraudsters then you need to move away from reactive, rule-based models — to a more proactive approach.

Proactive fraud solutions promise greater visibility and a holistic view, both of which will be crucial to identify rapidly shifting fraud patterns and nip them at the bud.

Follow me on LinkedIn to stay in the know about the latest in payments tech.

Opus Official

Praveen TM is a highly accomplished global payments leader with over 20 years of experience. A veteran in the payments industry, Praveen has immense wealth of insights to share in payments innovations, emerging technologies, FinTech, and financial services.

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