Ten trends that are transforming the fight against fraud in 2016

With 2016 well underway, we have seen a number of trends emerge in the fight against fraud.

Now that individuals and businesses alike are beginning to acknowledge the risks inherent in the increasing number of payment methods and the digital exchange for goods and services, we have established a list of the ten trends set to guide our behavior in the face of fraud.

In 2016, the fight against fraud…

is no longer taboo (1/10)

Twenty years ago, fraud was very much a taboo topic of discussion. Bank credit cards were considered to be an ultra-secure, tamper-resistant means of payment and no one even wanted to discuss the possibility of a breach of security.

In 1997, computer engineer, Serge Humpich, approached the interbank organization responsible for overseeing the security of the main French credit cards to show them a flaw in the system. Unfortunately, that demonstration landed him on the receiving end of a ten-month suspended prison sentence. At that time, no one even wanted to hear about the possibility of fraud.

Fast-forward to the present day where it seems like everyone knows someone who has fallen victim to fraud in some degree. Fraud is now an everyday reality and a topic frequently discussed in popular media.

has hidden costs (2/10)

According to a study by LexisNexis, in 2015 online merchants lost an average of 1.32% of revenue to fraud and fraud related costs, a 94% increase compared to 2014. Surprisingly, the biggest costs associated with fraud are “invisible.” In their report “Calculating the 9 Deadly Costs of Fraud”, fraud and risk management company, Kount, categorized costs related to fraud into “visible costs” or “hidden costs.” Hidden costs include declined orders (in 2014 E-merchants declined $16 billion worth of orders flagged as fraudulent, which were actually genuine), canceled orders (24% of all canceled orders end up being false positives), lost shipping expenses, wasted labor time and high transaction fees.

Today, an increase in management costs and loss of commercial income are often poorly assessed in relation to fraud, primarily because they are considered to have no direct link. And yet, these figures are constantly increasing from one year to the next.

is connected (3/10)

The cybercrime “industry” is attracting more and more fraudsters for many reasons. First, it is easier and carries less risk compared to in-person criminal activity – why risk robbing a bank when financial fraud can be anonymously committed from a computer? Second, modern technology can be used to deploy large-scale fraud scams to quickly generate revenue – more money for less effort. In fact, 60% of European credit card fraud in 2014 was associated with online payments, reports the European Central Bank.

In addition, changing consumption patterns and the increasingly wide range of communication channels are leading to new breaches. While the issue of fraud via smartphones has yet to be resolved, there is already a growing concern about connected objects. Towards the end of 2015, the FBI published a release warning the population against the risk of connected object hacking, not only for the potential theft of personal data, but also for the transmission of malware.

needs to be ASAP (4/10)

The act of waiting has become unbearable. Many researchers have confirmed that we are now ruled by our own impatience. This is an obvious consequence of the widespread adoption of new technologies, which are now at the center of many people’s lives.

Product and service offerings have logically fallen into line with this desire for “having it all, right now”. While this is already the case in the service sector with instant delivery options and payment by installments, it is gradually becoming a reality in other sectors as well, including cybersecurity. As soon as possible (ASAP) has become the new hallmark in the fight against fraud as customers expect instant order processing and get frustrated when their order is “on-hold” due to screening processes, manual reviews or other checks. According to the “Online Fraud Management Benchmarks” report conducted by CyperSource, merchants spend five minutes on average manually reviewing a suspicious order.

is human (5/10)

To err is human, and unfortunately, most cases of fraud stem from human negligence.

In fact, the human element represents the central vector of attack in social engineering techniques. Social engineering is a technique used for obtaining confidential information or assets through the manipulation of people with direct or indirect access. Phishing is a prime example of social engineering.

In recent, highly publicized cases of fraudulent bank transfer orders (referred to in France as “fraude au président”), investigators found that the fraudsters involved had hacked the information systems three months earlier using social engineering techniques. They listened in, learned behaviors, saw who was there and who wasn’t, and waited for the perfect time to launch their attack.

It is clearly much easier to access an information system as a result of human negligence than by computer piracy. Information is readily available on the internet through sites like Viadeo, LinkedIn and Facebook, at zero risk. And if it doesn’t work, fraudsters can just move on with limited consequence.

Conversely, even with machines making it increasingly easier to identify fraud, humans still play a critical role as only a human can interpret the reality, complexity and longevity of the tactics used by criminal organizations. According to a study published in 2015 by the French Association of Credit Managers and Financial Directors, 86% of detected fraud cases still require human confirmation.

is high-performance (6/10)

CyberSource reports that merchants spend as much as 52% of their fraud management budget on manual reviews. Implementing a structured approach can quickly have a positive impact on the profitability of the anti-fraud process. Such an approach hinges on the following three factors:

1. Increasing productivity by fine-tuning operations and automation, while improving the quality of the process to optimize the rate of fraud detection. Merchants are now turning to workflow automation tools, like CyberSource Decision Manager, which helps team members to work more efficiently by combining all the information needed to review an order on a single screen.

2. Refocusing the process on the end customer in order to improve the customer experience.

3. Increasing flexibility by outsourcing the management of certain situations that are complex to manage internally for a company (peak periods, weekends and holidays, short delivery times, etc.)

is customer-centric (7/10)

While a decade ago simply asking for the CVV2 number (the 3-digit number on the back of a credit card) was considered sufficient to ensure the security of online transactions, today this is not the case. What is more, by 2015, fraudulent online transactions had come to represent between 70-80% of all credit card fraud.

This summer, MasterCard holders in North America and Britain will be able to validate their online purchases using facial recognition scans. Confronted with evolving means of transactions and the related risks, security must adapt. In 2016, the end customer lies at the core of risk prevention measures.

is soon to be predictive (8/10)

The sheer volume of digital data has reached unprecedented levels.

More data has been created in the past two years than in the entire history of mankind. This volume is increasing exponentially as a result of the information collected, analyzed and shared by connected objects, which are estimated to reach more than 50 billion active units by the year 2020.

In terms of the fight against fraud, Big Data provides a tremendous opportunity for obtaining incredible precision in all transactions thanks to the extensive gathering and analysis of information. Greater precision means more sales, less fraud and an improved customer experience.

While the potential is there, it has not yet been realized. At present, it is assumed that a mere 0.5% of all data is actually analyzed and used, the crux of the matter is really around transforming this data into insight.

is shared (9/10)

According to a recent survey on collaborative consumption practices conducted by the French Department for the Economy and Finance, seven out of ten people in France have bought, sold, hired, loaned, shared or swapped a product of some sort using collaborative online platforms, such as Ebay or Etsy.

In the United States, Prosper Daily uses crowdsourcing to detect cases of attempted fraud. Like the spam button in an email application, the Prosper Daily interface allows users to identify – in just a click – an uncertain transaction on their accounts. The service collects and analyzes feedback from all users, then combines it with public data and complaints retrieved from social media platforms to alert the user if any fraudulent transactions are detected. Prosper Daily’s crowdsourcing method has proven to be a resounding success, with the company now boasting more than one million active users.

is “clean fraud” (10/10)

Understanding the context of a transaction is a crucial element in fraud management. However, the current digital environment makes that context more complex and therefore more difficult to comprehend.

“Clean fraud” refers to fraudulent payments that appear legitimate in most regards, but are driven by stolen information. This type of fraud is increasing the difficulty of distinguishing between fraudulent and genuine orders.

To fight “clean fraud”, merchants can apply a more holistic approach to fraud management across the mobile and online channels and to implement multiple solutions such as CVV and transaction analysis, device identification, geolocation, and 3D Secure.

One thing is certain, recognizing these challenges and devising ways to take action will generate much more discussion in the years ahead.

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