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Breaking The Barriers To Effective Fraud Management

A growing level of fraud sophistication requires next generation fraud mitigation tools.

Fraud is inevitable. It continues to wreak havoc in the lives of accountholders and those financial institutions that serve them. None are immune from its cancerous effects. From hometown America to the savvy international traveler, all will likely experience the headaches of lost or stolen cards, account takeovers, or data breaches. It’s not a matter of if, but when.

Fraud is a universal reality. The global cost of fraud and identity theft is estimated to be more than $200 billion per year with $54 billion in losses to businesses and individuals in the United States. The result is that a cardholder in rural America could be hit by fraud emanating from Russia or China. The stakes are growing.

Fraud Sophistication Intensifies

Add to that the fact that criminals have become increasingly sophisticated. They are expanding their tools to find new ways to exploit vulnerabilities in the payment ecosystem. And they’re not solely focused on payment cards.

Consider the recently reported case whereby a criminal deployed a distributed denial-of-service (DDoS) attack on a bank draining up to $2.1 million from the institution. According to the Financial Services Information Sharing Analysis Center (FS-ISAC), The DDoS attacks were likely used as a distraction for bank personnel to prevent them from immediately identifying fraudulent wire transactions, which in most cases is necessary to stop it.

From Point Solutions To Holistic Protection

This growing level of sophistication needs to be matched by next generation fraud mitigation tools. Financial institutions need thicker armor with a strong layered approach. Criminals will gravitate to the least protected opportunity, so the era of point solutions those that auto-detect fraud within a specific channel must yield to a broader protection of the enterprise.

Financial institutions cannot mitigate fraud in silos. It requires a coordinated approach via true Enterprise Risk Management (ERM) systems that offer cross-channel real-time monitoring. There’s tremendous benefit in having one platform to monitor all credit, debit, checks, ATM, ACH, and wire transfers. Point solutions can break down when a sophisticated criminal uses a multi-pronged attack. That’s because point solutions are not effective at talking to one another. Harnessing data from other channels into a clear picture of fraud is rendered less effective within a point-solution environment.

Human Intelligence As Stop Gap Solution

Decades ago there was a notion that automated rules-based fraud platforms were the golden egg they would stop fraud on the rails and improve fraud management. In many cases, they do identify and block fraud, saving financial institutions thousands of dollars. But leakage occurs regularly and rules are often not specific enough or current enough to catch fraud before it occurs.

Human intelligence is an effective stop-gap solution. Having a dedicated team of expert fraud analysts working your queues can be a powerful solution to minimize fraud exposure. Automated platforms identify and flag suspicious transactions, but in many cases, the financial institution has to work those cases. And depending upon the size of the financial institution, those cases can be enormous. Expert fraud analysts can reduce your case load, resolve false positives, and uncover fraudulent transactions that leak through the system. That’s true peace of mind.

Fraud is inevitable, and financial institutions must remain vigilant. With the right tools in place, a credit union or bank can be a viable opponent in the game of cat and mouse. Who wins is up to you.

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Kevin Spear is the SVP of Business Development at Quatrro Processing Services. He oversees all risk and fraud services in the Americas. He can be reached at kevin.spear@quatrro.com.
This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
November 4, 2013

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