How Alipay Works To Thwart Payments Fraud

A small lapse in judgment can cost consumers big when transacting via payment apps, but having users jump through security hoops creates a clunky customer experience. In this month’s AML/KYC Tracker, Victoria Liu Edison, Ant Financial’s chief compliance officer for the Americas, explains how pairing digital KYC procedures with automated counterfeit ID detection programs and biometric authentication can help shut out fraudsters without sacrificing the user experience.

The pandemic has made consumers and retailers wary of legacy payment methods, such as cash and cards — a concern that is prompting many to embrace mobile payment apps.

These apps not only enable consumers to send money from their smartphones to friends and family quickly, easily and — most importantly — contact-free, but the apps also allow them to pay their bills with merchants that have put moratoriums on accepting physical tender.

These benefits can persuade more consumers to embrace mobile payment apps, but customers are unlikely to stick with services that do not also keep them safe from fraud. App providers therefore must ensure they have strong defenses in place that can hold up even against the current rise in fraud attempts. Cybercriminals have ramped up attacks during the pandemic and are seeking to benefit from consumers’ unfamiliarity with mobile payment services to scam them. App providers that are ready to respond will win over more users.

The right fraud monitoring and know your customer (KYC) approaches are key to providing such reassurances, according to Victoria Liu Edison, head of compliance for the Americas at Ant Group, the company behind the popular digital payments service Alipay. She explained in a PYMNTS interview how Alipay keeps customers in China safe and how payments platforms can use methods like abnormal behavior detection and biometric authentication to thwart the bad actors.

Social Engineering Scams

Keeping payment app users safe from fraudsters is no small task. Criminals all too often deploy a variety of scams to trick them into unwittingly handing over funds. Bad actors might present themselves as legitimate sellers on online marketplaces, request payment via apps and then vanish with the victims’ money, for example. They may also choose to launch cash advance scams in which they purport to be lenders and promise to deliver short-term cash loans, but only after the customers pay fees.

Consumers, meanwhile, are left with little recourse, since they cannot file for chargebacks as they would in the case of a credit card-based transaction. This is one reason why many scammers ask to be paid via mobile apps. That puts the pressure on app providers to be able to quickly catch criminals and put a stop to their ploys.

Payment apps thus need to get detailed insights into how users are engaging with their platforms so the companies can detect when something is amiss. Edison said that artificial intelligence (AI)-powered risk engines can support these efforts by enabling financial institutions (FIs) to continually review payments across their platforms for any signs of unusual activity. Alipay has relied on such a system to help reduce its own rates of fraud losses.

“At the core of our risk management, this system detects irregularities and analyzes fraud attempts, patterns and determines risk levels accordingly, making sure that all payments are closely protected 24 hours a day, seven days a week,” Edison explained.

This can help the company catch everything from cash advance scams to money laundering attempts, she said. Such continual protection enables the company to identify misbehavior in real time so it can mount a rapid response.

Fostering Trust With Biometric KYC And Payments Tracing

It is important for platform providers to be able to catch and foil ongoing schemes, but this should be only one prong of a larger strategy. Mobile payment app providers must have strategies in place for preventing fraudsters from entering the payments environment in the first place. That begins with closely vetting new enrollees during onboarding so they can detect cybercriminals. The vetting methods must not introduce so many frictions that they impede a seamless customer experience, however, or legitimate users will be prevented from easily onboarding.

A key first step to achieving that much-desired ease of onboarding is enabling customers to complete all their identity verification digitally, Edison said, something that Alipay offers to its users in China.

“Reports say that nearly half of surveyed users can finish an eKYC process within three minutes, while traditional KYC solutions require manual review and over 24 hours of waiting time,” Edison said. “eKYC has huge potential to help tackle … financial inclusion [by] making it easier and less costly for the unbanked to open an account and gain access to receive financial services.”

Payments app providers need to ensure that their convenient KYC methods are still held to high security standards, however. A safe and swift onboarding experience could include requiring users to upload photos of their government-issued ID cards as part of the remote identification process, Edison said. The eKYC systems would then examine the IDs for any indicators of counterfeiting.

Platforms might also give users the option of biometrically authenticating themselves using facial recognition, she added. These kinds of efforts to keep out fraudsters help foster customers’ trust in the payments service by increasing the likelihood that the vast majority of payees the customers interact with will be honest.

Payment apps can make transacting easy for consumers — but they can also make payments just as convenient for the fraudsters unless providers take careful security approaches. Staying ahead of bad actors’ many scams requires that platforms apply tight security approaches to the entirety of the customers’ journeys, starting at initial onboarding and continuing throughout the relationship. This is where technologies such as AI and biometrics can help secure payment platforms and let consumers transact with confidence.