Can data make all the difference in the fight against payments fraud? Yes — if you know what to do with the data, and if you know where to find it in the first place. Easier said than done in an age where merchants and firms of all stripes and sizes are inundated with information that flows lightning quick, offering clues and confirmation of good actors and bad.
In an interview with PYMNTS, Andreas Suma, vice president, product line manager of fraud and data at ACI Worldwide, said data naturally comes from multiple sources both internal and external to a firm, and value lies in both types because it can give an accurate picture of customer behavior and of fraudulent behavior. The discussion played off the findings of a new whitepaper from the firm titled, “Driving Up Conversion with Effective Fraud Management.”
But ACI has found that data is often isolated, segmented into categories. Those categories can span from chargeback data to internal customer loyalty program information, and can be limited in a granular way to certain card accounts or certain locations. As a result, fraud management in retailing may not be as well-informed as it could be when it comes to detecting and preventing fraud, while at the same time promoting an optimal customer experience.
The true value of this information is then diluted.
Suma told PYMNTS, “As the size of the organization grows, many continue to be siloed as a result of legacy processes and structures and inclusion of varying tools and technologies which do not necessarily speak to or work with one another without a integration effort. I would argue that is changing, especially as FIs, as well as merchants, have tried to look at the customer more holistically, with a 360-degree omnichannel view. They are trying to get an integrated data solution so they can view and understand their customer base.”
Consistent treatment strives to be applicable to the merchant brick-and-mortar or online process, or in the FI world, Suma said, across all points of interaction, including call centers, a branch or even mobile devices. As merchants and FIs strive to catch malfeasance across all channels — and value lies in thousands and thousands of transactions logged constantly by merchants and payments providers and other stakeholders — a systematic approach is necessary.
Firms must be mindful of the specific fraud activities they encounter, such as across business types, channels, regions or even transaction sizes. In other words, a cookie cutter approach won’t suffice. What works in preventing payments fraud at a large airline or telco system may not be germane for an electronics retailer. The customer profile is not the same, the goods and services procured vary and the payments methods differ; as a result, the fraud strategies vary enough to need specification for the merchant, product and geography, as an example.
Suma said that among merchants, “more and more data is being normalized and shared” with “the technology that is available and as well as newer technologies. It is more about breaking down the silos … and the governance structure that allows staff to access and leverage that data in an effective manner.”
From an external perspective, he continued, the sharing of data is “interesting and challenging. For quite some time, organizations have shared best practices from a fraud perspective, but I think that has been more informal,” he said, “in terms of industry relationships and associations.” A structured manner of sharing data has not kept pace with informal practices, he told PYMNTS, because that data is seen as an asset as well as competitive differentiator, and its sharing is also restricted by data privacy concerns.
There are consortiums taking shape in the retail industry, however, and he noted that his own firm offers a consortium product — ACI ReD Shield — which “enables merchants to take advantage of consortium data in their pursuit of detecting and preventing merchant fraud,” along with ACI’s own data assets, and then augments the two through other available open sources, like social media, for a comprehensive fraud platform.
Touching on how often fraud report management tools should be adjusted, Suma offered: “Constantly … it should be periodic, daily, weekly, monthly … but certainly frequently.” The reason, he said, is that the “fraudsters are constantly seeking to exploit any kind of weakness.” The fraud industry, he said, “is well oiled and finely tuned.” And a good defense against fraud, he said, itself a machine, needs a good mechanic to constantly work to identify and strategize against different situations and deploy a combination of techniques and strategies.
Lest merchants think they can rest solely on the laurels of Big Data, beware. Machine learning, which applies pattern recognition to transactions and can help separate the fraudulent from the genuine, is a powerful tool with increasing adoption, but it is only one tool.
“There is a siren song,” Suma cautioned, to rely only on “just an analytics approach, but it needs to [be a] balanced approach with multiple elements to incorporate the analytics. A [fraud] score can only be so good in terms of understanding what baseline behavior [in fraud] is. Once you fall out of that baseline behavior and you see anomalous behavior, how do you respond quickly?”
Here is where human eyes and minds provide the ultimate decision-making backstop, configuring the systems to help generate better capture (for fraud) and conversion rates (for commerce and revenue and profit) by leveraging a full fraud report tool set. Such data management and speed to reaction and human monitoring can dovetail to become strategic strengths in improving the customer experience and in shopping conversions, Suma said.
Consumers continue to push boundaries in their appetite for technology — meaning merchants have to keep pace and continue to evolve to meet customer demand, while safeguarding customer transaction data, he said. “If an individual experiences a fraud incident, it can fragment or destroy that brand loyalty that was in place.”
That can hurt sales, which erodes customer satisfaction and loyalty. Suma said that it is the customer’s expectation that the brand will “attend to them and mitigate the impact to loyalty if there is a fraud experience.” Several techniques from FIs or merchants can be deployed here, Suma explained, including “recognition and outreach to their customers, rather than denial.”
For example, in the United States, outreach efforts during a breach can be tied to offering free credit monitoring and issuing replacement cards to reduce the impact of fraud to consumers.
With the explosion of eCommerce comes the growth in cross-border eCommerce, said Suma — and with international scope, it is harder for brands to respond to fraud, which means that knowing your customer on an intimate level is of critical importance.
“One size fits all is not a legitimate [fraud management] strategy,” he told PYMNTS. “You need to be able to tune it and adapt it to multiple channels and different geographies.”
To obtain a copy of ACI Worldwide’s insight paper, “Driving Up Conversions with Fraud Management,” fill out the form below: