Banks Rethink Fraud Controls as False Declines Rise

Narrator 0:06

This is What's Next in Payments, a PYMNTS Podcast. Forward-looking insights from industry leaders on the trends and technologies reshaping payments in FinTech. On this episode, Entersekt's Dewald Nolte shares why the competitive edge in payment security lies in context.

Austin Prey 0:26

I'm Austin Prey, senior editor here at PYMNTS. Joining me today is Dewald Nolte, the co-founder and chief strategy officer at Entersekt. Dewald, thanks so much for joining us today.

Dewald Nolte 0:37

Thanks. It's a great to be here, Austin. Looking forward to the discussion.

Austin Prey 0:41

Yeah, it's an exciting one. And we're here for the February What's Next in Payments series, uh, where the topic is, you know, the word of the year. Uh, and so for this series, we're asking senior executives to name their word of the year for 2026, uh, with you know some limitations, you know, excluding artificial intelligence uh and crypto or blockchain. Um and so you know, diving right into that, yeah, yeah, you know, because we we've heard enough about that. It's kind of a let's maybe we'll see how those play into maybe what you know other words of the year could be. Um but diving right into that, kind of you know, what's your word of the year uh for 2026?

Dewald Nolte 1:15

No, thanks, Austin. And yeah, it certainly is um exciting. I think uh, you know, for me, if I think about everything that's going on, it would be context. That's my word for the you know, for for the for the year. If you you think about the payments industry and kind of like what we've been building for the last decade, right? It's it's faster rails, smarter algorithms. Uh, but we we hit a wall when those algorithms uh do not have the full picture.

Austin Prey 1:45

Yeah.

Dewald Nolte 1:46

And and in this data-reach world where we are now, that is the difference between a good customer uh, you know, and and a sophisticated bot. You can't really tell unless you have the full picture. And so, you know, I I always kind of take this one example to really kind of bring that concept home. Like, you know, in payments, uh friction, you know, when you do it at the wrong time, you lose you lose really, really good clients because they get frustrated and you're not top of the wallet anymore. And so uh, if you see a $5,000 transaction at an online casino, most people that are in risk will look at that and say, hey, that's a risky merchy merchant category code, right? Online gambling, that's bad immediately. But if you have the full context of this user is a high network individual who has a history of actually you know gambling at this specific site. There's been 10 transactions over the last you know, six months, no issues. Suddenly, that changes from it's fraud to hey, this is a VIP customer. And how can we enable that? So for me, that's the that's the key here. And you know, with with all the Rails that we've built, with all the tools that we have now, with the uh you know capability to process these things in real time, I think that's what's gonna make the difference this year. Awesome.

Austin Prey 3:11

Yeah, I love it. It's a great uh it's a great word of the year. Um, and kind of you know, around as we look kind of you know, across the implications of context kind of across the pavement landscape, you know, where in the stack do you see kind of constraints around context? You know, is it is it data quality, is it the ability to you know surface, or is it the ability to even create that context?

Dewald Nolte 3:35

You know, I think that's a great question. And and and probably if if if I look at just our experience, um, the biggest barrier, I would say constraint would be signal fragmentation, silos, right? Data silos. Um we're moving towards a very connected world. And I, you know, I always say in a connected world, if you're building silos, you're gonna you're gonna lose, right? Um and so I'd say we're drowning in data, but we're starving for wisdom, right? Uh, because if if if you we've got all the data, but we we we don't really kind of put it together to see that real, that, that, that big picture. And that for me is probably the the biggest constraint that we have, right? It's just how do we how do we actually surface that that that data in real time to make sure that you have the right context to actually make the right decision?

Austin Prey 4:26

Yeah, 100%. Uh, and you know, context is kind of a tricky one for this next question here, but you know, where will customers notice change first kind of when context is you know working in the background? Um, and what do you see as the role of you know companies like Intersect when it comes to you know improving, socializing, and you know, building kind of a context-first experience?

Dewald Nolte 4:48

So, so I'd say, you know, on the question for kind of where would customers see it, right? For me, probably if if if I would say it's gonna be the death of the step up, like the the automatic step-up, right? Like, hey, let's take the previous example. Like, you know, if if you're doing a transaction uh and and you're a returning customer, you're a loyal, you're always at the same kind of you know, uh, let's say uh shop that you go back to, like your online shop, it's almost a little bit of an insult, right? If if you now get challenged again. It's like you should know me, right? And so I think that's probably what context will bring is is that ability to be smarter about risk decisions. And I think that what the user will notice is that you know, less less of that, let's say, unexpected challenges. Look, if I if I go to a new site, I've never been there before, travel to a strange country, and you know, I'm I'm doing a transaction there for the first time, I get a challenge, I get it. I'm doing something strange. Yeah, but I think when it comes to normal behavior, things that I always do, nothing to see here, that's when it gets frustrating when you when you are challenged, right? It's almost a little bit of a you know, really, um, kind of response to that. And I think that's probably the biggest change that you will see, you know, in in terms of of context, if if we get it right. In terms of intersect role, how we socialize this. Look, we've we've we're very passionate about kind of you know authentication. This is that's our origin story. Our mission really is to enable anyone to transact from anywhere at any time from any device without fear. And to achieve that, you need the context. And so we've built really strong connectors, we've built really good partnerships, uh, collectors um that actually collect that data and then actually distribute it to you know the right places so that in real time we can make these decisions and give the the uh you know informed kind of advice as to how to do that. So that's really kind of the role that we play, you know, making sure that you you kind of uh apply the correct way of authentication, right, for the level of risk that we're gonna pick up based on the data that we're able to kind of you know bring together across these silos.

Austin Prey 7:16

Yeah, and it's a it's a great answer. And you kind of caught me out in a bias there. You know, I was saying consumers won't notice anything because context is so invisible, but you know, we're not there yet. We're working towards there. Um and we'll, you know, we'll get there eventually. But as you look ahead, I mean we'll get there kind of fast. It's a it's an exciting time to be in the authentication space. Um, you know, what risks kind of are keeping you up at night along this you know kind of context journey? Uh and you know, what are some risks that you see as maybe necessary for kind of you know the broader scalability of kind of context-to-ware uh transactions?

Dewald Nolte 7:51

You know, you you mentioned the the speed at which things are are happening at the moment, right? Um and I think that's probably ties into the one thing that's that's kind of a bit scary. If I almost have to say, what's the nightmare scenario, right? It would be synthetic reality. Um for me, if you're able to use these new tools that are very powerful uh to really create kind of like a good enough synthetic identity that our standard rule sets and things out there cannot detect it. You know, I think security, as exciting as it is, it's exciting because it's fast moving and you know, it's it's there's always something like you know, it's it's a constant push and pull. Uh we always joke and say it's uh it's a thicker armor, a bigger bullet kind of game, right? There's always the the you know, you have a better defense, they become more innovative, right? Um, the the attacker. Yeah. So with that, I think that's probably the thing that you know that that that kind of keeps you up a little bit at night to go like, okay, you know, what if some of those attacks are so good that we don't even know they're there?

Austin Prey 9:03

Yeah.

Dewald Nolte 9:04

And and and that's that's the nightmare scenario. Oh, and and I think I think to be able to you know to to counter that, the the almost uh let's say that that willing risk that you're able, you know, that that you should take uh to combat that would be well sharing more intelligence with partners uh and building collective defense. Right. I think something that the criminals do better than than us, right, uh in the financial services industry is they actually share data. Yeah, they share so well. It's like, hey, you know, like think about these open forums, kind of where they where they chat like ideas, they share ideas, they share uh, you know, uh things that data that they've got. And that's the one area where I think we kind of need to step as an industry a little bit out of our comfort zone to say, okay, how do we share more? How do we collaborate more? Because that's how you get the complete picture.

Austin Prey 10:02

Awesome. Yeah, I and I love that response. I think it's you know right right on the nose there. Um and I guess you know, looking ahead kind of throughout the rest of the year, uh, do you see kind of, you know, what capability do you see as becoming table sticks? So it is it uh data sharing. Kind of I I guess you know, I'm not gonna, I'll just stop there. Kind of what do you see as becoming table sticks?

Dewald Nolte 10:22

Well, I I think um if you think about where we're going, if you think about kind of you know just the state of the industry right now, I'd probably say the it now becomes uh the expectation that you can do orchestrated ingestion. That's probably a good way to say it. And and what I mean by that is you should be able to get data from multiple sources in real time and be able to put that together to get to the right answer. If you're only looking at your little silo, that's not good enough anymore. So for me, that would be the table stakes thing. And and ironically, if you speak to financial services institutions you know, across the globe, that is the one consistent theme that you will hear is man, we're just trying to kind of connect, like, you know, share the data between the silos, it's so difficult to get it right. And so that I think is the that's probably our biggest barrier that we kind of need to cross in order to be at the level where we need to be for this year.

Austin Prey 11:28

Totally. And is that you know, is that kind of the technical debt? Is it jurisdictional fragmentation? Kind of what is uh is it kind of uh a kaleidoscope of these kind of small fractures that are keeping things you know separate? Kind of um how do you see the landscape and kind of any solutions that are emerging?

Dewald Nolte 11:48

So so I think it's a combination of you know a number of things there. There certainly is a regulatory angle to that, right? Where you know you've got very strong data privacy laws uh across the globe, and you kind of have to be very careful about what you're able to share and what not, uh, you know, in compliance with those laws. And so that that definitely puts some complexity and some limitations on what you can do there. Um, but at the same time, I think look, there's there's a there's one part of it that says, okay, you kind of need to get a little bit out of your own way uh in in terms of you know just being able to connect systems together. Uh but sometimes what I've seen is that the biggest challenge is almost that you know we we we want to build our little kingdom. And and and because of that, you know, we want to kind of have the walled garden with our own data. And as so many times, like if you speak to you know uh you know some of the merchants or some of the issuers, then the issuers are like, yeah, but this is our data, like you know, you know, this is our little secret here, and then the merchants will say, well, they've got something different, and that's their little secret. And the problem is that means we don't really see the complete picture. And so I think as an industry, probably you know, kind of going back to that that that previous little daring step that we need to take, I'd say there's there's a little bit of a mindset change that we need to do from walled garden to to partnership uh to actually get yourself plugged in. Because you won't have, if you're a bank, you see your world very well, but the merchant sees a completely different thing. And so it doesn't matter how good you are in your world, there's someone out there who has a perspective that you don't have and you need it. And I think that's the that's the the the bridge that we kind of need to to cross this year, right? Is to actually start to see how do we how do we venture beyond just our little world, you know, my precious. Yeah.

Austin Prey 13:55

My data mode, you know, around my castle. Yeah. No, it's a great, it's a great answer. And I agree. And it's you know, kind of hugely important. Um and kind of assuming some of these drawbridges start to come down, you know, if you had to define success for context within the authorization space, you know, at the end of the year, kind of what what would be some benchmarks or kind of you know a measurable outcome that uh you you know you kind of dare to you you dare to hope for, so to speak.

Dewald Nolte 14:22

Yeah. And so, you know, I thought about this a lot in terms of like, okay, what what is the what is the thing that you know, if we really had to to think about what success would look like, like how would we measure that, right? Um and I think that the the slight change that I would make in terms of how we you know focus is to move from let's say the fraud rate, right? Just the fraud rate, like how many, how much fraud did I block, right? To the trust rate. And so what I mean by that is so you wanna you wanna measure your success almost by the fast positive rate reduction. So if I can get to and maintain 99.9% fraud prevention by slashing my fast declines by 50%, for example, with context, that really is kind of you know the measure is because that's a trusted that's a trust rate. Like it's like, okay, if I bring the context into the equation, by how much can I reduce these fast declines where I make my most loyal customers feel like strangers when they interact with me, how much of that can I take away and give them a good experience, but make it difficult really for the guys that are trying to do nefarious stuff? And for me, I think if we if we can measure that like a high trust rate, that probably would be the thing that I'd say that's the outcome. You know, I would, I would really like to get as good as possible this year.

Austin Prey 16:01

Awesome. Uh, and do you think, you know, is this um you know kind of evenly distributed across the marketplace? Is kind of are both bang, our our financial institutions, our merchants, is everyone kind of aware of, you know, A on one side the threat, B on the other side, kind of the need and value of these more context-to-where kind of authentication protocols. Kind of, you know, how do you see the marketplace responding to you know both that need and kind of the ongoing threat threat landscape?

Dewald Nolte 16:29

Yeah, and so you know that that's a great question. And and I I really, if you look at the if you look at even just some of the regulations, right? Like, and I'm um if you look abroad uh to towards Europe, right, that that's which like they've got very uh you know strict regulations. But many times what what's get reg gets regulated there effectively kind of becomes a model that kind of in some way, shape, or form, you know, pushes out into the rest of the world. And it kind of sets the tone as to also kind of what's important. If you look at one of the big uh you know regulatory kind of changes that's happening at the moment, where is is actually data sharing, right? And so data sharing is one uh of the new regulations that's actually coming into force in Europe. And uh so I think there's a realization where they're they're looking at, okay, how do we make sure that you're able to share data for fraud purposes, but not, for example, you know, uh uh uh without uh breaching the privacy laws, right? And and so those kind of things. So I think there's a realization. I use that as an example to say there is a regulatory recognition and active, you know, uh, let's say, project around um making sure that we are able, that the that the the guardrails and the mechanisms for sharing data in a responsible way, you know, is is kind of being addressed. And so I think it is a it is a very it's something that's very topical. Uh everyone knows about it. And that's the that's the great thing about it is you you do see this this uh uh willingness and realization that we have to move towards that. I think the the mechanism of actually doing it is the part that you know probably at this stage kind of needs a little bit of attention. There are so many ways, it's it's noisy from that perspective, but I think uh certainly uh you know it it's a it's uh it's something that's getting attention and simply top of mind, which is encouraging to kind of see.

Austin Prey 18:33

Yeah, and it's great that as you know it's getting the right attention. It's kind of you know, how can we make this beneficial to the ecosystem without you know running afoul of privacy requirements? Uh and we're kind of you know nearing the end of my questions here, but um, you know, is there anything else you'd like to say kind of about you know intersect's own work kind of on these context mechanisms and you know, kind of what what you and your team are excited about, uh, you know, looking ahead a little bit.

Dewald Nolte 18:57

You know, I I it uh you know, thanks for the opportunity for that. I, you know, it's it's I always kind of look back, uh, you know, if if I look at the inception story of Intersect, right? How we how we started. We were a couple of engineers, uh, you know, we're kind of students at the time. And uh one of my co-founders at the time, you know, his mom's bank account was cleaned out without our knowledge. Uh and and we were kind of like coming together to say, how was that possible? Because they were using SMS one time text at the time. And so our mission really kind of was born from you know, uh my my co-founder's mom's bank account being cleaned out and that being a really, really bad experience. And you know, something that was really, really interesting and very satisfying for me to see is like we we recently uh you know it deployed some of these these, let's say, context-aware authentication mechanisms where we look at the context, right? And we can see, okay, something's wrong. And there was uh there's this great story about uh you know one of our clients uh uh logging a ticket with us to say, hey, can you guys just have a look at what's going on here? We we got a complaint from uh one of our clients, you know, uh that something strange going on on the account. And so it turns out someone from the DRC in Africa, right, tried to log into uh a lady from Texas uh into her bank account. And because there was multi-factor authentication kind of involved, uh he he the the attacker was able to call the lady and get her to you know approve this stuff, to say yes, you know, just say yes, don't read it, kind of thing. Yeah, and and I mean that's the nightmare scenario, right? Like, okay, you know, someone's being coerced, socially engineered to say yes when they shouldn't. But behind the scenes, because we had the context, we could see wait a minute, something's wrong here. Like there's clear signs of manipulation here, this is not normal, and so we block it. And then this guy phones back and tries again 10 times. The 11th time, the lady calls the bank, says, Hey, I'm really tired of this other guy that claims to be from the bank. You know, I'm not dealing with him anymore. Can you help me? And then they go, Man, this that wasn't us, but we blocked it. Yeah, so that's you know, kind of if I think back on, hey, you know, protecting my co-founder's mom from you know being being exploited that way, we actually did it and we used context. We were able to be we had it in real time, we were plugged into the right places, and so that's why I'm so passionate about it, is to say, hey, we can see, we can really see, and we're doing we're seeing phenomenal results with this. We can see we can do it in payments, we can do it on on the banking side, and we've got those that that context together, we see incredible results. That's really kind of exciting for me. And so that's yeah, uh, that's some of the things. There, there are many more stories like that, but those are the things that get me excited, and why I'm such an advocate for you know this this this context aware authentication uh concept, because I've seen it work and I've seen it do exactly what it needs. To do to you know protect because that same bank, by the way, when they uh if you look at their their their logins, the way that we've implemented the technology, we reduced their um you know their friction at login by 98%. Yeah. So what does that mean? That means when a known loyal customer comes back, uh login and in. Yeah. Versus when someone tries to take over your account, it's very difficult and they fail. And that for me is the that for me is the is the thing that that that we that we strive to do.

Austin Prey 22:36

Yeah, and it's and it's you know it it's it's a good kind of you know exclamation point on the importance of that more three-dimensional, more even four-dimensional contact, because the you know, that fraudster is going for kind of the rule-based it if it's them, let them in. And it's much better to make that call saying, hey, who's this guy than hey, where's my money? You know, that's that's a better call. Uh and it goes back to everything you said, kind of about trust. You know, you want to trust that your bank, you know, that you'll you won't be making that call. Hey, hey, where's my money? Or hey, what happened? Um, well, I I'm rambling a little bit now, but Dewald, thank you so much for your time. It was a great story, a great note to end on. Um, and I really appreciate your time today.

Dewald Nolte 23:16

Thank you so much, Austin. It was a pleasure, and uh yeah, look forward to speaking again.

Narrator 23:32

That's it for this episode of the PYMNTS Podcast. The thinking behind the doing, conversations with the leaders transforming payments, commerce, and the digital economy. Be sure to follow us on Spotify and Apple Podcasts. You can also catch every episode on pymnts.com/ podcasts. Thanks for listening.