Exclusive: Banks Explore Shared Data to Enhance Scam Detection Capabilities

As online scams and financial crimes continue to surge at the halfway point of 2024, banks and payment companies are ramping up efforts to protect consumers and their own bottom lines.

At the forefront are new technology solutions and a call for greater collaboration and data sharing to stay ahead of increasingly sophisticated fraudsters.

Dave Excell, founder of fraud prevention company Featurespace, said the prevalence of scams has continued to increase in 2024, driven by new tools available to bad actors.

“Unfortunately, the amount of scams and the prevalence of them has continued to increase, as there are new tools available to scammers … to victimize vulnerable populations,” he told Karen Webster as part of the “What’s Next In Payments” series.

Excell’s company is addressing several scams with its solutions. One troubling trend is the rise of job-related scams, which have jumped 118% year over year, according to data from the Identity Theft Resource Center. These schemes often prey on job seekers by posing as legitimate employment agencies or recruiters.

To help banks combat the growing threat, Featurespace launched a new product called Scam Detect. It’s based on the concept of data sharing. As Excell explained, financial institutions can use the data they already have more effectively by consolidating it into a unique piece of intelligence that can track and verify both the money that’s leaving the institution and coming into the institution.

The product uses advanced technology similar to that employed in a proof-of-concept run by Pay.UK earlier this year. This approach aims to create a fraud overlay of data that can enhance scam identification across multiple institutions.

The technology can be applied to outgoing and incoming transactions.

“If you’re looking at the transaction from the perspective of the receiving institution, if they believe it’s sketchy, then they can actually hold the funds so that then it gives more time for the potential victim of the scammer to be able to realize that they have been scammed,” Excell said.

This provides a critical window to potentially recover funds before they’re moved through multiple accounts, making recovery much more difficult.

The results of the proof-of-concept tests were promising. They showed Scam Detect identified half of the scams that banks had already missed at what Excell called an “operationally acceptable false-positive ratio.”

Uniting the Industry

A key focus for Excell and Featurespace is using encouraging the banks and financial institutions to share information and work together across institutions so they can catch scams that might slip through when looking at activity at a single bank. Excell said he believes a technological approach is critical for the industry to be more effective.

Despite the concerning trends, there are some positive developments. Excell pointed to a June announcement from Interpol reporting the arrest of nearly 4,000 suspects and the capture of over $257 million in suspected criminal funds across 61 countries.

Looking ahead to 2025, Excell said he sees financial institutions focusing on two key areas in their anti-fraud strategies: education and technology investment.

“It definitely continues to be around education because that’s often where scams start,” he said. “And then I think it’s around investing in additional tools and technology, especially as we’re moving to more real-time payments.”

The push for real-time payments adds urgency to fraud prevention efforts, as funds can now move much faster between accounts, he said. This necessitates technology that can identify potential risks in real-time payments while maintaining a good customer experience.

Regulators are also taking note of the growing scam problem. Excell highlighted efforts by the Federal Reserve to develop a scam classifier model and create frameworks for data sharing between institutions. However, he cautioned that overly burdensome regulations could hinder banks’ ability to innovate in fraud prevention.

“Scammers aren’t regulated,” he told Webster. “They don’t need to go through aspects of model governance that banks and financial institutions do from a regulatory perspective. So, we need to enable banks and payment companies to continue to innovate to keep us safe without having too much of the burden of some of the other potential regulatory hurdles that they may need to go through.”

Another challenge is encouraging more victims to report scams. Many people don’t report due to embarrassment or a lack of awareness about how to do so. Excell suggested that media coverage normalizing the experience of scam victims could help, enabling more people to come forward when they’ve been victimized.