Consortium Model Adds Risk Mitigation Layers for FIs Through Shared Insight

As we all move online, especially to bank, Mary-Helen McElfresh, vice president, fraud risk management at Early Warning Services, LLC, told PYMNTS that a consortium approach could cut fraud rates and false positives.

Early Warning, of course, is owned by seven of the largest banks in the U.S. and uses intelligence gleaned from participating financial institutions (FIs) to monitor account openings, validations and transactions.

Generally speaking, she said, consortiums help FIs make better-informed decisions, giving them insights that don’t rely solely on their own experiences or internal processes.

Having that extra layer in place is an urgent need. After all, fraudsters themselves are constantly switching up their tactics, creating a changing and challenging dynamic for financial services firms.

Fraud does not attack all banks at once, and attacks can target some banks and not others, sometimes in waves.

As she told PYMNTS: Fraud is not just a single channel event – it crosses all channels.

Creating Confidence

“It’s more difficult to be confident that you are dealing with the person you think you’re dealing with,” McElfresh said, “and the consortium models help with any gaps.”

The positive ripple effects reverberate throughout the financial services landscape, where risk analysis happens in the background. The FIs prevent account takeovers, of course. Still, the end consumer benefits too — the money stays in the account, the identity remains uncompromised as personal information remains safe within the FI.

She offered an example of why the model is so useful: consider a check deposited with an FI. The bank must determine whether this is a “good” check being deposited and how funds should be treated. The pooled resources can find confirmation across the FIs that the customer (and the transaction) is indeed legitimate. Recent surveys indicate that check fraud represents two-thirds of attempted theft aimed at deposit accounts.

Read Also: Check Fraud Accounts for 60% of Attempted Bank Account Theft

Weeding Out the False Positives

Conversely, a consortium approach can approve a transaction that initially may have appeared risky at first. That can result in a marked reduction in false positives, said McElfresh, cutting down on friction. In this way, competitors within finance become co-operators in a sense, in the relentless pursuit of getting the “bad guys” out of the network while approving as many good transactions as possible.

Looking ahead, she said, the use of consortiums will increase over the near and longer-term, especially as fraud evolves. It’s important for banks to get information in real time (especially as we move toward instant payments).

A consortium, she said, “exists as an extra layer of mitigation toward preventing fraud in the financial services ecosystem.”