Detecting the Payments Fraud Trail: In Search of Better Analytics

Payments fraud leaves a trail. The advanced analytics employed by financial institutions are designed to detect these trails and generate alerts for follow up from the bank’s fraud team.  However, financial institutions differ in the level of sophistication of their systems and, in turn, their ability to detect and prevent fraud.

Two recent blog posts provide some valuable insight into what financial institutions may want to consider when reviewing the efficiency and effectiveness of their risk analytics:

·      Dan Barta from Banking Strategies describes in his recent article “Fighting Payments Fraud the Hybrid Way” that “With advanced analytics, fraud specialists can identify fraud earlier, even before the fraud occurs, thus eliminating or minimizing losses … A true hybrid approach identifies the linkages and associations between the various accounts and integrates that information with the more traditional rules and analytics to better score risk, prioritize alerts, reduce false positives, increase the efficiency of investigators and reduce fraud losses.” More

·      Tracy Kitten from BankInfoSecurity covers the current state of the check fraud problem and check fraud detection efforts in her recent article “Check Fraud: The Next Generation”. The article reports that “76 percent of banks ranked check fraud second among the top fraud threats they faced in 2011, according to BankInfoSecurity's fraud survey.” The article quotes Andy Schmidt from Tower Group who explains, "The very nature of the paper item - that it can be deposited through multiple channels - mobile, ATM, lockbox, at the branch, etc. - makes it very hard to track."  The article gives express advice for enhancing check fraud detection by automating manual monitoring processes and adding AML controls that examine factors such as check velocity and check number sequence. More

Financial institutions looking to protect payments from fraud should discern the adequacy of their current systems and review the possible returns from investing in better analytics.

Journal of Accountancy Releases Business Payments Fraud IQ Test

Do you like IQ tests?  Here's a good one. Check out the Fraud IQ Test from Dawn Taylor and Andi McNeal of Journal of Accountancy. This 10-question test covers everything from debit cards and checks to wires and ACH, giving an easy-snapshot of fraud technology and terms that every business should know. In just a few minutes you can see how your fraud intelligence really measures up.

Best Practices for Business Check Fraud Prevention

Checks remain a highly targeted instrument for payments fraud, despite declining check volumes. Ready-access to the graphics programs and printers required to create high-quality counterfeit checks, along with the number of payment types among which fraud prevention efforts are now spread, has made committing check fraud extremely easy for criminals.

Best practices are more essential than ever for businesses and merchants to avoid becoming a victim of check fraud. These best practices include internal controls such as daily account reconciliation and examining segregration of AP duties, along with utilizing fraud prevention technologies such as high-security check issuance software and bank positive pay services. Business check issuance should be protected with audit and event log tracking, internal notifications whenever checks are printed, and printed-check security features designed to deter duplication attempts. Positive pay remains the very strongest protection a business can implement to prevent check fraud and associated liabilities. Merchants collecting consumer checks and concerned about fraud may also want to consider risk mitigation services such as those provided by First Data’s TeleCheck.

For more information on preventing business check fraud, please see Best Practices on Check Fraud Prevention - a white paper from AP Technology.

Pondering the NFC Universe

Just as I was considering the possible strength position of NFC in the unfolding of the mobile payments space, Boom, I happened upon a great post by Karen Webster from PYMTS.com.  With Ms. Webster having just returned from the Contactless Forum in San Francisco last week, I found her analysis of the expansion and direction for mobile payments very insightful, informational, and genuinely interesting.  Her post had some real depth on a topic of interest to us all. She explains that “The mobile commerce train has left the station – and it isn’t the NFC express.”

NFC is certainly off to a relatively slow start, and this raises questions about its future. My snapshot analysis of the media flurry surrounding the topic of mobile payments has me pondering the alternative - the possible long-term, widespread success of NFC. Here are some converging realities to consider:

·    The growing use of smartphones for shopping-related activities
According to the aforementioned blog post, “Nearly half (46%) of the apps downloaded today are designed to help consumers shop or make better buying decisions while they are shopping.”

·   The anticipated growth of smartphones that are NFC-enabled (Apple iPhone being a notable hold-out)
According to a recent article from PCWorld by Sophie Curtis, “Thirty-five million Near Field Communications (NFC)-enabled phones were shipped in 2011, in what has been described as a "breakthrough year" for the mobile payments technology. According to analyst firm IMS Research, that number could grow to nearly 80 million by the end of 2012, driven largely by the technology being built into a wider range of devices.”

·   The global pressure to advance to an EMV standard … and, as described in a recent post in Small Business Trends by Brian Goudie, “payment industry experts generally [agreeing] that a chip-based standard will come to the U.S.”

·    Mastercard, Visa, and Discover recently outlining their EMV transition roadmaps
(Source http://www.bankrate.com/financing/credit-cards/discover-joins-chip-card-mania/ )

·   The anticipated NFC compatibility with Mag Stripe/EMV readers, e.g. ViVOpay 8100 terminals (Source: http://nfcdata.com/blog/2011/08/17/vivotech-ships-emv-payments-and-nfc-mcommerce-ready-reader)

·    Compelling NFC development work on the part of the powerhouse mobile service providers AT&T, T-Mobile and Verizon (ISIS), Google Wallet (albeit having some personnel attrition), and Apple (Source: http://www.mybanktracker.com/bank-news/2012/04/03/nfc-locationbased-payments-win/ )

·   The viewpoint that location-based mobile payment offerings, which include solutions from PayPal and Square, could possibly raise privacy issues in the eyes of some consumers (Source: http://www.mybanktracker.com/bank-news/2012/04/03/nfc-locationbased-payments-win/)

·   The significant consideration regulatory bodies such as the House Financial Services Committee on Financial Institutions and Consumer Credit are giving to NFC.  According to a recent post by Bob Scott in the Payment Law Advisor, the committee’s hearing on 3/22/12 was called to address the future impact of mobile payments on financial services sector and NFC technologies were addressed extensively by Randy Vanderhoof, Executive Director of the Smart Card Alliance. Mr. Vanderhoof explained the advantages of NFC in terms of security, reliability, and usage of existing credit or debit regulations.

For the sake of conjecture and placing the moving parts into a sensible picture, it is entertaining to predict that NFC will emerge as the most successful technology in the long-term.

Image: David Castillo Dominici / FreeDigitalPhotos.net

Survey Results Shed Light on the Importance of Business Check Fraud Prevention

The recently released 2011 AFP Payments Fraud Survey, conducted through the Association of Financial Professionals (AFP) and sponsored by J.P. Morgan, reveals an ongoing trend that places checks at the top of the list for payment instruments most frequently targeted for corporate payments fraud. Checks also continue to be the payment instrument most commonly used for B2B payments by a wide margin. The latest statistics from the AFP are a critical consideration for businesses considering ways to contain payments fraud and its consequences within their organization.

The survey was sent to over 5,000 corporate practitioners and received 447 responses in total, with the following key finding related to check and payments fraud. 

• 85% of organizations affected by payments fraud in 2011 reported that checks were targeted.
• 14% of organizations that were victims of at least one attempt of check fraud during 2011 suffered a financial loss.
• Among organizations suffering a financial loss due to payments fraud, the typical loss was $19,200

However, reassuringly, now more than 80 percent of companies surveyed employ best practices such as positive pay and daily reconciliations to mitigate fraud, and the resulting losses from payments fraud have decreased overall.

In a press release from the AFP regarding the survey, Jim Kaitz, AFP's president and CEO, states, "Although attempted attacks still occurred in 2011, financial loss was avoided because companies have taken steps to eliminate vulnerabilities..." 

To gain a better understanding of business check fraud prevention techniques and technology, see the Best Practices for Check Fraud Prevention, a white paper from AP Technology.

Fountain Trust Secures and Automates Loan Check Processing with APSecure

In 2010 The Fountain Trust Company was issuing approximately 300 loan checks per month at their branch locations using a largely manual process. They began seeking a solution that would improve the efficiency of their loan disbursement process and enhance security by adding checks and balances to prevent fraud and ensure conformance with bank loan policy prior to funds being disbursed.

Fountain Trust found that the APSecure Cashier's Check Issuance System from AP Technology could meet their exact requirements. “APSecure has been a vital part of transforming our loan disbursement procedures into an efficient and secure process by adding check request approval, auditing, event reporting, and overall accountability for user actions. The system has helped us to implement governance for our loan disbursements. Our loan issuance process is now highly secure,” states Brian Dowers, Chief Operations Officer of The Fountain Trust Company.  Read the full story.

Consumer Distrust of Mobile Payments and Messaging is On the Rise

It may not be surprising that according to recent survey results from Cloudmark, provider of mobile messaging security technology, 49% of mobile device users do not trust their mobile devices enough to use them for making payments. The survey was responded to by 1000 consumers, according to a recent article posted on eCreditDaily . Survey results showed “a growing wave of distrust across all major communications channels – including mobile, fixed and social networking – due to fears of security threats such as viruses, spam and phishing attacks." “Messaging abuse” or spam-related problems remain the top security threat for both fixed-line and mobile users.  For more information on these survey findings, visit Cloudmark's website.

Image: Stuart Miles / FreeDigitalPhotos.net