A new white paper from Nexi explains how Europe’s banks and fintechs can better manage rising fraud risk in the digital economy.
In our last blog, we covered the current, or “fourth”, industrial revolution focused on digital technology and digital commerce.
This revolution is bringing both huge opportunities and significant increases in risk, as criminals take advantage of the same developments in technology as legitimate players such as Artificial Intelligence and Machine Learning.
In Fighting the new industrial revolution in fraud, Nexi explain how banks and fintechs can develop effective, market-by-market approaches to fraud defence that yield significant improvements.
At the core of the approach Nexi recommend is a recognition that the fraud dynamics of each market are different, and that a “one size fits all” approach is unsatisfactory.
For instance, while ID fraud has long been an issue in Romania, Card Not Present (CNP) fraud in Germany rose very rapidly last year.
In the Netherlands, meanwhile, users have experienced a significant increase in “phishing” scams via WhatsApp[1], while Sweden is experiencing challenges relating to instant payments via Swish[2].
End-to-end flows + continuous monitoring
As a baseline approach, the white paper recommends an end-to-end, data-driven flow of protection throughout the transaction life cycle, coupled with continuous monitoring of fraud trends in-market.
Such approaches could combine authentication and assessment at the point of sale with 3D Secure and Risk-Based Analytics, followed by further assessment as the transaction proceeds to full authorization – by using tools such as the Nexi fraud authorization risk engine, machine learning based on outcomes (such as the rate of fraud prevention) and above all the expert counsel of payments analysts with experience of how fraud operates in different European markets.
Nexi also note the importance of continuously assessing the effectiveness of such approaches, monitoring outcomes and fine-tuning rules for better performance.
This could include altering authentication methodologies so that the optimal blend for any given market is achieved, whether that’s passwords, biometric factors, digital ID or a combination of these factors.
Other authentication approaches may also be relevant, such as device ID techniques which confirm the association of a user with a particular device, or the aggregation of behaviours from previous authentications to help identify anomalies suggestive of fraud.
When it comes to fine-tuning rules in risk engines such as 3D Secure, clients in Germany might be advised to tune their rule engines to account for rises in CNP fraud, or in markets where ID fraud is a problem, a laser focus on authentication protocols may be appropriate.
By adopting such market-specific, data-based approaches, Nexi say they have dramatically reduced false positives and rates of transaction decline for their clients, driving revenue and profitability growth in the process.
Download Fighting the new industrial revolution in fraud now to learn more about optimizing fraud defences for the digital economy.
[1] https://nltimes.nl/2024/02/03/sharp-increase-fraud-reports-2023-especially-via-whatsapp-sms
[2] https://www.telegraph.co.uk/money/banking/sweden-stopped-using-cash-fraudsters-having-field-day/
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