Four ways an automated fraud management framework delivers business success in a global digital economy
In an increasingly globalised economy, businesses offering digital goods and services to regional and global audiences are seeing new opportunities and experiencing incredible growth.
With a large population of consumers, it should come as no surprise that the internet economy was valued at US$100 billion in 2019 and projected to triple to US$300 billion by 2025. With a population of 1.36 billion, India is rapidly expanding as a huge market for smartphone and internet penetration. India’s e-commerce market represents a fast-growing opportunity for the e-commerce industry, with a business-to-consumer market value of $36.5 billion, this value has been expanding at double-digit rates in recent years. [Source: https://www.jpmorgan.com/merchant-services/insights/ reports/india]
As India’s digital adoption continue to grow, online payments, digital wallets and bank transfers are popular payment options in India with over 45.72 billion transactions in FY 19-20 (Source : digipay.gov.in).
The dark side of the digital economy
However, this rapid growth also brings new types of vulnerabilities for businesses. In the last few years, the Indian credit landscape has seen a remarkable upsurge with strong and steady growth in the economy. Financial inclusion, one of the key growth drivers, has led to an exceptional increase in consumers’ credit appetite. And while this growth has been the harbinger of tremendous opportunities – for both businesses and consumers – it has also been the bearer of new and unseen challenges; one of these being fraud. Since 2019, fraudulent contact information in India has gone up from 10% to more than 25%.
The increased risk of fraud and identity theft can have huge repercussions for businesses, from financial risks to reputational losses. Despite that, Experian’s 2020 Global Identity and Fraud Report found that businesses are focused on personalising customer experience, with a “seemingly misplaced confidence in their ability to identify and re-recognise customers.” And not surprisingly, customers today prioritise security. This misalignment will only further increase fraudsters’ chances of succeeding.
There are four main types of online fraud that organisations must look out for:
- Identity theft or Account takeover: Here, fraudsters pilfer customers’ personal information, then sign up for fake accounts with it. Think of Account takeover as identity theft raised several notches. Instead of creating new accounts with stolen personal details, fraudsters will take over legitimate customers’ accounts to either steal money from their mobile wallets or conduct unauthorised banking and e-commerce transactions. For example, in Indonesia for ecommerce transactions users only require mobile numbers for authentication opening it up to Identity theft.
- Promotion abuse: This type of fraud is often seen in e-commerce, where there would be several active promotions per marketplace. People register multiple accounts on marketplaces and platforms or find loopholes to take advantage of customer-oriented promotions.
- Card not present (CNP) issue: This is defined as an instance where the card owner doesn’t have the actual card during the transaction—which means the merchant or financial provider can’t verify the card by sight. This is common for e-commerce sites’ integrated payments, for example 3D secure, OTP are measures used typically for tackling this problem. However, these again are not guaranteed to stop fraud.
Mounting fraud risks highlight the sense of urgency that businesses must adopt to understand and address their security needs. According to Experian’s Identity and Fraud Report for Asia-Pacific*, 50% of surveyed businesses saw a rise in online-fraud losses over the past year, with account origination and takeover cases forming the bulk of those losses. 67% of these businesses are already citing an increased concern regarding these losses.
Meanwhile, Experian’s 2020 Global Identity and Fraud Report provides similar figures beyond Asia-Pacific. Globally, 57% of businesses are experiencing losses from account origination and takeover cases.
The benefits of automating your fraud management and detection framework
Our Identity and Fraud Report for Asia-Pacific* notes that around half of Asia-Pacific businesses are “actively implementing advanced authentication or fraud management solutions or have them under consideration.” This isn’t unique to Asia Pacific. Around the world, 45% of businesses have in place a mix of supervised and unsupervised machine learning and business rules for identity authentication, with US and Chinese businesses both at 58% usage.
Key solutions being used are device intelligence, physical and behavioural biometrics, artificial intelligence (AI), application programming interface (API) and blended solutions, and machine learning.
Collectively, incorporating technology into your fraud management framework provides four vital business benefits.
1. Improved accuracy and timeliness of fraud detection
It is impossible for an all-human team to accurately flag and review each fraud case, or even match the speed at which fraud is committed and its ‘proceeds’ distributed. By the time a team is ready to respond to one threat, there would already have been countless attempts (and successes) made through other channels.
Using an automated and data-driven fraud detection solution enables businesses to establish trends via existing records and industry data. It also allows them to respond more quickly and accurately to any fraud attempt made at any time and place.
More importantly, it nixes the risks that come with human errors and biases. These can delay accurate identification or alter the results altogether.
2.Reduced manual labour and increased cost-effectiveness
Because fraudsters regularly change their tactics, fraud detection systems must keep in step and move at the ‘speed of fraud.’ However, fraud detection teams simply don’t have the manpower capacity or the latest technical knowhow to cope with the evolving nature of fraud.
Having an automated framework to do the mundane work means businesses can allocate their manpower to more strategic tasks. Meanwhile, their fraud detection’s speed and accuracy are boosted many times over using technology, making the process more cost-effective and less labour-intensive.
Leveraging current technologies makes it possible for organisations not only to automate fraud detection, but also scale it easily and rapidly to cater to the changing demands of the business.
3.Future-proofed technology platform to move with the speed of fraud
A good fraud management framework should be proactive and agile to preempt fraud, and protect the organisation from any potential threats long before they actually occur. Therefore, business leaders and staff must always stay abreast of the latest technologies and adopt those that allow them to scale and evolve as fast as fraudsters can, while ensuring compliance and compatibility with legacy systems.
Here, Application Programming Interface (API) solutions answer businesses’ need for both proactive and scalable platforms. An open API fraud management approach allows the business to integrate with relevant tools based on their unique set of requirements and needs in order to effectively combat every case.
In this case, Experian’s CrossCore™ open API platform raises the bar for fraud detection and management. It is the first of its kind: a plug-and-play platform on which companies can build their respective fraud management systems with every application they need at any time. This means that businesses can easily manage a portfolio of services that work together in any combination — including Experian solutions, third-party services and client systems.
4. Upheld corporate reputation and improved customer experience
Monetary losses aren’t the only risk when organisations do nothing, too little, or too much for fraud detection and management.
The overall customer experience can suffer when legitimate customers can’t make their intended transactions, are presented with difficult authentication processes, or have their data breached. For example, organisations may ask for too much verifying personal information that it becomes intrusive and cumbersome. False declines, frequent password changes, and unusually difficult login challenges can also occur.
As your business reaps the benefits of an automated fraud management tool, it is also essential to prioritise the customer journey and experience. It is crucial to strike a perfect balance between making life difficult for fraudsters and making it easier for your genuine customers. Globally, Experian’s 2020 Global Identity and Fraud Report reveals that 88% of consumers express a more positive view of businesses when they invest more in customer experience aspects such as security.
Also keep in mind that your customers are willing to work with you as you fight fraud. The same report states that 72% of the consumers are comfortable sharing more personal information if it eases their account access.
An adaptive solution for adaptive businesses
The digital economy has opened doors and created opportunities beyond the traditional borders. Similarly, it has brought about a multitude of challenges arising from opportunists that seek to exploit gaps in systems. With a growing demand and transactions, coupled with the rapidly changing nature of fraud and technology, business leaders today face the mounting challenge of managing risks arising from fraud losses.
Organisations must now implement fraud management systems that safeguard past customer data, account for present security threats and measures, and take into account all future possibilities and risks. The recommended fraud approach is now both external and internal, reactive and proactive, focused and flexible, open and secure.
What businesses need is a technology platform that offers the flexibility for business leaders to strike the perfect balance between external and internal fraud detection as well as technology solutions that allow businesses to layer on security offerings to future-proof their organisation. Most importantly, a solution that offers a single source of truth for fraud detection and management, giving organisations greater control over their risks. The move to a platform approach for fraud management is not a matter of if, but rather - when, and is now an irreplaceable aspect of business success.
*Earlier Identity and Fraud Report: 2019 Identity and Fraud Report for Asia-Pacific
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