Tag: fraud management

The Federal Reserve (Fed) took a big step towards revolutionizing the U.S. payment landscape with the official launch of FedNow, a new instant payment service, on July 20, 2023. While the new payment network offers advantages, there are concerns that fraudsters may be quick to exploit the new real-time technology with fraud schemes like automated push payment (APP) fraud. How is FedNow different from existing payment networks? To keep pace with regions across the globe and accelerate innovation, the U.S. created a alternative to the existing payment network known as The Clearing House (TCH) Real-Time Payment Network (RTP). Fraudsters can use the fact that real-time payments immediately settle to launder the stolen money through multiple channels quickly. The potential for this kind of fraud has led financial regulators to consider measures to better protect against it. While both FedNow and RTP charge a comparable fee of 4.5 cents per originated transaction, the key distinction lies in their governance. RTP is operated by a consortium of large banks, whereas FedNow falls under the jurisdiction of the Federal Reserve Bank. This distinction could give FedNow an edge in the market. One of the advantages of FedNow is its integration with the extensive Federal Reserve network, allowing smaller local banks across the country to access the service. RTP estimates accessibility to institutions holding approximately 90% of U.S. demand deposit accounts (DDAs), but currently only reaches 62% of DDAs due to limited participation from eligible institutions. What are real-time payments? Real-time payments refer to transactions between bank accounts that are initiated, cleared, and settled within seconds, regardless of the time or day. This immediacy enhances transparency and instills confidence in payments, which benefits consumers, banks and businesses.Image sourced from JaredFranklin.com Real-time payments have gained traction globally, with adoptions from over 70 countries on six continents. In 2022 alone, these transactions amounted to a staggering $195 billion, representing a remarkable year-over-year growth of 63%. India leads the pack with its Unified Payments Interface platform, processing a massive $89.5 billion in transaction volume. Other significant markets include Brazil, China, Thailand, and South Korea. The fact that real-time payments cannot be reversed promotes trust and ensures that contracts are upheld. This also encourages the development of new methods to make processes more efficient, like the ability to pay upon receiving the goods or services. These advancements are particularly crucial for small businesses, which disproportionately bear the burden of delayed payments, amounting to a staggering $3 trillion globally at any given time. The launch of FedNow marks a significant milestone in the U.S. financial landscape, propelling the country towards greater efficiency, transparency, and innovation in payments. However, it also brings a fair share of challenges, including the potential for increased fraud. Are real-time payments a catalyst for fraud? As the financial landscape evolves with the introduction of real-time payment systems, fraudsters are quick to exploit new technologies. One particular form of fraud that has gained prominence is authorized push payment (APP) fraud. APP fraud is a type of scam where fraudsters trick individuals or businesses into authorizing the transfer of funds from their bank accounts to accounts controlled by the fraudsters. The fraudster poses as a legitimate entity and deceives the victim into believing that there is an urgent need to transfer money. They gain the victim's trust and provide instructions for the transfer, typically through online or telephone banking channels. The victim willingly performs the payment, thinking it is legitimate, but realizes they have been scammed when communication halts. APP fraud is damaging as victims authorize the payments themselves, making it difficult for banks to recover the funds. To protect against APP fraud, it's important to be cautious, verify the legitimacy of requests independently, and report any suspicious activity promptly. Fraud detection and prevention with real-time payments Advances in fraud detection software, including machine learning and behavioral analytics, make unusual urgent requests and fake invoices easier to spot — in real time — but some governments are considering legislation to ensure more support for victims. For example, in the U.K., frameworks like Confirmation of Payee have rolled out instant account detail checks against the account holder’s name to help prevent cases of authorized push payment fraud. The U.K.’s real-time payments scheme Pay.UK also introduced the Mule Insights Tactical Solution (MITS), which tracks the flow of fraudulent transactions used in money laundering through bank and credit union accounts. It identifies these accounts and stops the proceeds of crimes from moving deeper into the system – and can help victims recover their funds. While fraud levels related to traditional payments have slowly come down, real-time payment-related fraud has recently skyrocketed. India, one of the primary innovators in the space, recorded a 23% rise in fraud related to its real-time payments system in 2022. The same ACI report stated that the U.S., making up only 1.2% of all real-time payment transactions in 2022, had, for now, avoided the effects. However, “there is no reason to assume that without action, the U.S. will not follow the path to crisis levels of APP scams as seen in other markets.” FedNow currently has no specific plans to bake fraud detection into their newly launched technology, meaning the response is left to financial institutions. Fight instant fraud with instant answers Artificial Intelligence (AI) holds tremendous potential in combating the ever-present threat of fraud. With AI technologies, financial institutions can process vast amounts of data points faster and enhance their fraud detection capabilities. This enables them to identify and flag suspicious transactions that deviate from the norm, mitigating identity risk and safeguarding customer accounts. The ability of AI-powered systems to ingest and analyze real-time information empowers institutions to stay one step ahead in the battle against account takeover fraud. This type of fraud, which poses a significant challenge to real-time payment systems, can be better addressed through AI-enabled tools. With ongoing monitoring of account behavior, such as the services provided by FraudNet, financial institutions gain a powerful weapon against APP fraud. In addition to behavioral analysis, location data has emerged as an asset in the fight against fraud. Incorporating location-based information into fraud detection algorithms has proven effective in pinpointing suspicious activities and reducing fraudulent incidents. As the financial industry continues to grapple with the constant evolution of fraud techniques, harnessing the potential of AI, coupled with comprehensive data analysis and innovative technologies, becomes crucial for securing the integrity of financial transactions. Taking your next step in the fight against fraud Ultimately, the effectiveness of fraud prevention measures depends on the implementation and continuous improvement of security protocols by financial institutions, regulators, and technology providers. By staying vigilant and employing appropriate safeguards, fraud risks in real-time payment systems, such as FedNow, can be minimized. To learn more about how Experian can help you leverage fraud prevention solutions, visit us online or request a call.  *This article leverages/includes content created by an AI language model and is intended to provide general information.

This article was originally published on multifamilyinsiders.com One of the challenges currently facing the rental housing industry is the amount of lease application fraud. An Entrata study found a 111% increase in lease application fraud between 2019 and 2020. In the same study, 55% of surveyed apartment managers and rental operators said their properties experience fraudulent lease application attempts every few months, and 15% said their communities were subjected to multiple attempts each month. One-third of respondents described themselves as "very concerned" about application fraud. Just as alarming as the rise in attempts is the apparent likelihood of success. In the study, 65% of apartment managers said they are not confident in their current fraud prevention efforts. Some applicants can use a range of tools to commit fraud such as fake pay stubs, bank statements, employment records, and other falsified documents. Unfortunately, readily available computer technology makes it all too easy for applicants to produce these falsified documents. Tools to fight against fraud Apartment communities that rely on an overly manual screening process may find themselves at a disadvantage in the current landscape. Relying on associates to manually verify things like income and employment history can increase the risk of a deceitful applicant being successful. In addition, these processes can be extraordinarily time-consuming, which means leasing associates have less bandwidth for their many other important duties and responsibilities. Not to mention, the units stay unoccupied while these time-consuming verifications are being done manually. Among the general screening technologies that operators should consider: Automated verification of income, assets and employment — These solutions eliminate the need for operators to collect this kind of documentation from applicants. Furthermore, it eliminates the opportunity for applicants to supply falsified supporting documentation. Frictionless authentication — A multi-layered identity verification process for those applying for rental housing, frictionless authentication detects the subtle and not-so-subtle signs that an applicant is, to one degree or another, using a false identity. By highlighting discrepancies, the process assigns a “score” to quantify the likelihood that misrepresentation is taking place. Additional confirmation of the applicant’s identity can be completed using a one-time passcode (OTP) or knowledge-based authentication (KBA). This technology also uses device intelligence to recognize the risks associated with the physical devices (such as computers, tablets, and smartphones) that consumers use for online applications to identify potential imposters. In today's landscape, apartment owners and operators need to make sure they're protecting themselves against fraudulent applicants, who may not fulfill their financial obligations as outlined in their leases. By embracing the ever-growing array of advanced screening tools and technologies, owners and operators can achieve that protection and reduce their risk significantly — and save their associates time and energy.

Today’s digital-first world is more interconnected than ever. Financial transactions take place across borders and through various channels, leaving financial institutions and their customers at increasing risk from evolving threats like identity theft, fraud and others from sophisticated crime rings. And consumers are feeling that pressure. A recent Experian study found that over half of consumers feel like they are more of a target for online fraud than a year ago. Likewise, more than 40% of businesses reported increased fraud losses in recent years. It’s not only critical that organizations ensure the security and trustworthiness of digital transactions and online account activity to reduce risk and losses but what consumers expect. In the same Experian study, more than 85% of consumers said they expect businesses to respond to their fraud concerns, an expectation that has increased over the last several years.   Businesses and financial institutions most successful at mitigating fraud and reducing risk have adopted a layered, interconnected approach to identity confirmation and fraud prevention. One vital tool in this process is identity document verification. This crucial step not only safeguards the integrity of financial systems but also protects individuals and organizations from fraud, money laundering and other illicit activities. In this blog, we will delve into the significance of identity document verification in financial services and explore how it strengthens the overall security landscape.  Preventing identity theft and fraud Identity document verification plays a vital role in thwarting identity theft and fraudulent activities. By verifying the authenticity of identification documents, financial institutions can ensure that the individuals accessing their services are who they claim to be. Sophisticated verification processes, including biometric identification and document validation, help detect counterfeit documents, stolen identities and impersonation attempts. By mitigating these risks, financial institutions can protect their customers from unauthorized access to accounts, fraudulent transactions and potential financial ruin. Compliance with regulatory requirements Financial institutions operate in an environment governed by stringent regulatory frameworks designed to combat money laundering, terrorist financing and other financial crimes. Identity document verification is a key component of these regulatory requirements. By conducting thorough verification checks, financial service providers can adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Compliance safeguards the institution's reputation and helps combat illicit financial activities that can have far-reaching consequences for national security and stability. Mitigating risk and enhancing trust Effective identity document verification mitigates risks associated with financial services. By verifying the identity of customers, financial institutions can reduce the likelihood of fraudulent activities, such as account takeovers, unauthorized transactions and loan fraud. This verification process bolsters the overall security of the financial system and creates a more trustworthy environment for stakeholders. Trust is fundamental in establishing long-lasting customer relationships and attracting new clients to financial institutions.   Facilitating digital onboarding and seamless customer experience As financial services embrace digital transformation, identity document verification becomes essential for smooth onboarding processes. Automated identity verification solutions enable customers to open accounts and access services remotely, eliminating the need for in-person visits or cumbersome paperwork. By streamlining the customer experience and minimizing the time and effort required for account setup, financial institutions can attract tech-savvy individuals and enhance customer satisfaction.  Combating money laundering and terrorist financing Proper document verification is a key component of combating money laundering and terrorist financing activities. By verifying customer identities, financial institutions can establish the source of funds and detect suspicious transactions that may be linked to illicit activities. This proactive approach helps protect the integrity of the financial system, supports national security efforts, and contributes to the global fight against organized crime and terrorism. Identity document verification is a vital component in the layered, interconnected approach to mitigating and preventing fraud in modern financial services. By leveraging advanced technologies and robust verification processes, financial institutions can ensure the authenticity of customer identities, comply with regulatory requirements, mitigate risk and enhance trust.  As financial services continue evolving in an increasingly digital landscape, identity document verification will remain a crucial tool for safeguarding the security and integrity of the global financial system.  For more information on how Experian can help you reduce fraud while delivering a seamless customer experience, visit our fraud management solutions hub.   Learn more

Written by: Mihail Blagoev As there is talk about the global economy potentially heading into a recession, while some suggest that it has already started, there is an expectation that many of the world's countries will see their economic output decline in the next couple of months or a year. Among the negative trends that can occur during a recession are companies making fewer sales and people losing their jobs. Unfortunately, just like any other economic crisis, fraud is expected to go in the opposite direction as criminals continue finding innovative ways to attack consumers when they’re most vulnerable. There is also a concern that first-party fraud attempts might rise as genuine consumers are pushed over the edge by inflation and economic uncertainty. With that in mind, here are six fraud trends that are likely to happen during a recession: Fraudsters exploiting the vulnerable  It is well-documented that fraudsters found numerous ways to exploit the vulnerable during the pandemic. Unfortunately, this is expected to happen again in the coming months. As the cost of living rises, criminals will try to use that in their favor by looking for people who can't pay their utility bills or can't afford the price of gas or even food. Fraudsters will try to exploit that by offering them deals, discounts, refunds, or just about anything that will make people believe they are paying less for something that has increased in value or is out of reach at its normal price. Fraudsters have two main goals behind these tactics – stealing personal information to use in other crimes or gaining immediate financial benefits. Although their tactics are well-known – applying pressure on their victims to make quick decisions or offering them something that sounds like a great deal, but in truth, it isn't – that won't prevent them from trying. These scams show that, unlike in other industries, criminals do not rely on high success rates to achieve their goals. All they need is one or two victims out of every few hundred to fall for their schemes. Loan origination fraud Periods of financial instability often result in an increase in first-party fraud, among others. This could take many forms, and there is a possibility for an increase in fraudulent loan applications by genuine consumers to be among the most popular ones. In this type of fraud, bad actors lie on registration forms or applications to gain access to funds they wouldn't normally receive if they added their real information. That could be done by lying about their income and employment information, usually inflating their salaries, extending the amount of time they worked for a certain company, or simply adding a company they have never worked for. Other popular forgeries include anything from supplying fake phone numbers and addresses to providing fake bank statements and utility bills. Money mules Recessions can result in layoffs or people looking for work not being able to find any. That's another opportunity for fraudsters to exploit the vulnerable by offering them “jobs.” This could be achieved by posting job ads on real employment websites or social media. Once recruited, people are asked to open new bank accounts or use their previously opened accounts to transfer funds to accounts that are in the possession of criminals. In the end, the funds get laundered, while the genuine account holder receives a fee for the service. People of all ages are a possible target, but this is especially true for younger generations who often don't understand the consequences of their activities.  Friendly fraud Another type of first-party fraud that could go up as a result of the increased economic pressures could be friendly fraud. In this type of fraud that mostly affects the retail industry, consumers charge back genuine payments made by them in order to end up with both the product purchased and the funds for it back in their possession. They could then keep the product or quickly resell it for less than its original value. Luxury goods and electronics could be especially attractive for this type of fraud. Claiming non-deliveries or transactions not being recognized could be among the top reasons used for charging back the transactions. Investment fraud During times of economic hardship, people are often looking for ways to keep their savings from getting eaten by inflation. Investments in property could be one solution, but as it is not affordable for everyone, people are also looking for other ways to invest their money. While this isn’t exactly a vulnerability, it is something that criminals are looking to exploit greatly. They usually reach out to potential victims through social media while also presenting them with fake websites that mimic those by real investors. The opportunities being offered can range from cryptocurrency to various schemes and products that don’t exist or are worthless. However, after the criminals obtain possession of the funds, they discontinue their contact with the victims. Fake goods While this shouldn't happen to the same extent that was seen in 2020, there is a chance that some goods might disappear from certain markets. There could be a variety of reasons for that, from companies limiting their production or going out of business due to inability to pay their bills or shortage in sales to issues with supply chains due to the high gas and oil prices. Expect fraudsters to be the first to move in if there are shortages and start offering fake products or goods that will never arrive.  It is still difficult to measure if or when a recession will hit each corner of the world or how long it will take for the next phase in the financial cycle to begin. However, one thing that is certain is that the longer it takes the economy to settle, the more opportunities criminals will have to benefit from their schemes and come up with new ways to defraud people. Businesses should monitor the fraud environment around them closely and be ready to adjust their fraud management strategies quickly. They should also understand the complexity of the problems in front of them and that they will likely need a mixture of capabilities to sort them out while keeping their customer base happy. This is where fraud orchestration platforms could help by offering the needed solutions to solve multiple fraud issues and the flexibility to turn any of these tools on and off when needed. Contact us