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Luke Reynolds, Director of Fraud,

Luke Reynolds

Payments are changing fast – as soon as financial institutions and their merchants get up to speed, another change seems to be approaching. We saw it when Chip-and-Signature arrived in the US at the end of 2015, and with contactless and mobile payments which are becoming an increasingly popular choice for both merchants and consumers across Europe.

Europe, including the UK, is ahead of the curve in knowing the impact – positive and negative – of implementing EMV, having tackled the issues since the mid-2000s.

So, what can US financial institutions learn from the experience of Europe?

Criminals look for the weakest links

We know that criminals always look for the easiest targets when committing fraud. By studying what’s happened post-EMV in other markets, financial institutions and their merchants can reduce their risk of higher fraud losses with minimal impact on customer experience.

Changing payments push-up online fraud

Having worked for over 20 years in risk and security in the banking sector, I was at the centre of managing changing fraud trends in the early 2000s, when the UK and Europe moved to Chip-and-PIN. Online fraud was suddenly perceived as the weakest link for criminals, who moved to this channel for the biggest fraud ‘rewards’.

We’re seeing it happen again in the US. It was recently reported on that online fraud has already increased 11% since Chip-and-Signature cards were introduced in October last year.

Don’t let fraud prevention drop in priority

In my experience, as financial institutions and their merchants get to grips with new payment processes, fraud prevention drops down the priority list.

What this means is that instead of improving the customer experience, changes to payment processes negatively impact the customer. As well as increasing the chance of fraud attacks, this causes increased customer friction by unnecessarily blocking genuine transactions as payment methods and spending patterns change.

Merchants also get impacted – criminals move to the smaller merchant targets who do not have sophisticated fraud protection. These merchants cannot afford the resulting chargeback costs and fraud losses – not to mention the loss of revenue from declined transactions (false positives).

Blocking genuine customers can’t be a cost of stopping fraud

It’s a genuine problem for both customers and merchants when good customers are blocked in an attempt to catch fraud. According to recent research from MasterCard, it’s often the most affluent customers that get blocked – those who are travelling more frequently or making purchases with larger transaction values. These customers get blocked by fraud systems which rely on outdated methods of pattern-matching behaviour against business rules.

Reducing customer friction: advanced fraud management needed

What I’ve learnt from over 20 years battling fraud, is that financial institutions need fraud systems which keep one step ahead by understanding every individual customer’s behaviour in real-time – protecting them from fraud, while providing a frictionless experience.

Sophisticated machine learning systems

It’s one of the main reasons why I moved to Featurespace, who have a totally unique way of solving this problem with a machine learning engine – enabling organisations to balance robust fraud checks with a frictionless customer experience.

By viewing events in context and by building a deep understanding of every single customer, monitoring every event and transaction taking place in real-time and from multiple channels, fraud attacks stand out and genuine customers are easy to recognise.

It’s an approach which we’re implementing for TSYS, the largest payment processor in the United States. TSYS wanted to strengthen its position in faster payments using machine learning to provide clients with actionable insights in real-time. Featurespace will protect TSYS’ clients from fraud while providing a seamless customer experience.

Staying one step ahead

Financial institutions can learn from Europe’s experiences, that it is possible to stay ahead of the criminals. It’s important to take action now to reduce fraud while providing frictionless customer experience and protecting revenue.

New methods of payments make customer’s lives easier, and generate more revenue for the financial institutions providing the service. It’s up to organisations to embrace new fraud systems to gain a vital competitive edge in protecting their customers and their reputations.

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