Time to Join Forces to Defend Against Fraud Rings

Organized fraud rings are dirty, rotten, and illegal. But aside from that, they have plenty in common with legitimate businesses. Fraud rings invest in talent, tech, and operations, just like your institution does. And they focus on growth, profitability, and efficiency.

These similarities are what make fraud rings the fiercest of foes. Structured as high performing “businesses,” large, organized fraud rings are well armed to damage your institution’s financial health, reputation, and customer relationships. In the spirit of knowing the enemy, we’ve identified two alarming trends that your institution will need to defend against to combat organized fraud rings.

Trend #1: Fraud rings have the capacity to operate on a massive scale.

Increasingly, we’re seeing sophisticated fraud businesses (aka rings) attack an entire industry sector at once. Take the Southeast Asian-based ring that hit the retail segment during the holiday season of 2022. An article in Dark Reading describes this threat group as a “sophisticated operation stacked with data science, fraud detection, online payments, and e-commerce expertise” that was able to steal more than $660 million in goods in November alone.

This attack is said to be the largest attack of its kind in the last 20 years, affecting hundreds, maybe thousands of retailers simultaneously. It was the fraudsters’ version of blitzkrieg, and those without the proper defenses were no-doubt the hardest hit. Specifically, retailers that were not part of a real-time consortium of retailers sharing fraud-related data likely discovered their losses weeks, maybe months after the ring robbed them.

To protect itself, the financial services industry should be prepared for large-scale, organized attacks by ensuring that their fraud controls and solutions are optimized by industry consortium data. This data should illuminate fraud signals in real time so that thousands of institutions can work together to thwart the threat.

A powerful consortium network is the bedrock of our platform designed to thwart new-account fraud and account takeover attempts. Every day we can see how the sharing of critical fraud data among financial institutions works to detect, prevent, and mitigate the effects of identity fraud.

Trend #2: Fraud rings are maximizing AI to drive business performance.

The financial services industry has made excellent progress integrating AI, including machine learning (ML), into its business practices. However, more could be done to ensure that ML is optimizing the accuracy of fraud and risk assessments. This should be the case not only for monetary transactions, but also for critical non-monetary events, such as account openings, profile changes, and card and check requests.

Institutions will have to look at each fraud control along the customer journey and decide whether supervised ML or unsupervised ML is or can be leveraged. Supervised techniques rely on a set of past transactions for which the label (or outcome) of the transaction is known. Unsupervised techniques scrutinize data without labels to identify and predict patterns. Both methods have merit.

Our comprehensive solution for new-account fraud uses supervised machine learning. That’s because, when we designed our solutions, we added a built-in feedback loop so that we could collect labeled data (outcomes).

In new-account application fraud, the application can either be labeled genuine/not fraud (the new account was requested by a legitimate applicant) or labeled fraudulent (the new account was requested by an imposter/robot). Kevari automatically captures the correct labels after each investigation, and then supervised ML uses this real-life data to improve the predictiveness of fraud models. In this way, supervised ML allows the work of each financial institution investigator to benefit the entire network of institutions using our solution. These two trends, and the approach it will take to counteract them, give new meaning to how financial institutions define their competition – at least when it comes to fighting fraud. While institutions still need to compete with each other as they seek to grow assets, when it comes to stopping fraud, they must be on the same page, fighting together. To put the organized fraud rings out of business, it will take coordinated collaboration across the entire financial services industry.


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