Now, it may seem flippant of me to claim you can distil the ‘perfect’ fraud system down to five steps, but I’ve given it a go nonetheless by listing the five things that are going to be top of my list when speaking with clients about bringing their fraud
monitoring system up-to-speed for 2013.
1) Beware attacking zombies
Know Your Customer (KYC) and Enhanced Due Diligence are key factors in reducing fraud. This means verifying all customers’ identities, and if you’re unable to do so automatically, treat them as high risk until they are able to prove their credentials to
KYC is not just proving an identity exists, but also proving the person you’re dealing with is the true
owner of the identity – it is dangerous to assume someone in possession of personal details is that person. Generally speaking, real people providing real identities don’t tend to commit fraud, as they know they can be traced; non-existent, or ‘zombie’
customers using stolen or synthetic identities will happily churn through as many of these as they like while they try to defraud you.
2) Enrich, enrich, enrich
If you can obtain additional data on a customer or transaction (even from within your organisation), then do so. Enriching the data in this way gives you a clearer view of what’s going on, and strengthens profiling and segmentation. Such enrichment data
may include device fingerprints, geocoding of customer addresses, demographic data or contact information - even social media and news feeds can hold real value in some scenarios.
3) Look at EVERYTHING!
If you have data on a customer or transaction, no matter how insignificant you may feel it is, statistically validate it with your counter fraud systems; anomalies can hide anywhere. Spotting the one variable from a billion that looks out of place can potentially
create cost efficiencies that save huge amounts of money.
High-Performance Analytics enables you to analyse billions of rows of data in seconds. This may have taken days or weeks to perform just a few years ago but real-time solutions are no longer prohibitively expensive. Real-time analysis paves the way for innovative
systems to be applied at point-of-acquisition, enabling you to fast-track more good customers and weed out the undesirable ones before they even get through the door.
4) ‘Unlike’ the social network
It may have been the ‘trendy’ topic five years ago, but it’s still valid today; Social Network Analysis (or Network Analysis as I prefer to call it) is as important as ever. Understanding the entities in your system, how they connect and interact is fundamental
to spotting certain types of fraud.
If network analysis is not currently being used during customer acquisition for an immediate decision then it needs to be. It’s not just about matching names, addresses or contact details to each other; it’s also about the ‘inferable behaviour’ links. Seemingly
unconnected individuals may be exhibiting exactly the same behaviours, and if they are you can create an inferable behaviour link. This is a great technique for detecting both fraud and money laundering and should be at the top of the fraud manager’s to-do
5) Visual Analytics
Understanding the bigger picture of what’s going on in your organisation is critical to understanding where the risks may be, and unless you’re Neo seeing the Matrix, trillions of binary digits won’t make a lot of sense to you.
Visualisation of data is not just about producing dashboards or metrics; visualisation assesses how systems are performing in real-time. This includes an up-to-the minute view of your risk exposure, actual losses and any patterns of fraudulent behaviour.
Most importantly it empowers analysts to visually examine correlations between terabytes of data in seconds.
Your analysts understand your business and the fraud risks associated with it better than anyone else, so empower them with visualisation tools that identify previously unseen patterns and anomalies in the data.
There are, of course, many layers to a powerful and successful fraud monitoring system, but the above is really a call to action for fraud managers. Can you honestly say that you are following these five tips? If not they are the best starting point for
whipping your fraud monitoring system into shape in 2013.