IBM RegTech Innovations

Payments fraud prevention in times of economic uncertainty

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As the global economy continues to contract and social anxiety increases from the novel coronavirus (COVID-19) pandemic, so do new fraud threats emerge. These new fraud threats have already triggered numerous warnings from government officials such as the U.S. Attorney General William Barr and organizations such as: the U.S. Secret Service, FBI the National Fraud Intelligence Bureau (NFIB), the Canadian Anti-Fraud Centre (CAFC), and Interpol. New fraudulent activities continue to appear such as recent coronavirus-linked scams from which U.K. victims have already lost more than $1 million, with criminals tricking fearful people who wanted to buy protective masks.

A perfect storm of fraud risk is brewing

The “fraud triangle,” a framework commonly used to explain the motivation behind committing fraud, outlines three components that contribute to increasing the risk of fraud: opportunity, incentive and rationalization. In the economic uncertainties and social anxiety stemming from the coronavirus pandemic, three factors are on the rise:

  • Opportunity – fraudsters will look to exploit the elevated fear and uncertainty around COVID-19 to scam people out of their money.
  • Incentive – loss avoidance and increasing economic hardships can be a strong motivator to commit fraud.
  • Rationalization – when economic survival is threatened, the line separating acceptable and unacceptable behavior can, for some, become blurred.

An environment that propagates a sense of unpredictability and uncontrollability over an extended period brings increasing stress, fear and anxiety which result in irrational and erratic behavior. This behavior will likely make more consumers vulnerable and susceptible to fraudsters. At the same time, predictive behavior models, used to detect fraudulent activities, based on historical, more-rational consumer behavior may not be as effective or even relevant in the new environment.

Quickly identify and adapt to new fraud models and threats  

In this uncharted climate, it is difficult to anticipate the exact nature and the extent of impending fraudulent threats and business challenges. But the ability to rapidly identify new threats, adapt fraud prevention controls and take corrective action will be critical for business operational continuity.

IBM Safer Payments has been built to help anti-fraud teams identify and adapt quickly to emerging payment fraud threats. It comprises the analytics and simulation tools needed to continuously monitor its business performance, and to adapt the decision model to emerging and modified fraud patterns. IBM Safer Payments allows fraud analysts to easily test their hypothesis of emerging threats and run simulations on “live” data.

For example, an analyst can easily investigate possible online scams preying on the most vulnerable in their time of despair. This can be done through the solution’s browser-based interface (no coding required), by adjusting transaction attributes’ condition settings – such as merchant country codes, merchant category codes, cardholders’ age and total amount of cardholder’s transaction in a defined time period. Simulations provide expected fraud hit rate and false positive rate for each conceived countermeasure.

At the same time, IBM Safer Payments artificial intelligence algorithms automatically devise new fraud countermeasures and rules from its internal database and presents them to the analysts for review. The “champion/challenger” technique is used to compare all competing strategies, manually created and machine-recommended, and to select the most effective for immediate implementation.The solution continuously monitors the effectiveness of all defined fraud countermeasures and decision rules, highlighting the ones that demonstrate declining performance over time to the fraud experts for review.

Trust in a reliable partner

IBM has been helping customers around the world continue to run their mission critical systems securely and stay resilient during times of adversity and economic uncertainty. No one knows the ultimate economic impact of the coronavirus pandemic. But one thing is for sure. The businesses that can weather this downturn will be positioned to reap the rewards of the economic expansion that will follow.

The same is true for fraud prevention solutions. Those solutions that are adaptive and effective in the most challenging times will excel once the storm abates. For more specifics on identifying and adapting to fraudulent threats during the current economic uncertainty, see http://ibm.com/saferpayments.

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