January 19, 2023

3 strategies to fight fraud in 2023

Shahar Ronen

As in years before, financial services fraud continued to rise in 2022. Identity theft cost over $712 billion in 2020 in the U.S. and ACH fraud exceeded $55 billion in 2021. With businesses projected to lose $343 billion globally due to online payment fraud in the next four years, here are 3 strategies that can help improve your fraud prevention and risk management strategy.

1. Bring teams together

While fraud is an issue that impacts the entire business, many organizations split fraud prevention across distinct teams: a payments risk team, an account fraud team, and other teams for security, compliance, etc. This specialized approach results in fraud prevention strategies deployed in silos, allowing bad actors to slip through the cracks. 

For instance, a marketing campaign may drive a spike in new, risky signups, most of which are blocked by your account fraud team. But some might make it through. If the payment risk team is in the loop, they can be on the lookout for transactions from the same IP address as the blocked signups for example, and apply increased friction to stop fraudsters downstream. Otherwise, expect a spike in chargebacks or ACH returns to follow.

Instead, break down silos. Just as risk exists across the entire customer journey, your approach should mirror that by holistically assessing risk from the moment a user signs up to the time of payment and beyond. To do this, make sure your fraud teams are syncing regularly to share learnings. In addition to increased collaboration, align approaches and tooling across teams. Aim to use the same data repository and even set common metrics to gain a more comprehensive understanding of a customer’s risk and reduce potential losses. 

2. Find the *right* balance between UX and risk management

According to the Harris Poll, convenience and security are two of the top factors that influence consumers and their decision to adopt a new fintech service. Adding more verification steps to the sign-up process may increase security, but doing so increases friction and may result in fewer users completing the process and using your app. This is a dynamic balancing act that is unique to each organization and changes over time.  

First, define what the right balance is for your organization. To do that, understand where you currently stand by analyzing data about signups, conversion rates, acquisition cost, fraud losses and compare that against where you want to be. Then, measure the impact on those metrics as you fine-tune your risk tolerance levels and try new approaches.

To achieve this, implement passive verification technology that collects and analyzes information with little or no impact to the user experience. A good identity verification tool can collect a small amount of information from the consumer, and analyze hundreds of risk attributes to detect signs of fraud while reducing noise from false positives. At the transaction level, purpose-built solutions can also predict whether an ACH payment is likely to be returned without friction to users. When the real-time risk assessment suggests a user or transaction poses a higher risk than expected, that’s when a flexible UX should add additional steps and require additional information.

3. Leverage diverse signals and data networks

Fraudsters already leverage automated tools to streamline operations and have access to billions of breached credentials and identity records. As a result, you can expect them to continue to grow in sophistication in 2023. Your fraud program needs to outpace them and evolve even faster to mitigate increased risk.

To stay ahead of ever-evolving fraud, expand and diversify the set of signals you analyze. By doing this, you gain a multi-dimensional understanding of identity and transaction risk from attributes like a user’s device, IP address, phone number, email address, behavior, and past account activity. 

Plus, with a partner like Plaid, organizations can learn and benefit from data across platforms in order to combat repeat fraudsters and fraud rings. Plaid monitors risky activity across our ecosystem such as connection history with other Plaid customers and linked bank account status, providing earlier warning to minimize success of organized fraud. This network effect enables organizations to not only enhance their risk programs and models, but also creates a connected network to build a safer digital finance ecosystem for consumers overall. 

We’re continually investing in these attributes, signals, and a network approach to data sharing to help customers stay ahead of novel threats.

Strengthen your fraud prevention efforts

Plaid’s fraud prevention solutions combine top security practices, the convenience consumers expect, and the advanced capabilities you need to increase conversion and further reduce identity and transaction risk

Join thousands of the world’s leading fintechs and enable a more secure and streamlined anti-fraud process that keeps user experience top of mind. Get in touch to learn more.