Sunday, February 16, 2014

Online Fraud Analytics

Tracking a customer’s interactions is something all companies do, but what happens though when the customer on your website has ulterior motives? A mistake that if overlooked or left unchecked, can cost a company hundreds of thousands to even millions of dollars in losses depending on the complexity of the breach. 

Welcome to the dark side of digital analytics, where fraudsters use the online channel to commit crime. With the emergence of new technologies, smartphones and tablets, the way which we interact with companies and financial institutions via the web is changing, and fraudsters are leveraging these new avenues to acquire funds and peoples identities through illegitimate means. 

"Data analytics, traditionally the domain of marketing and sales, has effectively migrated into the realm of internal audit, compliance, and corporate oversight. Companies now have opportunities to use forensic data analytics for proactive monitoring of business data. Organizations will be able to develop a better understanding of the risks and rewards of forensic data analytics and how these techniques can be used to transform data to help detect potential instances of fraud and implement effective fraud risk mitigation programs." - EY (1)

Industry Trends

While fraud continues to be an ever evolving industry and can take on many faces, there are areas analysts can pay close attention to within their population’s data to quickly identify threats:

  • Multichannel. A trend that has become popular among fraudsters in recent years. The customer may be compromised initially through offline means, and the actual loss occurs via the online channel or vice versa. Like most multichannel initiatives putting together a way to track customers across multiple channels or devices can be difficult, however many third party vendors are building into their algorithms ways to make this easier. (4)
  •  Malware and Phishing Attempts. Fraudsters have targeted consumers through this avenue since the launch of the internet. As society has advances in technology, so to have the methods fraudsters use to hijack ones computer or obtain ones identity. A computer takeover can be difficult to detect as fraudulent activity, as it will appear that the customer is the one making the transactions. (5)
  • Mobile Devices. Mobile commerce is projected to expand from 9% of all ecommerce sales to 18% in 2014. (8) As consumers move towards accessing information and interacting from smartphone and tablets more often, the next push by fraudsters is to compromise these devices. As most of us store a lot of personal and private information on these devices, one compromise could me endless possibilities to the fraudster. If your company uses an IP, or browser tracking system for your customers, make sure to build into your reporting and alerting software when these behaviors change. (5)

What Can Be Done?

As fraud is an ever moving target, steps can be made to hedge losses. Financial institutions and most companies are well aware of the importance this will be to their bottom line and are therefore allocating larger portions of their yearly budget to stay one step ahead. Deloitte, a risk and compliance company, has given four areas where companies should focus fraud analytic efforts for a successful strategy:
Components of an Effective Fraud Risk Framework
1.       Cultural assessment.
2.       Technology and data analytics.
3.       Effective control activities.
4.       Continuous monitoring and innovation. (6)

While these items encompass all aspects of Digital Analytics, there are more precise items that companies should consider when dealing with fraud for a more robust strategy. Proactively building relationships, with third party vendor companies like: Actimize, Fiserv, SAS, and Oracle, are key to having success. These companies are expected to have a growth rate of 6.9% through 2017 to help combat the problem. (3)  Building these strong relationships with third party vendors and leveraging their systems will empower companies and banks to identify, track, and prevent fraud losses from occurring. 

Due to the silo effect that exists in most companies however getting risk and data management processes up to speed with current fraud trends has been difficult and often red flags are overlooked. (3) Changes are being made to alleviate the silo problem and make it the problem of the department or company as a whole. Taking this approach holds everyone accountable for the loss.  

Because there are many types of fraud companies can face both internally and externally, making sure analysts are specialized in a particular facet of fraud: AML, BSA, Online, ACH, Credit card etc. is better for the company’s defense. This also helps to tailor the tools used to a particular fraud for quicker identification and prevention.  

Finally, financial institutions are finding success in fraud analytics by attempting to predict the customer and fraudster’s behavior. Applying a scoring system to what is normal and abnormal behavior for a customer have allowed for easier identification of abnormalities. (2) Along the same lines, another insightful way to identifying fraudulent customers is to detecting commonalities among customers. Are the same contact information points being used, addresses, phone number, email addresses among unrelated customers.(7) Linking what appear to be unrelated or single events together will reveal the  complete picture of the fraudster’s endgame more quickly. 

While the vastness of fraud can be overwhelming, having an empowered group of analysts with the right tools and a well-rounded strategy containing the aspects listed above, your company can greatly minimize the losses it will face due to fraudulent activity.

Works Cited
  1. Burger, K. (2013, December 17). Fraud and Corruption Trends to Watch in 2014. Retrieved from Bank Systems & Technology:
  2. Crosman, P. (2013, December 23). Six Bets Wells Fargo Is Making on Treasury Technology. Retrieved from American Banker :
  3. Crosman, P. (2014, January 9). Banks' Risk Tech Spending Expected to Grow Steeply Through 2017. Retrieved from American Banker :
  4. Current State of E-channel Fraud Trends: Online Banking, Mobile Banking, and Card Fraud. (n.d.). Retrieved from NAFCU:
  5. Deloitte - Risk & Compliance Journal. (2014, February 3). Prevention Measures to Help Counter E-commerce Fraud. Retrieved from Wall Street Journal :
  6. Deloitte - Risk & Compliance Journal. (2014, January 28). Detecting Fraud and Growing Margins in Retail Using Analytics. Retrieved from Wall Street Journal :
  7. Hardy, Q. (2012, January 19). Data Analytics Company Finds Fraud Is A Friend. Retrieved from New York Times:
  8. Infographic: Mobile Payment Management Trends 2012-2013. (2013). Retrieved from Cybersource:

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