One of the greatest challenges financial institutions face today is to provide a safe and transparent service without affecting user experience. In order to achieve this, they need to have a good understanding of the risks they face and how to prevent them.
Fraud, be it face-to-face or virtual, is one of the most common risks. When talking about fraud, one can fall into the trap of focusing on the latest fraud trends or patterns. However, acquirers and issuers should focus on investing in flexible tools that will help them confront these trends and understand new fraud patterns to make better prevention decisions.
Unfortunately, fraud will never disappear, but having the necessary information about the risks we are exposed to allows us to prevent and mitigate them. This is the reason why it is very important that financial institutions, issuers, and acquirers have payment processors that evaluate and measure risks.
Basic Concepts About Fraud
The defrauder or scammer is the person that commits fraud, and they may be an internal or external resource of the institution. Their intention is to obtain or hide information and use it to embezzle funds.
To commit fraud, the scammer must have 3 things:
- Motivation is the factor that causes someone to react or act illegally. It can be implicitly associated with emotion or desire, and it may involve financial hardships, greed, or simply a feeling of satisfaction gained from harming others.
- Opportunity is the combination of circumstances that allow fraud to be committed. Some opportunities include access to cardholder data, lack of controls in the revision of chargebacks, and even the lack of segregation of duties in the business.
- Rationalization is the scammer’s self-justification for committing fraud . This happens when the individual comes to believe that the fraudulent act is not bad or incorrect, or that the end justifies the means.
This activity grows increasingly worse; the scammer feels afraid of being discovered, but the greater the opportunity, the greater the justification, which leads to further normalization . This becomes a habit and keeps growing until thousands or millions of dollars are lost to the institution.
Why Is It Important to Know the Risks?
You would not open an ice cream shop if you did not have the refrigerators necessary to keep the product cold, right? The same goes for risk management and fraud prevention. It is very important to know the possible future failures and risks in order to plan and have a strategy.
Risk management can be divided into several fronts and, with them, its repercussions:
- Operational: what you assume for the controls your employees must have and have your systems.
- Reputational: that which could become a potential loss through customer opinions on social networks or via reference; the importance of this risk has increased significantly.
- Competitive: customers move over to the competition, driven by reputational or operational aspects.
- Financial: the aforementioned risks can lead to money losses and potential exposure to legal processes or penalties.
- Governance: a loss in trust in the organization and its leaders.
How Can You Measure Risks and Avoid Fraud?
The financial institution’s priority should be to have tools capable of adapting to the different risks that affect clients, minimizing fraud and its impact on the customer’s experience. Tools such as RiskCenter 360 serve to control risks, maintain complete visibility on transactions and payments, and identify failures in order to mitigate them.
The purpose is to improve customer experience and reduce possible losses through secure mechanisms for navigation and redirection. This tool also analyzes customer behavior, transactions, anomalies, and secure channels. This is complemented by artificial intelligence or data prediction models.
Why Is It Important for Financial Institutions to Have Fraud Prevention Systems?
Every day, millions of customers rely on financial institutions, particularly banks, to safeguard their money and information. This is why institutions have a responsibility to protect and maintain the trust of its clients, their accounts, and their transactions.
Likewise, financial institutions are highly regulated by different agencies whose role it is to ensure that the established controls will prevent different types of fraud, such as identity theft and asset laundering, among others.
What Does a Fraud Prevention System Do?
Fraud prevention systems are tools composed of consoles that allow you to create business rules that generate alerts based on defined behaviors or parameters.
Platforms such as Evertec’s RiskCenter 360 can be combined with financial and non-financial events to provide a holistic view of your clients, facilitating your business strategy and comprehensive fraud prevention.
When implementing a fraud prevention system that is aligned with your business strategy, you should take the following into account: real-time decision-making mechanisms for critical or high-risk transactions and transaction authentication tools that allow you to validate client authenticity.
Monitoring systems, such as RiskCenter 360, allows for comprehensive analysis of clients by identifying signs of fraud. Additionally, it has a user-friendly rules management console and a very powerful engine that includes a wide variety of sources and variables for a truly comprehensive analysis.
What Are the Benefits of Risk Analysis for Banking?
Its main benefits include the ability to define your risk prevention and management strategy. This allows you to establish controls to mitigate potential fraud losses and reduce related costs, as well as to implement a system that detects fraud more efficiently, thus bolstering customer trust.
Having RiskCenter 360 allows institutions to meet regulatory requirements, brand guidelines and industry standards, offering the ability to differentiate their business by having a 360º view for prevention and monitoring. This allows institutions to have a unique perspective of their clients and their relationship with the institution, as well as to get involved in the process of fraud prevention and detection in a transparent manner.
How Does the Relationship Between Banking Institutions and Customers Improve Thanks to Risk Analysis?
Having fraud prevention and risk analysis systems means that the relationship between the client and the bank improves in two aspects: trust and experience.
By deciding to keep your financial accounts or services, the client is depositing their trust in the institution. Of course, the fact that their money and information are in good hands allows the relationship to be strengthened.
Moreover, customer experience plays a great role in that process. The institution must have flexible and parameterizable systems to identify events that generate friction because there is a potential fraud risk. This prevents damaging the client’s experience and safeguards their trust.
Benefits of Having RiskCenter 360
Having a system like RiskCenter 360 provides financial institutions with the support of a company like Evertec, which has an international presence and whose experience allows it to work with the main brands and industry segments throughout the region.
- RiskCenter 360 offers a holistic view where no angle is left unattended, analyzing both financial and non-financial fraud activities.
- It has two powerful components: a neural artificial intelligence engine powered by automatic learning throughout the region and the most flexible rule management platform.
- It has integrated simulators for predictive modeling using a “Sandbox” and “What If”.
- It has flexibility and scalability: Azure-based cloud.
- It has cryptographic PCI-compatible protection.
- It offers tokenization to protect confidential data.
- It has a PA-DSS certificate through PayStudio® Secure TX.
RiskCenter 360 is a complete solution that seeks to protect businesses against the constantly evolving modalities of fraud and increase the ability of smaller banks to manage fraud like large financial institutions do.