Rise Of The Machine (Learning) and Fraud Prevention
Machine learning, as a sub-discipline within computer science, is primarily concerned with the discovery of patterns in data through algorithms that can learn from and make predictions on that data. These algorithms operate by building a model based on example inputs, which can then make data-driven predictions or decisions. So what, exactly, does this have to do with beating fraud in the real world?
From big data to actionable insights
Machine learning algorithms can be used to build predictive models, which assess the probability of a transaction being fraudulent. This is achieved by combining historical transaction data from fraudulent activity, together with information from genuine customer transactions, delivering very tangible results in fraud detection.
The ability of machine learning algorithms to extract meaning from complicated data means that they can be used to identify patterns and highlight trends that are simply too complex – or require too much data to be crunched - to be noticed either by human fraud analysts or through other automated techniques. By running specific algorithms, and using them to make automated decisions or generate alerts for suspicious activity, it is possible to save manual review time, reduce the number of false positives, and quickly stop fraud attempts.
Even models need rules
Models learn by example – so the more valuable, complete, and relevant data they are fed and trained on, the more accurate they will be. Access to merchant, payment provider and FI data across sector and geographies helps to enhance and train machine learning models. From the perspective of retail fraud, there are two primary models that need to be considered.
Sector models are developed based on data from multiple merchants within a given sector. Fraudsters operate across retailers and geographies, so a global view helps to ensure higher predictive performance.
Tactical models can be developed for a specific segment, data strata, or merchant. The customized nature of the modelling process means that implementing tactical models comes with a higher cost, but they can enable merchants to achieve higher fraud detection rates at lower false positive rates.
Combining either of these machine learning models with a sophisticated rules engine allows fraud strategies to be fine-tuned to the needs of individual merchants. A rules engine needs to be flexible, so that merchants can quickly adapt to emerging fraud trends, as well as respond to business changes such as entry into new markets or channels. Ideally, this is done in such a way that it is not necessary to ‘retrain’ the machine learning model.
Who’s in the driver’s seat?
The successful use of machine learning within the payments and fraud space requires dedicated data scientists, who can develop the models, and also apply the use of algorithms in detecting fraud. Data scientists, however, cannot develop these capabilities in isolation, and work closely alongside risk analysts and software engineering teams. Most importantly, such cross-functional teams must strive to constantly enhance the relevance and performance of machine learning models, to ensure they remain effective as the payments landscape changes. And the ability to navigate this evolving landscape – despite the increasing power of machine learning – still requires a distinctly human touch.
ACI Worldwide will participate in a panel discussion on Machine Learning at MRC London, April 25th at 4:15pm, as well as showcasing online fraud management and payments capabilities.
Related Blog Posts
Innovate and Integrate to Accumulate: Investing in Payments Systems to Drive Growth
Today’s merchants face numerous challenges, which boil down to one central issue: how to succeed in a constantly changing, complex market, while also investing for the future.
Merchants need to deliver on growing expectations around the customer experience in an increasingly competitive environment, while battling growing costs and squeezed margins. This pressure extends through the whole business for every merchant, in every sector, and it’s driving merchants to look into every corner of their operations for ways to cut costs and redirect resources.
Choice and Flexibility Help Digital Entertainment Merchants Catch Their Customers
Gaming and Digital Entertainment is one of the fastest growing verticals within the broader merchant sector, as boundaries continue to blur. Many forms of entertainment that once only took place in the physical world, or through the purchase of physical goods, have gone fully digital – with significant ramifications for businesses that provide payments services to suit a wide range of merchant needs. I spoke with Andy McDonald, ACI’s vice president of merchant payments, to find out more.
The Telco Transformation Tight Rope: Balancing Risk and Reward
In a previous blog post, we looked at the towering mobile payments opportunity for those MNOs and MVNOs that can build customer trust and convenience through innovation to become a digital marketplace.
But, it is safe to say that while the digital marketplace model could be a real opportunity for telcos, taking this route is not without some risk.
Telcos Must Walk Before They Run When It Comes to Mobile Payments Innovation
The mobile payments market is growing fast, fueled by technological innovation and consumer demand. With each consumer predicted to own, on average, nine connected devices by 2021, there is no doubt that we can expect to see an exponential rise in the number of devices and applications used to make mobile payments over the coming years.
The Merchant Balancing: Act Operational Costs vs Customer Experience
There is no excuse any more for a poor payments experience, but retailers are tasked with a delicate balancing act – not only balancing payments fraud and friction, as we explored in a recent blog post – but also cost and customer experience. With many areas of the business competing for resources, should retailers be cutting costs when it comes to payment acceptance, or focusing on delighting the customer through innovative payment experiences?
Setting the Table for Success in the New World of Merchant Payments
Once upon a time, not so very long ago, creating a payments journey for your customers was as simple as calling your bank, choosing from one of two (maybe three) terminal types that would enable your business to accept mag stripe cards. And then perhaps deciding whether to offer your customers American Express acceptance.
How things have changed!
Payments Fraud and Friction: A Delicate Dance
One of the biggest challenges for retailers, at least when it comes to payment acceptance, is the need to provide a frictionless customer experience that does not come at the cost of customer security. Additionally, retaining a competitive and distinctive edge requires flexibility across markets and segments.
Cutting the Cost and Complexity of Merchant Payments – But Not the Customer Experience
New research from ACI and Ovum, released this week, highlights that many merchants in 2018 are investing in creating operational efficiencies in their payments systems. But the question is, as they strive to simplify systems and cut costs, will customer experience suffer?
Cross-Border eCommerce Expansion: A Fraud Perspective
For merchants that are expanding their online presence overseas, enabling the right locally-preferred alternative payment methods and connecting to local acquirers can be a critical determinant of success. But without considering fraud management strategy in tandem with payments strategy, the road to cross-border success could be a bumpy (not to mention costly) one.
Driving IoT Progress at Mobile World Congress
I felt fortunate to be among the 107,000 delegates from 205 countries attending this year’s Mobile World Congress, held earlier this month in surprisingly chilly Barcelona.
Showcasing everything from connected cars, to virtual reality, 3D printing to amazing app ideas—the exhibition and conference content at MWC gave visitors a chance to discuss the future of mobile and explore the world’s most cutting-edge, mobile-enabled products and services.