Hat in Hand with 17 Heads: Payments Innovation and the Fraud Pitfalls to Avoid
Imagine that you live in a world that is revenue-agnostic, where payments revenue is so far decoupled from the payments channels that they ride on, and that startup culture and venture capital allow for the creation of all sorts of innovations that have some creative monetization that keep the train on the tracks. If you got halfway through that horrific sentence and realized we’ve been there for quite a while already, I’m impressed. It is essentially the cornerstone of banking, in many capacities.
However, non-banks, especially the fintech crowd, have come along and created quite a little niche for themselves and found ways to carve out vast swaths of under-served payment mechanisms, like P2P, allowing them to thrive in places where the banks traditionally held court. Now, this isn’t my area of expertise, so I need to sit down after this point, but setting the stage like this is important to understanding what’s coming and how fraud managers can posture themselves for the corner around the corner. What I do know is that banks are playing defense just to retain the traffic. Table stakes are now preventing the new kid on the block from eating your lunch.
Living in this present moment, if you have a look around, the pace of innovation is breathtaking. Fintech is hatching new products at such a rapid clip that it’s dizzying and many of them are potential threats. If I am running a fraud shop, keeping a grip on the myriad solutions frequently cobbled together in haste, the analytics that feed them and a team that has it all humming, is already more than a full-time job. And now, here comes another new channel. One fraud manager I recently spoke with suggested he had more than 40 projects concurrently.
So, as you’re doing your best ingesting another new mobile wallet or alternative payment method or faster payment into your enterprise fraud prevention empire, and you’ve installed a transaction monitoring solution to prevent a financial crime disaster, you think you are ready to fend off the potential risk if the pin falls out of the grenade when the new channel is in full tilt. Now, let’s assume one of these new channels reaches critical mass, gets to a point where full adoption potential is realized, and suddenly, it isn’t as secure as was suggested, and a fraud event erupts well more than what could have been anticipated.
Imagine this situation, where the forecast is grim, you’re sitting on a channel that is exploding like Vesuvius and the way to close the gap is with a bolt-on new staff, technology or process. This is the moment when you have to ask for additional budget, to reduce risk on a revenue neutral-negative product that is quite simply already hemorrhaging money. And as you make the case, with your hat in hand, you look like you have 17 heads.
When implementing fraud detection solutions, you rarely get another bite at the cherry; you have to be right the first time when you deploy your technology. Our recent research on the phenomenon of fraud in new channel launches with the Javelin group and provides pathways to reducing your residual risk, best practices to align new channels to controls and repeatable strategies to avoid pitfalls in new payments launches. New channels won’t slow down, fraudsters will never sleep and as finance becomes more complicated, we need more discipline to avoid the fraud trap.
Download a copy of The Fraud Trap: Optimizing Payment Controls from Day One
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