Response to European Banking Authority’s discussion paper on the preliminary observations on selected payment fraud data under the Payment Services Directive (PSD2)

The European Banking Authority (EBA) recently put out an open call to the industry for responses to be included in its discussion paper on the preliminary observations on selected payment fraud data under the Payment Services Directive (PSD2).

The EBA gathered data from financial services ecosystem participants, including banks, fintechs, acquirers, processors and networks (know jointly as Payment Service Providers) during 2019 and 2020 at the beginning of the regional implementation of new systems to meet the PSD2 requirements for Strong Customer Authentication (SCA). The EBA will continue to gather payments fraud data as more and more Payment Service Providers (PSPs) become SCA compliant, to evaluate if the regulatory efforts have caused the desired effect.

Featurespace provided its comments to the EBA as part this collaborative approach to reducing fraud in Europe. Featurespace’s mission is to make the world a safer place to transact, and this kind of transparency and collaboration within the financial services industry is crucial to that mission.

9 Key Recommendations

In response to the specific questions outlined by the EBA around the preliminary fraud data, Featurespace has 9 key recommendations.

  1. Machine learning is needed to combat organised fraud tactics tailored to Two Factor Authentication flows.
  2. Scams are emerging as a crucial typology to tackle for both credit transfers and cards transactions. Industry focus on cards scams is crucial to get ahead of the next wave of fraud.
  3. Fraud is now perpetrated by organised criminal networks with more sophisticated tactics focused on higher value transactions. More detailed analysis of high value fraud such as investment scams is needed.
  4. An updated regulatory framework is necessary to protect consumers against the rising tide of scams.
  5. Further detail within the credit transfers taxonomy, and segmented by country, is necessary to create more accurate reporting and fraud analysis.
  6. A merchant category within the reporting taxonomy is needed to better analyse fraud losses liability currently reported as ‘other’.
  7. More detailed data is needed in relation to credit transfers fraud, including on the use of instant payment, on account opening and application fraud in relation to mule accounts, and scams which ‘cash out’ into cryptocurrency.
  8. Fraud prevention strategies must shift to focus on understanding genuine behaviour to better protect PSUs in this new era of scams.
  9. More detailed reporting in relation to scams is needed to effectively combat payments fraud.

Read the complete response and recommendations from Featurespace here.