Featurespace, TSYS a Global Payments Company, Mastercard, and Worldpay from FIS explain fraud and financial crime services that generate new revenues.

Dispatches from Money20/20 USA

Featurespace hosted perhaps the most well-attended session in Las Vegas, with standing-room only for its panel of payments superpowers, representing the three major pillars of the ecosystem: issuing, acquiring and the payment networks.

If you’ve been to any other Money20/20 events or read the latest fintech news you will know there is one trend that has never been hotter: Payments as a Service.

As banks struggle with cost to income ratios and global markets down, they look to find efficiencies without losing innovation. Enter issuing, acquiring, network and processing partners who are offering innovation as a service. And the next innovation in their arsenal? Fraud prevention and Anti-Money Laundering (AML).

The global rise of digital transaction volumes has created great opportunities for the new power players in the payments ecosystem, but fraud and financial crime has increased in lockstep, with our recent research finding that U.S. financial institutions with $5bn in assets and up reported an average fraud rate of 1.29 bps.

Now they need more scalable and efficient fraud prevention and AML solutions. The difference for Payments as a Service providers is that anti-fraud and compliance investments not only help manage operational cost but can actually be monetized.

The experts discussed how fraud prevention and compliance as a service is not only helping them ensure the world is a safer place to transact, but is also helping them win customers, manage costs, and grow revenues in an increasingly crowded marketplace. In part one of this blog series, we recount the key trends from the show, in fraud and financial crime, and explain why payments organizations are investing in developing fraud and financial crime product offerings.

The Experts

Dave Excell, Founder of Featurespace and moderator of the panel, bringing his expertise in machine learning innovations and changing the game for fraud and financial crime prevention.

Dondi Black focuses on the intersection of emerging technologies and their applicability to the financial services industry at TSYS, a Global Payments company and one of the world’s largest issuing technology platforms. Dondi is responsible for the acceleration of digital transformation and the application of data analytics.

See how TSYS Foresight Score is changing the game

Mina Khattak brings the best of payments innovation to merchants and PSPs around the world through a leading acquiring platform at Worldpay from FIS. Mina drives to ensure secure, seamless payment and purchasing experiences, including crypto for both merchants and their customers.

Learn how Worldpay FraudSight protects merchants and transactions

And Liam Cooney represents the crucial connectivity and orchestration between all these players in the payments ecosystem at Mastercard. Focusing on the role of Cyber and Intelligence at the center of payment flows, Liam strives to ensure financial crime solutions help prevent and detect fraud and money laundering on card and account-to-account payments around the world.

Hot topics at Money20/20

Excell: “Here at Money20/20, one of the biggest themes is around providing fintech and payments service to different banks and financial institutions to help them to continue to innovate. And where they’ve got a lot of technology already embedded in their processes, to be able to support its modernization. One of the themes is to make sure a lot of those technologies are secure from fraud and financial crime, which continues to grow and become more sophisticated.

With this struggle to continue to fight that fight, a lot of financial services industry players have come back to their payment processers and technology providers on how to provide value added services to fight fraud and financial crime. In terms of how the technology and data that sits within these services, platforms can be used to solve that purpose.”

Changing mindsets on as a Service

Black: “It’s really interesting if you think about what we all lived through as a society as a shared community over the last few years. Certainly, there was an acceleration in terms of the digitization of payments. You know we (TSYS, a Global Payments Company) processed more than 28 billion transactions in 2021 and we’re going to surpass that by far in 2022.

And the reality that created pressure for issuers and merchants as we saw new payment form factors emerge. As these new form factors emerged, new channels also opened up and entirely new segments of the population began conducting digital payment transactions.

How many of us had a parent who used Amazon to order toilet paper online for the first time in the last few years? My mother is a perfect case study in that. All of that culminated to a much larger surface area. More points for potential compromise, and so we really as an industry, the entire ecosystem, had to really kind of come together and build this connective tissue. And people had to start thinking about embedding certainly AI machine learning. That’s where Adaptive Behavioural Analytics is so important because you had to be adaptive, you have to be nimble as you think about protecting all of this additional surface area and these points.”

The pandemic driving change in payments fraud

Cooney: “There’s a couple of driving changes that we’ve seen over the last couple of years [at Mastercard] where we’re getting asked more and more to provide fraud and AML solutions that leverage a consortium, or network intelligence to supplement what a bank or financial institution can do on their own. I think one of the main reasons is just frankly the size and scale of the fraud and financial crime problem. It’s grown. As we’ve seen prior to the pandemic, there’s a massive option globally of real-time digital payment systems which has been accelerated by the pandemic. And while by-and-large this is extremely positive, because it allows consumers and businesses to send funds in near real-time, it also creates opportunities for fraudsters and criminals to leverage the speed of payment systems to their advantage. The same sorts of attacks, like account takeover (ATO), scams, etc. are still being perpetrated. But once those funds land in that account, fraudsters aren’t idiots, they don’t let the money sit there for any long period of time. They use the speed of the payment systems to quickly move those funds from accounts at multiple financial institutions in near real-time and create a complex web of transactions that is impossible for any individual FI to fast enough. This is a huge problem that we’ve seen. We’ve seen a big increase, both in fraud and scams and then the subsequent movement of those illicit funds.

And I think another driving change we’ve seen in response to that, it’s closely related, it’s just a willingness for the ecosystem and the industry to work together collaboratively. This is not a space of competition. We all benefit by preventing fraud and stymying money laundering.”

Data science success in fraud prevention and AML

Cooney: “Over the last couple of years there’s been a couple of really strong success stories in applying advanced data science techniques to consortium and network level transaction data. And through the application of those capabilities, we’ve been able to prove that we can help prevent fraud and stop money laundering from occurring.

I think a great example that Mastercard is proud of is through our role in processing real-time payments in the UK. With our partner Pay.UK and all the industry participants we developed a solution that looks across all the interbank payments across faster payments, and identifies both proactively and after the fact, movement of funds that indicates that it was funds received through fraud or scams and identifying and tracing the proceeds of those attacks across the banking system; alerting the FIs, allowing them to investigate those accounts and shut down those accounts. What that does is it starts to change the dynamics of basically the return on equity from these attacks. You’re shutting down the accounts because you’re making it more expensive to perpetrate financial crime, and you’re starting to push fraud and money laundering out of the payment system.”

Supporting merchants with fraud prevention

Khattak: “From a merchant acquiring perspective, we’ve definitely seen this shift in mindset for merchants wanting to embed fraud solutions on a platform level. And we know this because we offer a fraud tool called FraudSight and we’ve seen our customers have a significant uptick in taking that to onboard on a platform level.

I think this is driven by two key trends: the first is effectiveness, so it’s some the quality of the data that goes through your fraud tool is very important and on FraudSights, the merchant would see an aggregate view of data across Worldpay’s entire merchant base. So, if there is an emerging trend, either on a Merchant Category Code (MCC) or a Bank Identification Number (BIN) range, we can inform the merchant early so they can take a proactive rather than a reactive approach to that fraud. Having that quality of data that’s not siloed to the merchant’s transactions on their own storefront, that gives them visibility into broader trends in the merchant ecosystem, especially to merchant categories that are similar to theirs, is very beneficial.

Another point for effectiveness is just the sophistication of the tool. So, if you’re a merchant, your fraud tool is not your core offering, it’s tangential to your core skill set. So typically what we’ve seen is in-house fraud tools that have manual, rules-based, reactive systems. But when you go for a merchant acquirer tool FraudSight, some of the benefits and the sophistication of the tool is proprietary machine learning and AI models that allow you to build custom fraud models that are specific to the risk profile for your merchant category. And so you can take a more proactive approach to mitigating fraud and detecting fraud early.

A second key driver for wanting to embed fraud solutions on a platform level is just it’s more commercially viable. You get to go to market faster if you’re a merchant and you want fraud detection capabilities on day one, it’s obviously faster to get an off the shelf sophisticated solution than to build one yourself and you see significant cost savings, because this is labour and cost intensive to build a solution like this. We’ve definitely seen FraudSight as a very popular value-added service for our merchants.”


Part 2: Product Design for Fraud Prevention and AML in Payments as a Service

Part 3: Choosing the Right Technology for Fraud Prevention and AML in Payments as a Service

Part 4: Current and Future Fraud and Money Laundering Trends

Part 5: Machine Learning in Fraud and AML as a Service