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Fraud Detection and Prevention

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What’s the difference between fraud prevention and fraud detection?

Fraud detection and fraud prevention are two related programs organizations use to combat fraud. Fraud prevention is a set of policies and processes to reduce the risk of fraud before it happens. Fraud detection is the process of recognizing fraud as it’s happening so it can be stopped. 

Typically, fraud prevention strategies are aligned to specific industries or businesses, such as a retailer trying to stop shoplifting. Fraud prevention supports strategic revenue and profitability goals and involves a set of business policies across customer interactions and internal processes. 

Fraud detection involves the tactical application of technology tools and manual processes to monitor all manner of transactions to determine if they’re being performed by an authorized person for legitimate reasons. For example, is the person trying to submit a loan application the actual individual identified, and are they submitting factual information a lender can use to assess risk?

What is fraud?

Fraud refers to the deliberate act of deceiving someone for monetary gain or to cause loss to another. It can manifest in various forms, including credit card fraud, identity theft, financial fraud and misappropriation of assets.

What is fraud prevention?

Fraud prevention includes ongoing efforts that require a proactive and holistic approach involving a combination of people, processes and technologies to effectively detect, prevent and mitigate fraud risks. It’s important for organizations to develop a robust fraud prevention strategy tailored to their unique risks and requirements, and regularly review and update it to stay ahead of ever-evolving fraud threats.

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What are the most common fraud prevention techniques?

Amid increasingly sophisticated identity fraud, there are some basic fraud prevention techniques every organization should consider. It’s important to increase trust at each step of the customer journey and across channels to nurture deeper, more efficient and lucrative relationships. To do so, you need to deliver smoother user experiences, speeding up interactions and transactions for legitimate consumers with a multifaceted view of identities, devices and behaviors. Some common fraud prevention techniques include:

What is fraud detection?

Fraud detection is a set of processes to identify potential fraud risk by monitoring transaction activities, new account opening processes and account access requests.

Fraud can happen at any point in the customer journey, so it’s important to businesses and consumers that fraud detection is active at each point as well. The more business is served digitally and remotely, the more organizations and their employees and customers face increased risks. Fraudulent activities carried out by people, networks or automated bots focus attention at key points along the customer journey that demand protection. Broadly speaking, there are three main areas of risk to address with fraud detection:

  • Account opening — Use of fraudulently obtained identity data (real or synthetic) to register or apply for services and open accounts.
  • Account login — Accessing an account belonging to someone else for illicit gain.
  • Account or transaction activity — Any business transaction, including account changes, applications, purchases, returns, claims or transfers, in which fraudulent activity could be taking place once logged into an account, or as a stand-alone activity like a stolen credit card.

Which is the most effective way to prevent and detect fraud?

Combat fraud at inception with early detection and prevention. Empower your business with confidence throughout the entire customer lifecycle while delivering a smoother digital and call center experience.

  • Identity verification — Confirm consumer identities more quickly and confidently with online tools to help match personally identifiable information, government-issued identity documents, device data and knowledge-based information.
  • Account authentication —Better protect customers against account takeover with omnichannel authentication that includes identity, device and device reputation factors. 
  • Continuous account monitoring — Monitor account behavior for continuous risk assessment, including velocity, bust-out or synthetic identities. 
  • Friction-right customer experience — Reduce operating costs and improve efficiency of fraud prevention team by better stopping fraud while letting good customers transact more quickly and safely.
  • Consumer empowerment — Give customers the tools to help protect financial health and digital identities with the ability to monitor their credit reports and digital risk.

What are common fraud prevention measures?

Organizations should implement a strong fraud prevention strategy that harnesses people, processes and technology to reduce risk. A robust approach should help create awareness about how organizational goals connect to fraud prevention strategies, including customer experiences, sales, cost management and operational efficiency.

  • Awareness and training: Regular training sessions should be conducted for employees at all levels to make them aware of potential fraud risks. They should be trained to better recognize signs of fraud and report any suspicious activities.
  • Robust internal controls: Systems should be in place to ensure proper checks and balances. This includes separation of duties, regular reconciliations, and multi-level approvals for financial transactions.
  • Whistleblower programs: Encourage employees and stakeholders to report suspected fraud anonymously. This can be achieved by establishing a whistleblower hotline or online portal.
  • Background checks: Before hiring employees, especially for sensitive positions, thorough background checks should be conducted to assess their integrity and histories.
  • Data encryption and security: Protect sensitive data using encryption and other cybersecurity measures. Ensure databases, especially those containing financial or personal information, are secured against unauthorized access.
  • Regular audits: External audits offer an objective review of an organization's financials, often uncovering irregularities. Regular internal audits also act as a deterrent for potential fraudsters.
  • Identity verification: Software and data combined to assess the potential risk of a consumer identity during anonymous transactions. 
  • Customer authentication: Software and data combined to help validate the identity of a user attempting to access a customer account. 

What are fraud detection techniques?

Fraud detection techniques rely on analyzing known data about an individual, entity, device, location or observed behavior compared to the information being provided by a person to verify they are who they claim to be. They also monitor transactional data to compare previous transactions, as well as regulatory requirements to identify suspicious transactions.

How do you respond to possible fraud?

If fraud is detected or suspected, organizations should have processes in place to step-up verification and authentication of the individual attempting the transaction. This will help reduce false positives while better ensuring a friction-right customer experience. Once a transaction is flagged as fraudulent, organizations need to investigate and take appropriate action to protect their businesses and customers who may be impacted.

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