Role of Technology in Reducing Online Payment Frauds

Role of Technology in Reducing Online Payment Frauds

Pratyush Chandramadhur, Chief Business Officer, AuthBridge Research Services, 0

Pratyush Chandramadhur, a graduate in commerce from the University of Delhi, possesses two decades of expertise within the financial services sector, credit bureau operations, and decision analytics. With a background in retail, wholesale and corporate finance, Pratyush has held diverse roles at renowned institutions such as Bajaj Finance, GE Capital, and ICICI Bank. His career has encompassed responsibilities ranging from risk and fraud management to business development and operations.

In an interaction with CEO Insights India Magazine, Pratyush expressed his thoughts about the notable increase in worries surrounding fraudulent payments, as well as novel concepts aimed at enhancing technology for preventing fraud. Also, he provides effective approaches for incorporating these advanced technologies.

How crucial is the role of technology in addressing the growing concern of online payment fraud within our industry?
With online payments becoming the preferred form of transaction today, the possibility of exploiting payment systems to carry out fraudulent activities is also increasing. The adoption of digital evolution by fraudsters is on par with that of customers; hence, conducting point-of-sale hacks, data theft of personal identification information, and illegal data mining through unauthorized apps becomes easier.

It's concerning to note that despite efforts made by regulators of public and private financial institutions, digital education and awareness among end customers remain suboptimal. Fraudsters have adopted ways to trick people into revealing account details, sharing OTPs, making payments to unauthorized QRs, and downloading unauthorized applications that hijack the customer's devices. Hence, the issue cannot be solved by awareness alone. The need of the hour is to have a robust architecture with adequate and advanced technology that enables automated risk mitigation, eliminating the need to review transaction alerts and reducing operational costs like charge back fees, merchandise distribution, fraud investigation, legal prosecution, and software security.

As online payment fraud methods become more sophisticated, what investments or innovations can be considered to enhance fraud prevention technology?
Technology is changing in the blink of an eye, and processes need regular advancement and upgrades. Preventive and curative fraud control solutions must be seen in the new light of data-science-backed technology solutions. It’s imperative to look at data analytics tools that can do a 360-degree check, including detection, understanding, prediction, and prevention of fraud. This is feasible by investing time and resources in digitizing the currently available data, using ML and AI to train the system for anomaly and pattern detection, and using trained tools for enhancing KYC and transactional level checks. Nowadays, even online frauds have become automated and result in carding attacks. With fraud becoming more sophisticated via POS cloning and triangulation fraud, allocating resources and budgets for regular system enhancement and training is imperative.

Tell us about the challenges or concerns you foresee in implementing new technologies to combat online payment fraud and how we plan to address them.
The most pertinent challenge is designing solutions that balance security, compliance, and customer convenience. The processes include external stakeholders (customers, partners, vendors) and internal stakeholders (business, credit, risk, compliance, operations, and many more) managing respective responsibilities. Ensuring ease and simplicity in the process is a critical success factor. An optimal contingency plan for each process is another important factor that impacts the adoption and confidence in tech
solutions. Designing simple, agile, and configurable tech stacks and workflows always helps to be on par with changing requirements. A concrete strategy with clear milestones is more likely to succeed than unplanned, abrupt transformations.

Hence, real-time passive integrated checks with simple steps (loaded with multilingual and speech-to-text features) balance security and customer convenience, isolating fraudulent sessions without disturbing legitimate users. Having a stitched fraud decisioning engine that enables triggers and mitigation at any point throughout the customer journey is key.
Understanding and creating technological solutions is another challenge. Smaller companies may face a dilemma between building or buying. At this point, the ready infrastructure and journeys offered by fintech companies should be leveraged.

What strategies do you believe are most effective in staying ahead of constantly evolving online payment fraud tactics, and how does technology play a part in these strategies?
The most effective strategy, in my view, would include creating a well-defined risk management approach with a strongly knit implementation process. It's important to have strict transaction monitoring to identify evolving fraud patterns. Regular audits, reviews, and feedback sessions should form part of the governance process. Digitization of checks and integration with live journeys can only serve the purpose and are possible with technology. Effective, agile, trainable fraud analytics solutions, synchronized journeys, and strong cyber security would be imperative for preventing fraud. I also suggest financial institutions unite and participate in having structured connections for experience sharing, which should aim at reviewing the defense strategy across the industry.

With frauds becoming more sophisticated via POS cloning and triangulation fraud, allocating resources and budgets for regular system enhancement and training is imperative.

With the rise of AI and machine learning, how do you see these technologies enhancing our ability to detect anomalies and patterns indicative of potential payment fraud?
AI and ML tools are creating new possibilities and elevating the strength of automated solutions to a massive extent. We have come a long way from traditional risk control to new, improved ways of evaluating risk using a digital footprint. Earlier frauds were detected during manual hind sighting after the process was completed. This process was post-facto and stretched over days, employing many resources. This resulted in high opex and limited expansion possibilities.

Today, with advanced AI and ML, the feasibility of instant triggers for anomalies and deviations, large-scale application processing, and reductions in operational expenses is a reality. This can further be augmented with data verification through APIs. This is opening up expansion opportunities for institutions targeted at enhancing financial inclusion. With that said, consistently improving algorithms and data enrichment in AI/ML modules increases the efficiency of predictive modeling, anomaly detection, machine vision and NLP.

How do you envision technology evolving in the next few years to further strengthen our defense against online payment fraud, and how are we preparing for these changes?
With a strong focus and drive from the regulator, the adoption of basic digital tools in India will surpass global trends in the next few years. Synchronization of the technology tools will enable effective and optimal use of technology. I foresee certain clear guidelines on the use of AI and ML coming into place, considering the vast possibilities that come along with certain restrictions and biases. The formation of dedicated consortium working diligently towards innovating fraud control solutions should be a reality. Generative AI would decide the game's rules, and we would see technology giving at par experience, if not better, of dealing with humans in the years to come.