In 2023, losses to payments fraud scams totaled hundreds of billions of dollars worldwide. An evolving challenge, it has proliferated across multiple payment rails as criminals exploit the inherent weaknesses of these channels, manipulating customers through social engineering, and exploiting every available target.
The industry recognizes the weight of this challenge — in a recent Nasdaq survey, 52% of anti-financial crime professionals cited real-time and faster payments as their financial crime threat of greatest concern. As the complexity and cost of payments fraud evolves, tackling this issue in isolation is no longer effective — a consortium analytics approach is essential for financial institutions to combat this threat effectively, together.
Criminals Capitalize on Payment Rails
From traditional checks to wires, ACH transfers, and instant payments, criminals are well versed in the complexities of each payment rail and understand how to exploit these characteristics for their gain. Despite a decline in check usage, they have increased their efforts over this channel by exploiting hold times and migrating toward hard-to-detect typologies such as stolen check fraud — driving over 680,000 related Suspicious Activity Reports (SARs) in 2022. Meanwhile, fraudsters are using social engineering techniques to execute scams that capitalize on the irrevocable nature and narrow window for detection that are characteristic of instant, ACH and wire payments. Authorized Push Payment scams such as Business Email Compromise (BEC) are a prime example and are difficult to combat as they involve tricking a victim into authorizing payments to a fraudster, who is posing as a genuine payee. These scams are highly effective — BEC losses totaled $3.4 billion in the Americas in 2023.
Consortium Analytics: Working Together for Stronger Prevention
The complexity of payments fraud has changed the way financial institutions need to approach prevention. Relying on siloed data and a limited view of criminal activity is no longer effective — understanding the risk across an entire payment is essential.
A consortium analytics approach considers a massive amount of data in a cloud environment to provide insight into counterparty risk, such as deposit-side risk for checks and the history of legitimate activity for entities involved in a wire, ACH or instant payment. This allows financial institutions to identify low-and high-risk transactions, and interdict to stop payments before the funds leave their institution or to return a check within the required clearing time. The result is significantly improved fraud prevention and fewer false positives, without sharing personally identifiable information (PII).
This enhanced fraud detection becomes more powerful when executed across multiple payment rails, providing deeper insights into transactions. An example of these enhanced capabilities is when considering a customer who primarily interacts with a payee using ACH, who then sends a wire transfer to the same payee. Consortium analytics give your institution a detailed view into how the account operates, based on the magnitude of the institutions contributing to the profile. Using this account profile, institutions can gain a deeper understanding of the history of transactions between payor and payee, determining risk across payment rails.
A Collaborative Approach to Payments Fraud Prevention
Payments fraud remains a formidable challenge for financial institutions, demanding collaborative approaches to prevention. By embracing a consortium approach and leveraging collective insights, the industry can enhance its ability to detect and prevent fraud across various payment rails. Working together, financial institutions can build a stronger defense against evolving threats and ensure a more secure financial system for all.
For more information on Nasdaq Verafin’s consortium analytics approach, read our whitepaper, Payments Fraud: Collaborating to Combat an Industry Challenge.
