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Debanjan Chatterjee

Financial organizations in the U.K. have recently announced several measures to help customers affected by the ongoing pandemic. These include provision to defer mortgage and loan repayments for up to three months and the ability for savers to close fixed-term savings accounts without charge. Additionally, customers can claim refunds on credit card cash advance fees. There will also be the option of applying for temporarily increased credit card borrowing limit. Banks are expected to provide extra support for affected businesses.

Such initiatives are designed to provide customers greater access to cash and to cushion against any financial difficulty resulting from the virus.

The goal is to understand each customer's situation and offer options to help them manage their finances. However, the open question is: how will banks establish that customers are truly affected by the pandemic?

We know that scammers take advantage of crises, exploiting people at their most vulnerable moments to propagate fraud attacks. International emergencies add a fear factor that aids criminals in information theft. Here’s how fraud risk management can help to prevent fraudsters from using the current environment to their own malicious advantage.

Managing the online risk

Crooks have already found ways to use coronavirus warnings as a veil for malware injections and other fraud schemes. The World Health Organization (WHO) has issued an alert, warning about phishing attempts via emails from apparent WHO representatives.

Research has unearthed more than 4,000 coronavirus-related domains that contain words like “corona” or “covid”, which have been registered since the beginning of 2020. A coronavirus-related domain is expected to be 50% more probable to be malicious than any other domain registered during the same time. It is feared that, many of these malicious sites will be used in phishing campaigns.

Depending on the nature of sensitive information acquired, the barrage of social engineering attempts might lead to an uptick in fraud in the space of e-commerce and online payments. In the near future, there might also be a rise in identity theft and account takeover, if it hasn’t begun already.

Data science can be leveraged to ascertain things like degree of device vulnerability or malware attacks. Credit cards or other financial products mapped to unsafe devices can be flagged as high risk. Additionally, customer segmentation can help establish which consumers are more prone to phishing scams. Such information can then be used to trigger heightened vigilance on banking activity of high-risk people. Teams involved in fraud investigations can employ perspectives on device and customer vulnerability to drive informed decisions on whether transactions are fraudulent or genuine.

Controls for preventing friendly fraud

In addition, first-party fraudsters — in other words, legitimate customers who turn to fraudulent practices — might be lured by the relaxation of lending policies to apply for financial aid that they don’t really need. These initiatives might make it difficult for banks to differentiate delinquencies driven by genuine financial hardship from ones spurred by criminal intent.

Here, behavioral analytics can help identify underlying causes driving delinquencies. Holistic analysis of customers’ financial behaviors across your product spectrum can help judge the probability of such fraud. For example, if a customer requests to defer loan repayments but there is credit card data revealing expenditure on luxury goods, this could be used as a red flag.

Mitigating the opportunity for gray markets

Fraudsters typically buy products that have high resale value in black markets. The current global crisis has already stirred online gray markets, where accounts that market other illicit goods, such as drugs, have turned to coronavirus-related products, like masks, that would not be illicit in ordinary circumstances.

Web-scraping algorithms can be used to counter the growth of such markets. Such techniques can help systematically identify websites involved in illegal activity. Such information could then be passed onto law enforcement agencies, with the aim of shutting down such markets.

It must be noted that, the above trend might severely alter the distribution of fraud occurrences across the spectrum of Merchant Category Codes (MCCs), which are used to classify a business by the types of goods or services it provides, while skewing fraud data in favor of pharmaceutical retailers. A sudden change in data distribution has the potential to impact potency of existing counterfraud models, thus necessitating a model refresh.

Counterfraud initiatives are powered by detailed studies of how criminals might use emerging opportunities for their crooked goals. Such research can then be leveraged in customer education programs, thus empowering consumers to safeguard their hard-earned money.

In challenging times like these, it is imperative for financial organizations to demonstrate empathy for their customers. Fraudsters, however, usually make full use of such opportunities to inflict maximum damage. Consequently, fraud risk management becomes all the more crucial, for us to emerge unscathed from the crisis.

Debanjan Chatterjee is a fraud analytics professional at a global bank and has spent more than 12 years designing counterfraud solutions.

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