Payments fraud is a significant challenge for banks and is set to become more problematic as payment channels and payment services providers (PSPs) proliferate, regulation reshapes the way payments are transacted and the world migrates away from cash towards electronic, often real-time, payments.
In Europe, the revised Payment Services Directive (PSD2) allows third party developers to directly interact with a partner banks’ customers, raising questions about the use of customer data by the third parties and extension of the security boundaries. This trend towards open banking is being adopted elsewhere in the world, including in Australia, the US and Hong Kong. In the increasingly networked ecosystem of payments, identifying fraudsters will be a challenge, but under PSD2, financial institutions are required to monitor all transactions for fraud-related activities.
The traditional, silo-based approach to fraud detection is fast becoming obsolete. For too long, banks have lagged in their ability to align fraud detection with the speed of transactions as payments move away from cash towards CNP (Card Not Present) transactions. The financial industry is shifting towards real-time data analysis, deploying artificial intelligence, machine learning and Cloud capability to transition towards a digital ecosystem. Banks must ensure they stay ahead of the increasing technological threat from criminals and fraudsters.
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