The best fraud prevention goes on in the background — stopping the bad actors, quietly, while enhancing the customer experience.
Jason Paguandasvice president of fraud mitigation and strategy at Canadian payment and value exchange service provider Interactold PYMNTS that artificial intelligence (AI) can give rise to “dynamic, passive authentication,” across all avenues of commerce.
And while that sounds new-fangled, and a bit futuristic, it turns out the new, new thing in payments fraud prevention — at least in some respects — isn’t so new.
As Paguandas noted, AI has been a tool used for decades: 75% of acquiring banks are already using AI in some form within their lines of defense against fraud. Whenever a consumer uses their payment card, that transaction is evaluated against various risk factors — in real time.
But as to what’s different: “What’s changed as of late is the diversity of data that organizations have access to, especially with some of the trends that we are seeing with the digitization of that data,” he said.
That information can differentiate legitimate transactions from fraudulent ones by scrutinizing how and where information is being entered. There are hundreds of data points that an organization can take in, and analyze, from historical behavior on an individual’s payment card, and from their device, to see how a given consumer would “normally” behave as a customer, he said.
“AI allows one to process all of that data in real time,” he said. And, he added, enterprises would do well to use these advanced tools to battle the fraudsters who are, in turn, using their own AI-driven methods to ply their schemes.
Context, in those cases, is everything, he said.
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By way of example, a transaction occurring at 2 am Montreal time may seem suspect. But not when the bank knows, with the aid of geolocation, that the customer is on vacation in Tuscany. With the AI-derived insight that a device has been used in Florence, several times and in different locations, well … that changes the risk parameters considerably.
Of course, there are key considerations for financial institutions (FIs) and other firms as they seek to leverage those benefits. They need to partner with the right solutions providers and maintain strict data protocols. Interac, he said, ensures that data (including personally identifiable location) doesn’t leave Canada.
Smoothing the Frictions
AI can also smooth sources of friction that have long been a pain point in eCommerce — particularly since active authentication has historically been the means through which enterprises have had to make sure that people are who they say they are when they transact. You know the drill: The stepped-up alerts and verifications that wind up interrupting the flow of omnichannel commerce.
Passive authentication simplifies those interactions, making payments intuitive (with a bit of encryption thrown into the mix).
“All the heavy data processing and heavy lifting is occurring in the background,” he said. And beyond the confines of financial institutions, he said, AI can prove a useful tool in the authentication and security of verticals such as consumer goods, shipping, and supply chain handoffs.
No matter where the transaction is happening, seconds count, Paguandas said, particularly when it comes to onboarding new customers — and especially when the switching costs for customers to move from one product or provider are so low.
More than ever, speed matters in transactions and online interactions, maintained Paguandas.
“These are the moments of truth between FIs, between merchants and customers,” he told PYMNTS.
See also: Data-Driven Decisions: Why Digitizing Back-Office Payment Tech Needs to Be on the Agenda
NEW PYMNTS DATA: THE TAILORED SHOPPING EXPERIENCE STUDY – MAY 2022
About: PYMNTS’ survey of 2,094 consumers for The Tailored Shopping Experience report, a collaboration with Elastic Path, shows where merchants are getting it right and where they need to up their game to deliver a customized shopping experience.