Role of Technology in Reducing Online Payment Frauds

In an interaction with CEO Insights India Magazine, Pratyush Chandramadhur, CBO, AuthBridge 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.

1) How crucial is the role of technology in addressing the growing concern of online payment fraud within our industry?

With online payment 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 at par with 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 amongst the end customers remain sub-optimal. Fraudsters have adopted ways to trick people into revealing account details, sharing OTPs, making payments to unauthorized QR and downloading unauthorized applications that hijack the customer’s devices. Hence, the issue cannot be arrested 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 reduce operational costs like chargeback fees, merchandise distribution, fraud investigation, legal prosecution and software security.

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

3) 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 (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, configurable tech stacks and workflows always helps to be at par with the 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 technology solutions is another challenge. Smaller companies may face a dilemma between build or buy. At this point, the ready infrastructure and journeys offered by fintech companies should be leveraged.

4) 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 a part of the governance process. 

Digitization of checks and integration with live journeys can only serve the purpose and is 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 to unite and participate in having structured connections for experience sharing, which should aim at reviewing the defence strategy across the industry.

5) 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 & 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 hindsighting post the process completion. 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 & ML, the feasibility of instant triggers for anomalies and deviations, large-scale application processing, and reduction in operational expenses is a reality. This can further be augmented with data verifications through APIs. This is opening up expansion opportunities for institutions targeting to enhance financial inclusion. 

Having said that, consistently improving algorithms and data enrichment in AI/ML modules increases the efficiency of predictive modelling, anomaly detection, machine vision and NLP.

6) How do you envision technology evolving in the next few years to further strengthen our defences 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/ML coming into place, considering the vast possibilities that come along with certain restrictions and biases. The formation of dedicated consortiums 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 a human in the years to come.

Source: CEO Insights