Technology will continue to change the battlefield for fraud in 2016, creating new challenges but also new opportunities for companies to fight fraud and be customer champions while doing so. This is particularly true for the financial-services industry, which will face unique challenges in 2016. Below are five predictions on what will shape the fraud landscape, and the fight to prevent and detect fraud in 2016.
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1. Social networks will help fraudsters get more sophisticated. Fraudsters are constantly deploying an array of advanced tactics to obtain personal information. In 2016, as major social networks become more easily searchable, fraudsters will take advantage of these capabilities to target their victims. By closely examining an individual's status, photos, friends, check-ins and location data – all easily searched anonymously – it's getting easier for fraudsters to create more sophisticated social engineering attacks that trick people into revealing additional information.
The coming year is sure to see a level of automation and scale to these attacks that will continue to surprise us all. For consumers, avoiding these attacks means following some basic consumer safety tips: Make your social profiles visible to only friends and family; use strong passwords, change them often; and report phishing attempts.
2. More fraud will move to mobile. Fraudsters follow the money. As mobile shopping continues to gain popularity with consumers, fraudsters will be sure to up their mobile targets in 2016. Using standard, off-the-shelf capabilities for mobile will fall short. Success in fighting fraud on the mobile platform will depend on how we make innovative use of the unique data and capabilities that the mobile platform creates – from location information to unique IDs. There is opportunity to not only fight fraud well on mobile but also enable user experiences that are intuitive and easy. For instance, the use of fingerprint sensors in mobile devices is making it easier and more secure for people to authenticate.
3. Financial companies will have to do more with less data. Changes in technology will force companies to do more, but with less data. Today, customers can walk into a store with a mobile phone, and tap it to buy an item. Frequently (especially with NFC-equipped devices), the transaction is tokenized, meaning the merchant doesn't receive any financial or personal information. So instead of knowing customers, merchants find themselves selling to anonymous "guests." As a result, financial companies will need to find unique ways to do more to verify a customers' identity with less information about them.
4. Advanced machine learning combined with human detectives will be critical for fraud prevention. Just as fraudsters take advantage of new technology, the most important tools we'll see used in 2016 to fight fraud are improvements in technology. However, human intelligence and understanding how your customers interact with your services will remain key to leverage the technology.
In the report "Top 10 Strategic Technology Trends for 2016," Gartner identified Advanced Machine Learning as one technology that will impact organizations' long-term plans, programs and initiatives. According to Gartner, "the explosion of data sources and complexity of information makes manual classification and analysis infeasible and uneconomic." Analytical tools such as advanced machine learning will become even more crucial in predicting and stopping fraud, with companies like PayPal able to sift through enormous amounts of data rapidly to spot the patterns and markers of fraud. Even with all this technology, humans are still integral in stopping fraud. Techniques like machine learning depend on analyzing the right data with the right parameters, and only humans can make those determinations.
5. Data and advanced analytics will play a larger role in regulatory & compliance efforts. In 2016, private enterprises and government regulators will need to increase discussions about what can and can't be done with big data and unstructured data. The use of data and advanced analytics will not only remain critical in fighting fraud, but will also play a bigger role in other areas key to payments such as anti-money laundering efforts. Tighter collaboration with regulators, combined with greater use of data, will enable an effective and scalable approach to meeting regulatory and compliance requirements, while enabling customer experience that companies can be proud of. For instance, the ability to use existing transaction data to meet "know your customer" requirements will help improve accuracy and eliminate the need for customers to separately upload information like driver's licenses and bank statements.
Commentary by Tomer Barel, the chief risk officer at PayPal. He joined PayPal in 2009 to manage the integration of Fraud Sciences, an Israeli-start-up that specializes in online-fraud detection that was acquired by PayPal. Previously, he was at 3DV Systems, a imaging-technology company that enables video cameras to capture 3-D objects and detect motion.
