December 11, 2023

The recent emergence of generative AI (artificial intelligence) tools like ChatGPT has attracted worldwide attention, including from fraudsters who have embraced the new technology. Cybercriminals already have a range of tools and tactics at their fingertips through the deep and dark web, and advances in artificial intelligence will surely increase their ability to steal from consumers and businesses. Faced with this growing and ever-changing fraud landscape, business leaders must reassess whether their fraud prevention tools are up to the task.

For the fintech, payments and retail industries, now is the time to re-evaluate third-party fraud prevention providers and call for higher standards of transparency and control over fraudulent operations. It’s important to ask: Does your fraud prevention solution give you the transparency and flexibility you need to adapt to rapidly evolving fraud patterns? Is it effective in protecting revenue and promoting growth?

The Problem with Black Box Fraud Prevention

While the fraud prevention market is flooded with solutions that use machine learning, some essentially operate as “black boxes” with little insight into their decisions and limited flexibility. Often, these types of solutions rely solely on a “yes” or “no” approach when determining transaction risk, resulting in disproportionate rejections and false positives for legitimate users.

When you entrust your fraud prevention system to a technology provider who does not fully understand the context of your business and fraud signals, you run the risk of a third party making the wrong decision about your business. Leaving these types of systems free to make transactional decisions can quickly lead to stigmatized consumers and lost sales, and impact the quality of the customer experience and the bottom line of the business in general. By the time the fraud prevention team discovers the inaccurate decisions made by the black box fraud solution, it is too late – the transaction has already been accepted or declined.

Apply fraud controls strategically

While visibility into risk decisions is an important element of a high-quality fraud solution, your risk team also needs to be able to control and adjust fraud operations as needed. Fraud patterns change quickly, and novel attack types emerge year-round, so it’s critical to have capabilities that allow you to quickly identify and stop these evolving threats.

But applying these risk decisions doesn’t have to be done blindly. Fraud techniques affect the consumer-facing aspects of your business, so it’s critical to choose a fraud prevention service that considers user experience.When evaluating fraud solutions, look for ones that can help your business kinetic frictiona way to apply additional fraud controls to risky transactions only, while legitimate customers continue to enjoy a smooth user experience.

The way you apply dynamic friction should evolve based on your business needs, specific circumstances, and data insights from your fraud prevention solution.

Take back control of your fraud

While dynamic friction is a key feature that black-box fraud solutions lack, these types of solutions also lack several other features that are essential if you want to have full control over your fraud operations and maintain transparency. Here are some important features you should look for in a fraud solution:

Nuanced risk assessment: Fraud patterns and abuse tactics can change rapidly, which means your strategy and risk decisions may need to adjust, too. Fraud Solutions can give you visibility into these changing patterns and address them in real time, enabling your risk teams to be both proactive and reactive.

Detailed analysis: With access to underlying data, fraud analysts can conduct deeper case forensics. Additionally, fraud performance visualization and reporting are important capabilities for ROI analysis and business insight.

simulation tool: It is also important to have tools that allow you to test scenarios before applying new rules to decision-making strategies. These allow risk teams to run historical data through a proposed rule change as if it were live, to see how it is performing.

Configurable policies: As a business operator, you should have the ability to refine risk rules and thresholds according to your unique needs and risk tolerance.

Moving away from black-box fraud solutions requires a fundamental shift in thinking from technology providers and businesses. For businesses to succeed in the deluge of digital risk they face today, fraud prevention can no longer be considered a standalone item in the budget. Instead, fraud prevention must be reimagined as an integral part of corporate health and growth strategies. Businesses that have control and visibility into their fraud prevention systems not only protect their revenue, but also expand their growth potential.