Fraud has existed in financial services since the earliest days of money movement - as early as 300 BC, when a Greek sea merchant took out an insurance policy against his boat and its contents but attempted to sink it to pocket the borrowed money.
In more recent times, banks were victims of fraud rings that exposed the entire ecosystem to financial risk. In the early 1990s, the biggest banks in the United States got together to build a consortium to share data about known bad actors, thereby minimizing the losses incurred.
As fintech has taken over, the speed and convenience offered by these companies is also shared by fraudsters: Today, fraud can occur in seconds without either party (the victim or the perpetrator) leaving their desks. In that vein, a coordinated approach to fighting fraud can help minimize the impact of fraud losses across the ecosystem.
Challenges in the Industry Today
As part of our first DAO summit in July 2023, Unit21 surveyed leaders from leading Fintechs in the US. Some common themes of problems that are seen by almost mid to large fintechs are listed below.
Scams
It is very difficult to disambiguate intent in the digital world. Events such as Account takeovers, Pig butchering (crypto Ponzi schemes), Romance, and Social engineering scams are rampant across the fintech sector, regardless of company size.
In that vein, an effective fraud prevention tool must be able to help users distinguish between fraud victims and perpetrators.
Stolen Identities
Today’s fraudsters are very sophisticated and have the tools at their disposal to use stolen identities to generate seemingly legitimate businesses or individual personas in order to access financial services provided by fintechs.
A good tool should be able to connect various elements of a digital identity (not just the underlying PII elements) together to create a holistic user profile.
First Party Fraud
Without physical interactions with fintechs, fraud patterns such as friendly fraud and family fraud are very common. Most tools are unable to detect who the initiator of a fraudulent transaction ostensibly is. Signals such as device fingerprints, IP Addresses, etc are valuable signals in keeping these patterns in check.
The Fraud DAO
The Fraud DAO is a network of organizations that pool de-identified data to identify fraud before it proliferates. It currently comprises 12 members, and has processed data for over 12% of the adult US population since its launch in February 2023.
The Fraud DAO is a privacy-first product, meaning that all Personally Identifiable Information (PII) for an end user is de-identified using a proprietary hashing method developed by Unit21. Further, this sensitive data is ingested into the consortium only post-hashing, meaning that the member organization remains in full control of their users’ privacy and data security.
Meanwhile, Unit21 uses the de-identified data to provide real-time insights into these customers’ behavior, and provide our members a platform on which to utilize this data as per their needs, either independently or combined with first or third party data pertaining to their customers.
Fraud Signals
The Fraud DAO provides holistic signals on a user’s behavior across all their financial service providers that are members of the consortium.
The information represents a full profile view - the person’s account status and activities, instances of known fraud (if any), and associated fraud labels, providing a basis on which a member organization can categorize risk tiers for their customers.
Our Impact and Founding Members
The data from the Fraud DAO today comprises records of over 30 Million user identities, aggregated from 12 members. These users are spread across the wide gamut of fintech platforms - be it neobanks, crypto providers, lending platforms as well as brokerages. Our members include Gusto, DriveWealth, and Uphold, among others.
Further, we ran some numbers to help quantify the impact of the Fraud DAO collectively across its members, using the average dollar value of a true positive fraudulent transaction, resulting in projections of ~3M in fraud losses.
Industry Collaboration
Unit21 is hosting periodic DAO summits with leading financial institutions in the US to help drive the direction of this product and create a benchmark for fraud tooling in the industry.
The first in-person summit was held in July 2023 and included attendees from leading organizations like Varo, Chime, SoFi, Capital One, Brex, Lili and Ramp. In order to participate in upcoming virtual and in-person events with Unit21, contact us at support@unit21.ai.
How to Join
The Fraud DAO is completely free to participate in, and is open to financial services organizations of all sizes. Further, members will be able to leverage the risk insights provided by the Fraud DAO’s comprehensive dataset natively within the Unit21 dashboard, making the investigation process simple and extensible.
Access to the Fraud DAO is free, and available via our APIs as well as proof of concept arrangements to run 90 days’ worth of fraud data against the consortium to benchmark against performance from your existing stack via a simple csv file.
Contact us to learn more.