The Fraud DAO is a data-sharing platform that allows fintechs to leverage a pool of securely shared data. However, their partner (sponsor) banks often play a crucial role in helping put forth fraud prevention strategies, which can often be a barrier to entry. We are proud to partner with some of the most proactive, customer-centric sponsor banks that ensure their child fintechs are well-equipped to deal with rising fraud trends.
Matthew McQueen is the BSA officer at WebBank, a sponsor bank working with a few of the Fraud DAO’s potential participants. Barry Currah is a senior Fraud manager at WebBank, focused on fraud investigations and the overall fraud program.
We spoke with them to understand the lens through which a fraud prevention program is viewed at a sponsor bank, and to discern their view on the need for collaboration in fraud prevention at their partner fintechs, focusing on privacy preservation.
How Sponsor Banks View Fraud Detection
What does a typical fraud escalation look like from the Sponsor bank's perspective?
"We have a partner manager and a compliance manager who are assigned to two or three partners, sometimes four depending on their size. Additionally, we have credit risk personnel and other team members involved. My colleague Matt and I are the designated contact points for fraud-related issues.
Initially, notifications regarding potential incidents come directly to us or through the partner's assigned team. Our next step is to gather more information to assess the need for internal executive escalation.
These executive escalations involve significant monetary values, such as losses exceeding $250,000 or exposure exceeding $2.5 million. During executive reviews, we consider key factors like the presence of sufficient controls and whether the incident is a normal cost of doing business, or stems from the partner or a third-party tool.
Once these questions are adequately addressed and the event meets the thresholds for filing a suspicious activity report (SAR), we initiate a referral in our Case Management system. The SAR operations manager takes over from there. Our case management system is securely divided among all our partner fintechs, granting limited provisioning access to upload alerts and cases. After the upload, we proceed with the SAR determination process."
What does a successful fraud prevention program look like from a sponsor bank perspective?
"Dollar loss is the primary driver in fraud investigations.
Our focus is on identifying a high volume of declines relative to actual fraud cases. While most of our suspicious activity reports are based on declines rather than confirmed fraud, we do encounter instances of fraud.
A well-designed fraud program can promptly detect and intervene to minimize losses. In some cases, less mature partner programs may experience delays in detecting and addressing fraud, leading to increased losses.
However, we also have highly mature programs capable of swiftly detecting and mitigating fraud within seconds. The key is detecting, interdicting, and mitigating losses efficiently.
For instance, we monitor account opening applications initiated by bots, looking for indicators like unusually fast application times or high volumes from a single IP address. With real-time monitoring in place, our partner(s) can address such incidents within minutes.
This approach also applies to high-value transactions, rapid transaction rates, and other behavioral patterns. Successful programs often incorporate real-time monitoring tools to expedite assessments."
The Role of Collaboration in Fighting Fraud
What is the role of collaboration in fighting fraud?
"Obviously, this has been an industry issue for quite some time. Many different iterations of consortiums have existed within the industry for decades - of course, Early Warning comes to mind. However, those are few and far between. In our opinion, the real advantage of using something like a consortium is to use its signals for real-time screening, and/or Enhanced Due Diligence.
The issue I see is that I still don't think anybody's gotten comfortable with supplying their data holistically to a vast warehouse where the rest of the industry can kind of ping against that. The other benefit I have seen through consortiums is the ability to collaborate on nationwide, large-scale fraud events to get ahead of them."
Do you think privacy preservation tech can change the apprehensive mindset to data sharing that exists in the industry today?
"Most BSA officers are eager to establish a data-sharing platform, considering it as a comprehensive watchlist for the banking industry. While we have existing lists like OFAC and 311, what we lack is valuable intelligence from within our community. This platform would facilitate discussions on consumer reporting agency requirements and more.
However, the challenge lies in addressing concerns from our legal teams regarding data sharing, purpose, and security. Achieving consensus has been difficult. To ensure success, it is crucial to inform users about data handling. Your approach of using hashed values instead of personally identifiable information (PII) is appealing.
By creating user profiles based on hashed data, along with a confidence score layer, we can maintain privacy and replicate successful models used in child pornography investigations. Combining privacy preservation along with a shared financial services database has the potential to be highly effective."
The Benefits of Collaboration in Fraud Mitigation: Concluding Thoughts
The prevention of fraud doesn’t lie only at the door of the fintech/financial services platform themselves. Oftentimes, setting the proper regulatory structure matters just as much - be it from their external auditors for risk, privacy, or security, or their sponsor banks.
Collaboration begins at home - internal alignment between these teams and their sponsor bank counterparts is fundamental to fighting fraud effectively.
Further, platforms like the Fintech Fraud DAO foster collaboration on a wider scale, ensuring that fraud is nipped in the bud before it proliferates through the system. Sponsor banks can play a vital role in keeping their partner fintechs ahead of the curve in this regard.
If you are interested in discovering how to get access to better data to fuel your fraud prevention program, please reach out to firstname.lastname@example.org.