With almost a decade working in fraud prevention, I’ve seen plenty of different strategies, buzzwords and solutions come and go, but nothing as dynamic as today’s fraud prevention landscape. Organized fraudsters have gone beyond buying goods with stolen credit card numbers, they are now active in account takeover, fraudulent account creation, online-offline fraud schemes, and exploitation of mobile and even telephone CNP transactions. Based on my experience and the current trends, here are five major issues I see shaping fraud prevention over the next five years.
Domestic orders will carry more risk
As the largest cross-border e-commerce market in the world, the US has always faced fraud coming from beyond its borders in the form of international orders and domestic orders placed with international IP addresses, international credit cards, or freight forwarders that re-ship stolen products overseas for resale. However, up until the 2010’s the US was considered a low-risk country for domestic CNP fraud. Expect that to change.
Over the next five years, the most significant CNP fraud growth in the US will come from domestic orders—US-based fraudsters buying with domestic credit cards, listing US shipping addresses, and exploiting domestic victims. That’s because fraudsters are learning that utilizing data from other countries raises red flags for fraud, but they stand a better chance of slipping through among the higher volume of good domestic orders. They also have plenty of data to exploit, thanks to the ongoing data breach problem and the profusion of consumer credit cards in the US market.
Payments and fraud-prevention will see consolidation
During the late 2010s, the market flooded with new data-driven solution providers in the e-commerce fraud prevention space, attracting headlines and venture capital. Ten of the new fraud-prevention startups have raised more than $200 million dollars combined. I believe the early 2020s will be marked by consolidation as investors seek payoffs for their initial stakes, founders seek rewards for their hard work, and major payments and information players seek the kind of data-driven solutions these startups are developing.
The next wave of consolidation was already in motion in 2017, when MasterCard acquired passive biometrics startup NuData Security to balance fraud detection with customer experience. It continued in January when RELX Group brought digital identity startup ThreatMetrix in order to combine its global Digital Identity Network with RELX’s LexisNexis Risk Solutions. Expect more as existing players seek to build bigger databases to fuel their business decision-making processes.
Machine learning will move beyond the buzzwords
Over the next five years, the market will realize that saying “we have AI algorithms” isn’t enough to set fraud-prevention players apart. In fact, exclusively rules-based systems are already becoming obsolete. The most successful solutions out there already use hybrid approaches that combine the scalability and managerial efficiency of fraud scores with the flexibility and transparency of rules and policies. Moving beyond the AI and algorithm buzzwords, providers will have to prove themselves with back-tests, proofs of concept, and pilots. Fraud solution marketing will require more than slide decks and presentations, as clients come to expect evidence of experience in the market using variables based on relevant data.