- Because trust in companies is lowering, institutions must take action to create a safe frictionless digital experience.
- There is a growing convergence of fraud (risk mitigation), trust and compliance.
Transcription:
00:00:05:08 - 00:00:35:02
Kate Fitzgerald
Greetings. Welcome to our session "Hitting a Moving Target." We're going to discuss fraud and friction, the identity verification and other tools that are emerging to help knock out fraud, and trying to make the transaction smooth and seamless for consumers.
00:00:35:19 - 00:01:06:07
Kate Fitzgerald
On our panel today, we have Christina Luttrell, CEO of IDology, which she'll describe in a moment what solution they provide. We have David Henstock, head of identity and identity and authentication at Visa, and Dan Marostica, who is global head of consumer protection at Western Union, where identity verification is critical for a lot of different funds transfers around the world and locally.
00:01:06:28 - 00:01:43:29
Kate Fitzgerald
So I'm going to give each one of you a minute to talk to us. Tell us a little bit about your role and also what your biggest concern is right now about fraud as we move into sort of a double whammy of the fraud risk. We are coming out of the pandemic, where fraud was elevated for a number of reasons, which I'd like you to mention, if you can, where you saw fraud emerging, new types of fraud during the pandemic. We're also going into the fourth quarter, which traditionally is a peak fraud season every year.
00:01:44:08 - 00:01:51:12
Kate Fitzgerald
So we rarely seen the convergence of these two big trends. This is going to be interesting. Let's start with Chris.
00:01:53:06 - 00:02:21:12
Christina Luttrell
Thank you, Kate. And hi, everyone. It's really nice to be here today. Fraud is everlasting and has been around forever and will continue to be around forever. But the pandemic definitely excels created so much of what we we're typically seeing. But just in such a larger volume, I get asked too often, What kind of new fraud are you seeing and what did we see throughout the 2020 year?
00:02:22:05 - 00:02:52:13
Christina Luttrell
We didn't see a lot of new types of fraud vectors and attacks. What was so concerning to us and what we do at IDology was just the sheer velocity in the volume in which we were seeing fraud. There were so many new people that had to go digital that typically they weren't used to being digital. And so that opened up a lot of doors for fraudsters to take advantage of people like our elderly through account takeover and phishing schemes.
00:02:53:09 - 00:03:16:12
Christina Luttrell
And we saw a lot of fraud related to children's identities around synthetic fraud as well. So there is just a lot that has happened. And for for us specifically it was really around just the sheer velocity. So nothing really nothing new under the sun. It was just the volume in which we've seen these fraud attacks come through.
00:03:17:03 - 00:03:28:05
Kate Fitzgerald
So, David Henstock, give us a little perspective from Visa in terms of your role there and what you have seen over the last, say, 18 months going into the fourth quarter. What concerns you?
00:03:29:05 - 00:03:53:07
David Henstock
Thanks, Kate. So I'm in our global product team where I head of identity products. And we look at this from a few different angles. So we have identity scores where we're trying to keep the bad guys out by taking in fraud signals and providing scores that can tackle synthetic and identity fraud. And then we have product solutions. Both start focused on strong customer authentication and identity verification.
00:03:53:21 - 00:04:18:03
David Henstock
So really kind of a spectrum of approaches depending on where in the life cycle the payment happens or the potential for fraud happens. I'd say maybe we start with some good news is that we saw a fivefold increase in all things digital in 2020. One of the things that as an industry we've been talking about is digitizing electronic payments.
00:04:18:25 - 00:04:51:29
David Henstock
So that was a significant a significant trend and accelerator and that led to you know 30-plus-percent growth in e-commerce over the past year. But of course fraud moves along with that. With chip and PIN a few years ago in the U.S., fraud moved from offline to online. And what we're really seeing now is fraud and moving upstream from payment authentication where as an industry we have a number of solutions swimming upstream to account identity fraud, where there are fewer solutions and more focus is needed.
00:04:53:14 - 00:05:08:00
Kate Fitzgerald
OK. Dan Marostica, tell us your perspective. What exactly you do it at Western Union and what your concerns are going into this the fourth quarter on the heels of the pandemic and all that elevated volume of fraud.
00:05:08:27 - 00:05:43:11
Dan Marostica
Thank you. Thanks for the invite and sprint to be on this panel. First of all. What I do at Western Union I lead our consumer protection program and I'm also responsible for what we call the comply-up experience. The Western Union compliance organization and the compliance experience was all about the friction that customers may feel as we protect them and protect our our brand from other financial crimes.
00:05:44:21 - 00:06:19:13
Dan Marostica
A lot of the fraud that we experienced was the typical internet-purchase kind of fraud, where the fraudsters tricked our customers into spending money to buy a product that really doesn't exist.
00:06:19:14 - 00:06:59:16
Dan Marostica
Well, that merged into products, such as in masks or buying respirators or purchasing vaccines that were not real, did not exist online. So those types of pandemic-related scams were out there. Fortunately, while we saw attempts go up, we saw fraud go down by about 6% compared with the prior year. So we had rolled out some just as we normally do.
00:06:59:17 - 00:07:17:09
Dan Marostica
You don't have an iterative process for running a fraud program. We had rolled out a new rule focused on internet purchases and just they happened to also stopping these pandemic-related scams before.
00:07:17:14 - 00:07:35:09
Kate Fitzgerald
Before you move on, Dan, I want to ask you about fraud. You're talking mostly about e-commerce fraud. And since since your are you do you have any visibility into the cross-border remittance fraud? Was that something you deal with as well? And can you address whether you saw that rising?
00:07:36:06 - 00:07:54:14
Dan Marostica
That's exactly what I deal with, and that is what I'm talking about. So where there may be consumers in the U.S. or in Europe who are duped into sending money to other jurisdictions, and so that's another problem to use money transfer.
00:07:54:14 - 00:08:02:08
Kate Fitzgerald
It was leveraging the remittance channel for bogus purchases of these kind of fraudulent services. And that makes sense.
00:08:02:17 - 00:08:03:00
Dan Marostica
That's right.
00:08:03:16 - 00:08:41:00
Kate Fitzgerald
So you alluded to compliance and David talked about Visa's challenges in trying to sit in the middle between the banks, the consumers and, as a network, having connections to all of these pieces of the puzzle. So we're really seeing a convergence of rising fraud risk and pushback. There's a sense of a growing consumer distrust, which leads to that friction.
00:08:42:14 - 00:08:59:12
Kate Fitzgerald
Let's talk about that. Let's break it down and see where the friction is and what some of the solutions are that are working. Let us talk first about the biggest challenge you have in verifying identities. Dan Marostica, you want to continue on that front?
00:09:00:15 - 00:09:35:01
Dan Marostica
Well, in Western Union, we operate in over 200 countries. And so we have a lot of different jurisdictions that we work with that have different ID requirements. So there are jurisdictions that are completely open to the new technologies that we have available to us. And we can do KYC in those jurisdictions, but there's others who are not coming along.
00:09:35:13 - 00:10:10:27
Dan Marostica
And so it's more traditional ID verification processes. Many of our customers are our guest workers who are in first-world countries sending money home to their families. And they have not adopted a lot of the technology that maybe other consumers are used to having. So we have to have a different approach for the different customer base that we that we have.
00:10:11:29 - 00:10:22:27
Kate Fitzgerald
So, Chris, how does a solution like IDology's do it? It verifies identities in addition to other aspects of the transaction? Is that correct?
00:10:24:05 - 00:11:10:20
Christina Luttrell
With IDology, we do identity verification and fraud prevention. And really where we specialize is being able to validate higher numbers of of individuals who might be new in country or thinner files, on top of folks that have a larger history within their filing. So that the area where we see when we work with clients to implement is the first thing we do is we talk to them about making sure that you're creating an experience and onboarding experience that is friction free, as frictionless as you can possibly get throughout the onboarding process.
00:11:10:20 - 00:11:37:03
Christina Luttrell
And that is because as consumers, when we think about consumer trust, consumers when they come into your website and they want to sign up and onboard for your services, they need to have confidence in a few things. If you've got this clunky process that's forcing them to to do all these different levels of verification and they still can't get through, then they're just going to give up.
00:11:37:03 - 00:12:00:21
Christina Luttrell
There's a huge amount of consumer abandonment right now when consumers try to go through a process. And it's just not a very user-friendly process. But there's also the issue of trust: What are you going to be doing with my data? And so typically when we consult with our clients, that's one of the first things that we talk about is make sure you're letting consumers know how you're using their data and how you're going to protect their data.
00:12:00:29 - 00:12:26:16
Christina Luttrell
That's so incredibly important. I myself, as a consumer, if I go to a website and I'm asked to put in my Social Security number for verification, I'm, like, what are you going to do with this? How are you going to protect this information? And so really creating a very user-friendly process will will increase the confidence that the consumers have as well as as the trust overall.
00:12:26:22 - 00:12:54:19
Kate Fitzgerald
You're describing what happens on the front end. Let's talk about some of the obstacles to all of that happening. I mean, if you're following this wonderful, streamlined onboarding process about the rules, why you would think where is the where are the problems? David Henstock, you want to talk about some of the biggest challenges that Visa faces in enabling these solutions?
00:12:55:27 - 00:13:18:04
David Henstock
It's very much about balancing the friction. Probably the worst kind of outcome you can have is you decline to get a transaction. As payment industry, it's 400 billion in false declines, which means the merchant loses the sale. Often it affects the issuer's top of wallet.
00:13:18:27 - 00:13:45:24
David Henstock
So our goal is we want all electronic payments authenticated. And that's a big push for us. The second thing is, how do you take the friction out of those payment experiences? So that's where some of the modern technologies can come in, because if you have to put a password in, check out something, like a third of customers will abandon those transactions.
00:13:45:24 - 00:13:54:29
David Henstock
Because they just can't even remember their password. So, pushing some of these — more secure elements and pushing passwords out of our ecosystem — is a big push for us.
00:13:55:21 - 00:14:31:23
Kate Fitzgerald
So we've been hearing for years about "Let's try to get rid of passwords." Biometrics were on the horizon. There seemed to be a lot of solutions. And at the same time, it feels like we're still struggling to get adoption. Dan, Mastercard hinted at, well, the burden of compliance. Chris, what do you see on the horizon that might be complicating these efforts to roll out and make make it easier for people to authenticate and verify authenticate payments and identify various identities across all jurisdictions?
00:14:33:01 - 00:15:01:14
Christina Luttrell
The mention of biometric checks invokes a lot of thoughts or emotions for people in the industry right now. There is a place for biometrics, but we're also in a time period where when we look at biometrics, when we look at artificial intelligence ... we can really help enable and create a more friction-free process and a more trustworthy process.
00:15:02:07 - 00:15:28:03
Christina Luttrell
We also have to make sure that we're doing it in a smart way. And what I mean by that is we know there's already states such as Illinois that have regulations around biometrics. There are other states that are looking at biometrics and AI around regulations to make sure that there's no bias. And the dirty little secret about biometrics is a lot of times there's bias that's built in.
00:15:28:03 - 00:15:49:29
Christina Luttrell
And it's not meant to be, but there's some bias that that's kind of built into some of the biometric tools that are out there today. And so we have to be very careful as an industry that we are building really good product that doesn't have those biases in them. But there's regulation coming around that.
00:15:49:29 - 00:15:57:22
Christina Luttrell
And that's going to be something that can definitely stifle innovation if we're not careful and we don't monitor that appropriately.
00:15:58:15 - 00:16:18:17
Kate Fitzgerald
So I wanted to invite anyone who's listening to ask any questions that you have or observations that you have in your own field or niche on compliance, whether it's regulation, whether it's federal or local laws that are entering the picture.
00:16:18:21 - 00:16:31:09
Kate Fitzgerald
Chris, are you saying there's a pushback against some of the most innovative technology? That these rules and laws might actually get in the way of seeing progress against fraud?
00:16:32:14 - 00:16:59:00
Christina Luttrell
I think there's a potential with any regulation, there's a potential to stifle the innovation. For example, there are 17 states right now that are drafting legislation around the use of artificial intelligence in the financial industry. And we know that it can be so useful; it can be so helpful and help to really speed up the onboarding and the process of getting new consumers.
00:16:59:12 - 00:17:27:04
Christina Luttrell
But again, it has to be done properly. And so I think there's there is a growing concern around how AI is being used in certain spaces and in granting access to financial systems and making sure that there's no inherent bias in that. And that we're not preventing people from having access who should be given access.
00:17:27:04 - 00:17:46:02
Christina Luttrell
But maybe they can't because of where they are in life. We just have to be very careful as an industry that we are not introducing any of that into our models. And consumers are waking up to this and they're concerned and they're talking to their legislators and they're listening.
00:17:47:00 - 00:18:24:06
Kate Fitzgerald
That actually sounds kind of unfortunate in terms of the effects of the industry, although I understand where they're coming from. Dan, let's talk about this kind of in-between stage where we have the access and the potential for using new technology, but we're still stuck with a lot of legacy processes.
00:18:25:07 - 00:19:19:09
Dan Marostica
Well, for us at least one of the keys is is partnering with regulators because again, a lot of these technologies are not permissible in many countries. So having the type of relationship with a regulator where you can have an open dialog is extremely important. And we have a good example of that in the Middle East, where during the pandemic we were able to talk with regulators there and in the different jurisdictions and get approval for our approach to KYC, which really is an image and an image of a payment instrument and a selfie.
00:19:20:03 - 00:19:46:09
Dan Marostica
And then using the standard, the OCR data extraction, into our system and then verifying the customer. So that was pretty a pretty big deal and pretty new to some of those regulators. But through that dialog, we were able to overcome those challenges.
00:19:46:29 - 00:19:58:23
Kate Fitzgerald
So, David Henstock, bring us up to speed on the extent to which Visa is still mired in some of the legacy processes and what you're trying to do about passwords.
00:19:59:23 - 00:20:27:03
David Henstock
When it comes to a network like Visa, our path forward is through global open standards. And in the authentication industry, there's a standard that's been around for eight or nine years. It's really starting to get some traction. It's called FIDO: Fido First Identity Online. And their mission is to rid the world of passwords. It's based on public key cryptography, which can be unlocked by the biometrics on your device.
00:20:27:03 - 00:20:54:11
David Henstock
But the nice thing about it is it's privacy preserving, which means the biometric never leaves your device. So it's just use to unlock and generate this key barrier. It also defends against phishing attacks, which is a big fraud vector. So it's a way of preventing those attacks as well and can eliminate the need for OTP.
00:20:54:11 - 00:21:10:11
David Henstock
It's one of these standards that Visa's getting behind and looking at: How can we use this for payment authentication? I can use this as a mechanism to take the friction out of payments, but move passwords out and provide a better experience for the consumers as well.
00:21:10:22 - 00:21:21:08
Kate Fitzgerald
So I've been hearing about FIDO for years. How far along are we in this mission? Are you at a point where you feel like you're making a lot of headway, or are you still very early on in trying to eliminate passwords?
00:21:21:20 - 00:21:41:24
David Henstock
There's been a big push over the past, I'd say, 18 months. You know, Apple joined the alliance. So, you know, Visa, Microsoft and Apple, Google are all members of the FIDO alliance. And what's really the tipping point is that it's now baked into all the platforms. So iOS Mac OS, etc., have native capabilities for FIDO.
00:21:42:14 - 00:22:02:23
David Henstock
And then all the browsers, the major browsers, Chrome's Fire, etc., support this out of the box. So there's nothing to download. It's just they're ready to to enable your biometrics. So we're seeing a big push from those industry players to kind of push this through their ecosystem. And as Visa, we're looking at incorporating this into payment authentication for the same purpose.
00:22:03:07 - 00:22:10:20
David Henstock
So I think something like 3 billion plus devices are now FIDO enabled, and that number is going to keep growing as the standard continues to roll out.
00:22:10:27 - 00:22:14:06
Kate Fitzgerald
Are we close to getting rid of passwords?
00:22:15:03 - 00:22:37:16
David Henstock
Well, I think this standard has the potential to really make that a reality.
00:22:37:20 - 00:23:01:03
Kate Fitzgerald
So assuming that somehow you open dialogues with regulators and more of the examples that Dan described where Western Union had a breakthrough with some regulators in the Middle East, let's assume that moves forward. What about consumer resistance to these these leading-edge methods of identity verification? I want to go around and ask what you think happened during the pandemic.
00:23:01:11 - 00:23:19:27
Kate Fitzgerald
Did the sort of mass digitization movement and the greater numbers of people in all demographics moving online help the cause of priming consumers to use more of these leading-edge tools? Chris.
00:23:22:08 - 00:23:42:00
Christina Luttrell
I think it did. I don't think we're ever going to go back. This is the new normal for us. So I don't think we're ever going to go back to the way we were before it it really helped accelerate it. And we're seeing some some good progress in the area of consumers getting more used to using these types of technologies.
00:23:42:00 - 00:24:00:22
Christina Luttrell
Again, I think it's just being transparent and helping to educate the consumer. You're not going to have as many issues if you do that.
00:24:01:18 - 00:24:14:18
Kate Fitzgerald
Dan, at Western Union, did you think the pandemic and the effects of it actually created more more consumer willingness to trust systems or less trust, given all of the fraud you earlier described?
00:24:14:26 - 00:24:48:00
Dan Marostica
We saw a big shift from consumers who would normally have gone to a retail outlet to send their money send it over our app. And to our website. The early days of the pandemic, everything was closed. Businesses were closed. Yet customers needed to send money back home to their family.
00:24:48:20 - 00:25:21:28
Dan Marostica
So it did kind of place some people in a situation where they really did need to adapt and accept new technology. One wants consumers to get comfortable with the technology. There's all kinds of benefits to them, the conveniences that they may not have experienced at a brick-and-mortar location.
00:25:22:24 - 00:25:47:20
Kate Fitzgerald
It sounds like some of those people might have been inadvertently forced to try it and might be trusting it, although there still seems to be an atmosphere of the growing awareness of fraud. David, what do you think happened during the pandemic in terms of consumer trust versus willingness to try these, or I should say trust versus wariness about the fraud and their involvement in it?
00:25:48:13 - 00:26:14:25
David Henstock
One of the interesting things that we've been working on is actually driven out of Europe, where strong customer authentication regulations started to come into effect during the pandemic. And the regulation requires the cardholder who's issuing bank to authenticate that transaction, which for merchant is somewhat inconvenient. In the middle of your transaction, you have to have the bank say, yes, I know who this person is.
00:26:14:25 - 00:26:40:04
David Henstock
But it's designed to protect the consumer and to authenticate those transactions. So what we see is solutions like I was mentioning earlier, if we can put those into play in combination with some programs that allow the issuers to delegate that responsibility, you can really get a much more frictionless and more secure experience for the consumers in a payment context.
00:26:40:04 - 00:26:49:27
David Henstock
That's the model we've been spending a lot of time with our design team working on, those payment interactions. As we perfect those I think you'll start to see those show up in other markets.
00:26:50:27 - 00:27:26:21
Kate Fitzgerald
So let's look to close it out. Let's talk about what specific actions the participants in the payments ecosystem are doing that are helping and also hurting the our progress in conquering fraud and improving payment verification and identity verification payment authentication. Start with Chris.
00:27:29:03 - 00:27:39:15
Christina Luttrell
For me personally, what I see is just there's not a great understanding of what the fraud is or how the fraud is being committed.
00:27:39:23 - 00:27:43:11
Kate Fitzgerald
Understanding?
00:27:43:29 - 00:28:18:04
Christina Luttrell
Sometimes I think there's not a great enough understanding of one of the areas that really works great for us: our consortium. And we have companies that are sharing information and talking to one another throughout our consortium that we have. So, at Western Union, Visa, they may fight for consumers and they may fight for new customers.
00:28:18:04 - 00:28:38:09
Christina Luttrell
But we all need to be talking to each other from a fraud standpoint, because if the fraud in the industry is hitting one, it's going to hit the other. And we see that fraud moving across multiple companies within the same industry, across industry. And we can see this in the consortium that we have available to all of our customers.
00:28:38:23 - 00:29:08:05
Christina Luttrell
Collaboration is so incredibly important, collaborating as an industry together, talking to your fraud counterparts, your fraud and risk counterpart, even at your competitor, talking to them and understanding what they're seeing and what you're seeing. And that's what I mean by the how because a lot of times, companies that we work with, they know they have fraud, but sometimes they're not really sure how it's occurring or where the sources, and those are things that we can help with.
00:29:08:17 - 00:29:20:19
Kate Fitzgerald
OK. Dan, you want to give us one minute on some aspect of the ecosystem that's helping and another aspect that's not helping?
00:29:20:24 - 00:29:49:05
Dan Marostica
What's helping is that you have to remember the type of fraud that we typically talk about in Western Union is fraud-induced money transfers, the emergence of scams, the lottery scams, the internet purchase contract with the victim knowingly sending their money. They are the actual person who owns the idea.
00:29:49:06 - 00:30:04:03
Dan Marostica
So what's helping is two things. One is, is machine learning. So big data in a way. We use machine learning to help identify those patterns.
00:30:04:16 - 00:30:10:20
Kate Fitzgerald
I want to go to another. We've only got a few minutes here. Just a really quick thought on what's not helping.
00:30:12:02 - 00:30:21:18
Dan Marostica
What's not helping probably is ... consumer trust issues.
00:30:21:25 - 00:30:27:18
Kate Fitzgerald
And we're going to close it out with David. Just a real quick thought, maybe what's helping? What do you see?
00:30:27:24 - 00:30:52:15
David Henstock
I think taking a broad-based approach to fraud prevention on both the issuer and the merchant side. That's what the industry is moving. This pandemic has made us all kind of look at where the weak links were.
00:30:52:28 - 00:31:05:19
Kate Fitzgerald
Great. Thank you everybody for the great input. It's an ongoing journey to conquer fraud and balancing the friction and the protections there. So thank you very much.
00:31:06:24 - 00:31:07:09
Dan Marostica
Thank you.