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A Reflection on Payments Fraud

7/28/2022

 
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​The dramatic surge in card fraud during the pandemic has been well documented. More recently, market research is showing a reduction in the number of fraud cases as a result of payments organizations implementing modern fraud prevention solutions. However, while the volume of card fraud is declining, the monetary amount of fraud is not, as fraudsters continue their penetrative testing looking for easy targets. Our interview with Fabrice Daniel, Head of the AI team at Lusis briefly introduces some of the key factors that payments organizations should consider in respect of their fraud platform.
​
​Q. Why should an organization consider upgrading their fraud decisioning platform?
F.D. : There have been significant advances in AI research for fraud detection in recent years. Advanced gradient boosting decision trees, deep learning models like Fraud Memory, rules extraction methods like Anchors, or even the Dempster-Shafer theory to combine many probability outputs are only some examples. Payments fraud is an ever evolving challenge and the older fraud prevention solutions are unlikely to cope with the newer fraud attacks. Today's fraudsters are not the opportunists of old, they are highly organized and technically sophisticated. If your fraud decisioning platform and procedures are out of date then you are significantly increasing the likelihood of a serious fraud attack.
​
​Q. What should an organization look for in a new fraud solution?
F.D.: For one thing, you want to make sure that your strategic fraud solution can be deployed in the cloud and leverages the significant processing cost savings of cloud deployments. Additionally, a modern fraud solution needs to provide massively parallel processing to allow customers to deploy a comprehensive mix of rules and machine learning models without significant processing latencies or excessive cost. 

The cost of fraud screening is a legitimate concern, both in terms of computational resources but also in staff costs. Each organization is likely to set their own balance between processing costs and the breadth of screening. However, as a rough guide a large organization should expect to process 50 million transactions using 40 rules with a per transaction latency of under 10 milliseconds.  This level of performance ensures that they can deploy a sufficiently stringent fraud screening strategy in a timely manner. 

The ability to run multiple rules engines simultaneously is another important capability. Trying to rely on a single all-encompassing rules set or model leads to greater inaccuracy. It is far better to use multiple models and rules sets, each tuned to catch a specific set of fraud attributes. This strategy results in higher accuracy and easier management.

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Is a revolution in consumer-centric payments inevitable?

6/9/2022

 
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The card-based payments mechanism has evolved over many decades and is now a commonplace experience for both the consumer and merchants. Recently there has been a steady stream of new payment innovations, though none has yet to achieve the ubiquity of the traditional card.

So what near-term changes can we expect in the US market in how consumer payments are conducted?

In this paper we will be looking at potential drivers for change, specifically;
  • the implications of soaring fraud,
  • interchange fee pressures,
  • the potential evolution of the phone-based wallet, and
  • what should payments organizations do to prepare themselves to exploit emerging trends?

From a technology perspective it is reasonable to assume that the necessary ingredients and know-how currently exists to build any form of consumer payments system.  Cloud-computing, strong encryption, AI and machine learning, blockchain, crypto-currencies, and digital wallets, are all ingredients for a new era in consumer payments. However, it is not the technology that will ultimately determine the direction of consumer payments but rather who stands to benefit within the payments ecosystem.

So who might benefit from a new consumer payments method and who might lose out? 


US Card-market Snapshot
The charts below highlight just two aspects of the US payments market. Firstly chart 1 shows the staggering revenues associated with credit card purchases, while chart 2 shows the alarming rise in reported card fraud and identity theft. ​
atm software payments processing
Payments technology
The rampant fraud losses rightfully creates great concern. There is a deep, moral instinct that kicks in when the 'bad-guys' seemingly get away with criminal gains. There is certainly some great AI and machine learning technologies emerging that are creating tangible reductions in fraud levels. However, one of the great challenges of fraud detection and prevention is that fraud evolves. Card fraud is no longer the purview of chancers and petty thieves, it has become the domain of sophisticated, organized crime gangs with the capability to probe security defenses and rapidly exploit any vulnerabilities. 

The irony is that despite more and more consumers being impacted by card-related fraud the popularity and increased usage of credit cards suggests there are still significant gains to be made by the card processing networks and card issuers. With commercial factors being what they are, card processing organizations are under no obligation to eliminate fraud. Provided that the losses are sufficiently small relative to the financial gains then the quest for more growth becomes the priority.

Given the healthy profits associated with card processing and its apparent entrenchment into the commercial fabric it begs the question - “is there sufficient pressure for change?”

Consumers who are subjected to card fraud often face significant inconvenience trying to recover lost funds and restore reputations. With the current levels it is reasonable to assume that consumers are becoming increasingly open to alternate payment methods. However, consumer dissatisfaction cannot of itself introduce a new payments option. We need another trigger point.  

The question of interchange fee rates has been a long running battle between retailers, card issuers, and the networks. Retailers have long held the view that they are being gouged over interchange fees and service charges.  In 2021, the Global Payments Consulting firm GMSPI issued a comprehensive report highlighting the dramatic imbalance in commercial profits experienced by the different players in the card-payments chain.

Significantly, the report posits that banks “generate sufficient revenue” from overdraft fees and interest payments to operate without interchange fees at all. The report further noted that the various card fees contribute to extraordinarily high profits in the card industry, with card networks reporting average operating margins of 52 percent, acquirers 36 percent and issuers 23 percent. By contrast the operating margins for retailers is just 3 percent.

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Changing the Payment Card Monopoly: What Does it Take?

4/21/2022

 
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“Do you take plastic?”
 
There was a time when consumers were asking that question in Retail outlets around the world. Nowadays, the ability to pay for goods and services with a debit or credit card is so commonplace that consumers simply assume that card acceptance is available virtually everywhere.
 
It wasn’t always like this but several decades of investment has built the card payment infrastructure to its current state. However, despite the continued growth in consumer payment transactions, card payments does have its drawbacks.
 
The level of fees paid by merchants has been a long standing area of contention, often resulting to protracted legal action to enforce greater billing transparency and reductions in overall fee costs. Another area of serious concern is the dramatic increase in card and account fraud, clearly aggravated by consumer behavior changes during the pandemic. Of course, the quest for ever simpler and more secure payment options is of great interest to many consumers.
 
There has been a lot of payments innovation over the years including stored value cards, digital wallets, and bio-metric authentication. However, many of these schemes piggyback on the card infrastructure or achieve only limited levels of success. In most industries technology has been reinventing itself at accelerating rates but this is not the case with card payments. This begs the question – “Is the card itself the bottleneck to change?”
 
Putting aside the entire settlement cycle there are several key elements that a truly alternative consumer payments option needs to address. Firstly, the consumer needs to have some form of payment token and authentication method. Additionally, the alternate payment scheme needs to ensure the secure acquisition and routing of the payment to the appropriate institution for authorization.
 
The advent of smartphones and wearable computing, coupled with the growth of real time account to account payments is already proving to be an interesting possible alternative to card payments. Some adoption rate projections suggest that account-based payments could notionally obsolete card-based payments.
 
It seems that the real hurdle to obsoleting card payments is a commercial issue, not a technical one. As long as the new entrants into the consumer payments market all seek their own “magic bullet” then they are most likely to be left nibbling around the market share of the traditional card brands. The last thing consumers want is to be drip-fed an endless array of different payment options with no clear indication of convergence and interoperability. 
 
The electric car market provides a great comparison in this regard. In an age of climate change and excessive wastage it seems obvious that governments should demand all electric cars sold in their country to have the same charging connection. The cost and timescales to create an effective charging stations infrastructure is immediately reduced, and consumers would have greater confidence to switch to electric cars. I have no doubt that were the governments of a few of the major market countries to take this bold step it would be universally applauded and the card manufacturers would deliver the requisite standards in a heart beat.
 
The US market saw a strong consortium of banks cooperate in the launch of Zelle as a competitive counter to Venmo. However, the really big question is whether the banks, Fintechs, and Retailers can cooperate to deliver a single, ubiquitous consumer payments option that can move us beyond the 70 years history of plastic cards.

Is Russian Software Trustworthy?

3/23/2022

 
security fraud

I recently read a BBC news article that noted the German cyber-security authority had warned against using the Kaspersky anti-virus software. Among other things it stated “Russian information technology businesses could be spied on or forced to launch cyber attacks.”  Perhaps the easiest response would be to simply shrug this off. However, Putin’s illegal war against Ukraine and his alarming threats against Russian citizens with Western sympathies casts a cautious shadow over dependencies on mission-critical Russian software systems.
 
In addition to cyber security software and networking, I wonder about payments systems – are these at risk? Payments systems carry sensitive card details and customer information and significant damage can result from compromised payments infrastructure. Hopefully this is all just plausible speculation but it highlights the fact that once trust has gone, fear sets in, and uncertainties multiply. And trust it seems, is a diminishing commodity.


#cybersecurity #payments #infrastructure #software #security

A Lusis Payments Reflection on 2021

1/20/2022

 
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2021 has been another tough year for Covid-19 related challenges. Our thoughts continue for those who have been impacted by the virus especially those who are sick, we extend our heartfelt wishes for a full recovery.

We would also like to take this opportunity to thank all of our clients, partners and teammates for another extraordinary year.

The dramatic surge in demand for electronic payments continues from 2020 and the Lusis Payments delivery team has been hard at work helping customers grow their systems and businesses. Lusis completed a record number of projects in 2021 including: 
  • A pan-European payments gateway for a major merchant acquirer
  • The first cloud-based TANGO deployment
  • A record number of migrations from legacy payments platforms onto TANGO
  • Continued expansion within the Latin America market with our Lusis team and clients
  • Expansion of our support office in Toronto CA

This summer, HPE selected TANGO as their preferred GreenLake financial payments solution. You can watch the HPE Discover interview with Lusis Payments CEO, Philippe Preval and Keith White, GM of HPE GreenLake cloud solutions here. “HPE is delighted to partner with Lusis Payments and TANGO as the premier Retail Payments solution for future generations.”- Keith White. Also this year, Lusis and HPE successfully demonstrated TANGO running at 4500 TPS on a HPE NS server the ATC – proving that TANGO is still the most performant and cost effective payments solution for HPE NonStop. To read more details about the test read the blog here.

Our product investments have continued in earnest, ensuring that TANGO remains at the forefront of FinTech payments. Some highlights include:
  • Support for cryptocurrency payments including direct integration with the Ethereum blockchain
  • New deployments of the TANGO AIF payments Fraud prevention system featuring AI and machine learning
  • Rollout of the new WebTango management console that includes enriched process monitoring

We are looking forward to the exciting adventures we will share in 2022 and would like to wish all of our customers, partners and staff a Happy and Prosperous New Year!!
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LUSIS LITERATURE

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LUSIS NEWS
- Creating Enhanced Payments Agility
- Happy New Year! 2022 Highlights
- Banking on the Cloud

- Enriching the Branch Experience
- NEW: TANGO V8.1 with Cloud-Native Support
- A Reflection on Payments Fraud - 2022 and Beyond
- Is a revolution in consumer-centric payments inevitable?
- Changing the Payment Card Monopoly: What Does it Take?
- Is Russian software trustworthy?
- A Lusis Payments Reflection on 2021 ​
- Payments Q & A with Dave Smith
- Can financial services institutions rise to the challenge of FinTech?
- Infrastructure Decision Making - Five Key Principles 

- Preparing Your Payments Infrastructure for the Next Decade: A Guide for Financial Services Institutions
- Play to Win with TANGO for Retail Payments
- TANGO: Fast-Track to Cloud Payments
- Next Generation ATM Services
- Leading ATM Processor Chooses TANGO
- A new TANGO Benchmark on NonStop





- Why Companies are choosing TANGO to replace their Legacy Systems
​
- HPE GreenLake for Financial Payment Systems in Partnership with Lusis Payments​
- Leading Global Bank relies on TANGO for superior agility & impressive cost savings
​- Bayesian and Dempster-Shafer models for combining multiple sources of evidence in a fraud detection
- HPE NonStop for Lusis TANGO
- Cover story in "The Connection" magazine
   Tango V8 – An Implementation of Micro services 

- Fighting Fraud with the Latest Technologies TANGO AIF
- Lusis Payments Announces N American Support Center
- Research Chair: AI Applied to the Detection of Payment Fraud and Trading

- Lusis named Best Electronic Payment Systems
- Article:  A SME in the Big Leagues

​- ​TANGO 10K TPS in the Cloud
- Lusis Makes Strides to Revolutionize Payments Technology
- Lusis Leverages the Power of Artificial Intelligence
​- New Security Requirements for ATM and POS Introduced by PCI-PIN V3PIN V3: TR34 - TR31
​- TANGO - Stress Test on  HPE NonStop L-Series

- A Comparison of Machine Learning Techniques for Fraud Detection
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