Q&A with Fraud.net: Fraud Threats are Growing – Make Sure Your Company is Prepared

By Community Team

The COVID pandemic has brought massive increases in fraud to nearly all industries. Experts estimate an escalation in the neighborhood of 40% from pre-pandemic levels. While post-vaccine, the amount will likely drop, experts predict that it will stay well above pre-pandemic rates. Companies are increasingly vulnerable to fraud as the pandemic’s disruption creates new opportunists, increases vulnerabilities in systems and processes due to remote workforces, and exploitation of the anxiety across society. The cost to the global economy is expected to reach into the trillions.

SourceForge recently talked with Whitney Anderson, CEO at Fraud.net, about the growing fraud threat and how companies can address this issue.

Whitney Anderson, CEO at Fraud.net

Q: How did Fraud.net get its start?

A: Cathy Ross, our Co-founder and President, and I had been in leadership roles in large financial services companies and early leaders in e-commerce. From our first-hand experience fighting digital fraud in the trenches and seeing how quickly it corrodes margin and the general health of organizations, we felt there was a better way. Out of this experience, we had a clear understanding of how companies needed to defend themselves. The end result was forming Fraud.net with the mission of providing advanced fraud solutions to enterprises. Companies face a tremendous challenge in fraud prevention; the schemes are ever-changing and increasingly sophisticated. They need a partner that applies constant attention to the problem and utilizes the leading technologies and methodologies.

Q: Tell us about your client base.

A: We have about 200 companies in our growing client base. We deliver fraud solutions to a wide range of industries:

Financial institutions make up the highest percentage of our clientele, followed by eCommerce, and a solid base in the other industries. Across all industries, clients are struggling with siloed fraud data, or one-off solutions targeting a specific risk or attack vector. Usually, this leads to playing catch-up with the criminals. Companies are looking for more comprehensive solutions that pull together all the necessary information to better manage resources. Also, we frequently hear from clients that they are spending too much time gathering and compiling data, and not enough on analysis. Lastly, they want a solid fraud defense in combination with a frictionless experience for their customers.

Q: What types of fraud should be most concerning to companies?

A: Two of the most potentially harmful to companies are Phishing and Ransomware Fraud. Phishing attacks, involving bogus emails and websites meant to mimic the real thing, lure victims into providing sensitive information that can be exploited. Their usage skyrocketed in 2020 due to the shutdown, increased unemployment, and the public’s anxiety. The increase was likely 4x over the prior year. While most schemes are pretty rudimentary, many are getting more sophisticated, and utilizing knowledge gained about a group’s processes and system vulnerabilities. Tools like our Email AI(™) help prevent phishing attacks through advanced risk scores and faster decisioning. (email shield graphic).

A more menacing type of attack is Ransomware. There was a doubling of reported incidents in 2020 compared to 2019. This is likely an understatement, since companies are reticent to report these incidents. There is a growing Ransomware-as-a-Service market on the Dark Web to provide other criminals with the tools and knowledge to carry out these attacks. To address this menace, tools such as our Dark Web Monitoring help provide early detection of breaches and other risks.

Q: Which fraud schemes do not attract as much attention, but are inflicting significant damage?

A: Two fraud schemes that are unfortunately often “under the radar” relative to other schemes are Friendly and Synthetic Identity Fraud.

Friendly or First-party fraud is a low-tech scheme that turns good customers into opportunists. They take advantage of the dispute resolution process and a company’s desire for a positive customer experience, to steal items. Analysts estimate it costs eCommerce companies as much as $25 billion annually, and for a single company, it can cut profits by 25%. Often it is as simple as individuals claiming they did not receive an item or it was damaged, when they did receive. Many merchants do not view this problem as theft, but as a “cost of doing business”. Primarily due to this perspective, it has received little attention from organizations. One way for companies to address this problem is by removing “silos” of data in their systems. In addition, Fraud.net’s Collective Intelligence Network provides companies with the ability to analyze anonymized data from across a wide range of companies to spot the tracks of fraudsters to stop them before they strike again.

A growing, but still relatively not widely known or publicized fraud is Synthetic Identify. As opposed to Stolen Identity Fraud that involves stealing someone’s personal information. Synthetic Fraud is about creating an artificial identity to perpetrate fraud. It is more difficult to detect because a real person is not victimized, and the phony identity can appear as a model customer. Estimates vary on the size of the issue, with Gartner’s approximation at 20% of credit charge-offs. Synthetic Fraud’s rise is the result of progress in stopping Stolen Identities, forcing thieves to take a different path to defraud companies. To counteract, businesses need to place more focus on verifying account identities.

Q: How does Fraud.net’s value proposition differ from your competitors?

A: I think our key differentiator is helping our clients via a single fraud prevention solution to better manage their entire program. This includes unifying relevant data, applying sophisticated AI/ML algorithms to uncover subtle patterns of potential fraud, and more effective case management tools. For our clients, this results in near real-time fraud detection, more accurate decisions, fewer false positives, and more time for the security team to analyze potential fraud.

The other differentiator is our Collective Intelligence Network. It is a true paradigm shift in stopping fraud, sharing anonymized data with other firms, even competitors. It provides a much deeper and richer data set to track and prevent fraud.

Q: Please expand upon the Collective Intelligence Network – why is it so important?

A: It is not an intuitive idea to many, sharing fraud information. As cybercriminals have gotten more sophisticated, companies can no longer be islands. They need more fraud data to stay ahead. Criminals are increasingly collaborating via the Dark Web, and creating more sophisticated and better organized schemes. The rise of the Dark Web is making data consortiums a critical asset in fighting fraud. Organizations need the power available through an anonymized data consortium to quickly spot trends and prevent further impact.

Q: What are some of the key features of your fraud management solution?

A: In addition to the end-to-end solution available for companies, they can also choose a single standalone module that best fits their needs. Below are some of the key features that we bring to our customer’s fraud prevention programs:

  • With our advanced AI-powered fraud scoring engine, we can detect over 600 unique fraud schemes and flag them in near real-time. 
  • Advanced Data Orchestration to quickly turn raw data into actionable insights. Our technology automatically cleans, validates, and enriches data coming into the platform to fuel smarter fraud detection models and rules. 
  • Richer data sets through our Collective Intelligence Network and other third-party sources augment client’s data for a better and more accurate analysis of the behaviors signaling fraud.

Q: Working with Fraud.net, what specific benefits could clients expect to achieve?

A: Our clients typically realize a lift in revenue by as much as 5%. This increase is driven by creating a more frictionless customer experience and approving more good and fewer bad transactions. Reductions in fraud can be dramatic, with wide variation between companies due to prior fraud detection levels. The minimum reduction is usually 30% and can go much higher. With these levels of improvement, many of our customers enjoy upwards of a 400% ROI. Another tangible benefit is greater efficiency by the security teams, frequently resulting in a 60% reduction in fraud management costs.

Q: How long is a typical implementation?

A: Typically, implementations are completed in less than 90 days, with many completed in 60 days. We provide complete documentation to provide a fast, cost-effective installation, and on-boarding process. A critical part of our client engagements occurs up front in the data discovery and data orchestration phases. The merging of our proprietary data, understanding transactional history, and behaviors all lay the foundation for our advanced machine-learning models.

Q: If a company has unique rules and requirements for security detection and prevention, can they customize your solution to suit their needs?

A: Yes, our solution helps clients solve the typical build versus buy decision in fraud prevention software. Most companies require a high degree of customization due to the unique requirements of their business. However, this causes expensive and time-consuming builds of the tools. This usually results in suboptimal integrations, siloed data, consumption of valuable IT resource time, and often quickly out-of-date software. Our solution offers a ready-made, cloud-based solution that is highly configurable and offers great flexibility to meet client’s needs.

Q: Do you have a notable customer success story that you can share?

A: Yes, we have one of the world’s largest online travel agencies as a client. The business is very competitive and works on low margins, so fraud eats quickly into their profit margin. Like almost every other industry, the travel business is experiencing increasing levels of fraud. 

The client was seeking a solution that helped them better assess fraud risk. They wanted better and faster identification of potential fraud, increased efficiency of the fraud team, and, of course, an overall reduction in fraud. Within 90 days, our client realized the following improvements:

  • Decline in overall fraud of 30%, primarily due to more accurate fraud risk.
  • Increased approval rates by 10%, with fewer false positives. 
  • Decreased insider threats by 90% due to advanced AI analysis of agent behavior and outcomes.
  • The reduction in fraud created opportunities for the opening of new markets with known higher fraud incidences. This resulted in a $100M increase in revenue.
  • Improved case management through reducing false positives and providing the tools and richer data sets for faster analysis.

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