Protecting Your Business with Pay by Bank : How We Stay Ahead of Evolving Fraud Threats in Open Banking.

As the fintech industry continues to evolve, effective fraud and risk management strategies remain critical focus areas for companies operating in the open banking space. 

Pay by Bank, an account-to-account payment method offered by Banked, is no exception. 

We recently interviewed Banked’s Chief Legal and Compliance Officer (CLCO), John Fernandez, to discuss the current state of fraud in the fintech and open banking industries, sharing insights on how we stay ahead of evolving fraud threats while ensuring a seamless and intuitive user experience for customers using Pay by Bank.

Fraud is a significant issue that costs billions globally, and regulators and industry participants are paying close attention to how it develops.

In the wake of the COVID-19 pandemic, we saw increased fraud risk, with new typologies emerging as more people moved online. Examples included PPE (Personal Protective Equipment) fraud, fake shops, and in the US specific types of fraud related to paycheck protection programs (PPP) where criminals submitted fraudulent applications for PPP loans with losses amounting to billions of dollars. Consumers and businesses are constantly faced with common threats, such as phishing and malware attacks that enable account takeovers as well as social engineering scams or fraudulent merchants that deceive consumers into making a payment.

One of the main areas of concern recently drawing the attention of regulators is authorised push payment (“APP”) fraud. This is where a person or business is tricked into authorising a payment to a fraudster posing as a genuine payee. These types of scams effectively bypass any 2FA protections and can have a devastating impact on the people who fall victim to them because they are generally not recoverable under current consumer protection and banking law. A report by UK Finance found that £249 Million was lost to APP scams in the first half of 2022 alone and there is an increasing expectation on the banking and payments industry to stop these scams from happening and afford better protections.

At Banked, we take proactive measures to design and implement technical solutions for fraud protection purposes using Pay by Bank. We implement data encryption procedures replacing a customer’s bank account information with a unique token to prevent their bank account information from being exposed.

We utilise risk scoring solutions to understand whether a particular transaction may indicate a potential account takeover scenario or fraudulent activity. This might include for example matching details of the payment against a merchant profile to determine if it appears logical. 

We also implement Field-level encryption allowing sensitive information to be encrypted at specific data field levels, thereby providing additional protection.

Finally, we implement machine learning algorithms to identify patterns and unusual or suspicious behaviour around transaction data sets. This cutting-edge approach can help us stay ahead of fraudsters and prevent fraud before it happens.

‘But technology alone is not enough to prevent fraud.’ John Fernandez emphasised the importance of Banked’s network being a core component to helping combat fraud and financial crime. 

We have established close partnerships with Tier 1 banks, and through these partnerships, we collaborate and have forums set up to discuss emerging fraud trends and tactics to prevent them. Additionally our membership in industry associations such as the Electronic Money Association provide valuable insights into new trends and typologies through AML and fraud sub-committee meetings.

Finally we’re also exploring ways of introducing contractual safeguards to protect users in these kinds of events that would allow them to recover fraudulent payments.

Fraud prevention and risk management are critical for any business, especially in the financial sector. As an open banking fintech company, we understand the importance of using innovative and cutting-edge technologies to enhance security and prevent fraud.

Banked’s proactive approach to fraud prevention, through employee training, technology adoption, and industry collaboration, has enabled us to provide secure and reliable services to our clients. 

By staying ahead of emerging threats and investing in robust risk management processes, we continue to position and offer businesses and consumers a future of safer, more secure payments.

Contact our payments experts if you're implementing Pay by Bank : into your business.