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September 30, 2020 - Claire Zhou

When Rules No Longer Apply: A Look at Fraud Detection in the Age of COVID-19

When uncertainty abounds, fraud thrives. With 40 million people in the U.S. claiming unemployment during the COVID crisis, it’s not surprising that fraudsters were in full force trying to take advantage of others. For individuals and businesses whose work has only increased since the beginning of the pandemic, the need for stalwart fraud detection has never been greater. 

Fraud Is Increasing During COVID-19

The recent pandemic has changed the risk landscape for businesses around the globe. Hospitals have been facing heavier workloads. Many businesses are operating with a slimmed-down workforce. Other companies are struggling to cut costs in order to survive. They have less time and fewer people to respond to cybersecurity incidents. These shifts can easily pull focus and resources away from a company’s defenses, which is good news for cybercriminals. 

With more people online during COVID-19, some worrying trends are emerging: account takeovers have increased 20%, and we’ve seen a 40% increase in new accounts fraud and two times the rate of transaction fraud. 

With the ever-evolving online landscape, fraud risks are growing, too. It’s no longer enough to develop fraud prevention based on previous activities and known threats. Rather, companies must begin to take a forward-thinking approach to prevent new threats before they are known and can cause financial and reputational damage.

The Vulnerabilities of Rules-Based Fraud Detection

Traditional fraud detection and prevention relies on rules-based systems, where fraud models are based around known threats. Companies reactively identify instances of fraud, then create rules and triggers for fraud models to detect similar activities moving forward. 

This approach presents several vulnerabilities that are costly and dangerous to an organization and its customers.

Vulnerability 1: It Only Applies to Known Threats

The war between fraud and fraudsters is much like a tennis game: as fraudsters improve their techniques to commit crimes, fraud prevention tools also improve to combat evolving threats. 

In this tennis game scenario, it’s usually the fraudsters who make the first serve. Fraud teams are constantly playing catch-up to criminal behaviors and creating their tools accordingly. Using this approach, traditional fraud prevention tools are unable to get ahead of the curve and anticipate how fraudsters are going to attack next. 

By only addressing known threats, companies continue to put themselves and their customers at risk. New threats are constantly emerging, particularly in desperate or uncertain times like the current COVID-19 crisis.

Vulnerability 2: Fraud Is Identified on a Case-by-Case Basis

In a typical rules-based fraud detection process, singular activities are caught by detection tools, then may undergo a manual review process by an internal team. Activities are often viewed on a case-by-case basis rather than aggregated with other activities happening at the same time or performed by the same user or group. 

This approach prevents companies from being able to detect larger crime rings or coordinated attacks easily. A lack of integrated data could make several suspicious activities seem legitimate, but when viewed holistically, these activities could indicate a much larger fraud pattern.

Vulnerability 3: Financial and Reputational Damage Has Already Happened

Rules-based systems reactively look at fraudulent activities. In the time it takes to review potential fraud cases, damage to your company’s reputation and bottom line may have already been done. 

One report notes that about 65% of companies who fall victim to fraud only recover about 25% of their lost funds. What’s more, this doesn’t take into account the costs of recovering those funds,  the loss of productivity and time, and how the company’s reputation might suffer. 

Though a small, isolated incident might not create lasting damage to the company’s image, a large-scale data breach or multiple account takeovers certainly could. What’s more, companies that suffer from too many fraudulent activities may have to raise their prices to compensate for the losses, which could result in the loss of some of their honest customers. 

Vulnerability 4: Omnichannel Makes Fraud Harder to Identify 

As companies increasingly embrace the omnichannel, they’re also facing complexities in providing secure defenses against fraud across the board. Providing more channels for authentic customers to connect also means increasing the potential for more channels for fraudsters to leverage. When systems remain disparate, companies have a much harder time recognizing and addressing fraud that’s coming at them from all sides.

illustration of a person withdrawing money from atm securely

How DataVisor Takes a Proactive Approach to Fraud Prevention

In times of uncertainty, rules no longer apply. This has always been the case for fraudsters, and it’s past time for companies to find ways to stay ahead of the game instead of picking up the pieces. 

DataVisor’s comprehensive fraud detection platform combines a robust rules engine with machine learning and device intellige`nce for a holistic, real-time approach to fraud prevention. Rather than rely on reactive fraud identification, this proactive approach isn’t hindered by pre-existing data or rules. It aggregates all data and activities in real time to identify instances of fraud throughout an organization before they can do financial and reputational damage. 

Because there’s no need for ongoing data training, proactive fraud detection methods remain up-to-date with the latest defenses and provide ongoing prevention and detection. What’s more, companies are better able to identify large-scale patterns and coordinated attacks that would normally evade fraud detection tools at the individual case level, and can make batch decisions to stop fraud in its tracks.

Preparing for the Next War, Not the Last War

At a time when rules no longer apply, no person or industry is safe from the effects of fraud. Companies that may provide anything of value, whether it’s a discount, deal, or access to customers’ payment methods, may find themselves targets for fraudsters. This is especially true during COVID-19, when desperation and uncertainty are running high. 

An ounce of prevention is worth a pound of cure. It’s true in the medical field, and it’s true in fraud prevention. When companies can prepare themselves and prevent fraud from occurring in the first place, they’re better able to protect their financial and reputational interests. 

To see DataVisor’s comprehensive fraud detection platform in action schedule a quick demo.

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about Claire Zhou
Claire is a Senior Product Marketing Manager at DataVisor with over 5 years of marketing experience in security and fin-tech. She is passionate about empowering enterprise customers with AI-based solutions. Her expertise spans data analytics, cybersecurity, and fraud prevention. Claire has an MBA from UCLA.
about Claire Zhou
Claire is a Senior Product Marketing Manager at DataVisor with over 5 years of marketing experience in security and fin-tech. She is passionate about empowering enterprise customers with AI-based solutions. Her expertise spans data analytics, cybersecurity, and fraud prevention. Claire has an MBA from UCLA.