Achieving

effective fraud
management in
digital banking
E BO O K

1
 Contents

03 Executive summary 13 The foundational role of data

04 The online banking explosion 15 Assessing fraud risk based on
06 The fraud risk explosion data

08 Minimizing risk 16 Communicationg the results

09 Effective fraud management in 17 The role of customer identity

digital banking verification

12 Customer identity verification 19 Positioned for the future

is a key component 20 The Ekata approach

2
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
Executive summary
When was the last time you visited a bank
branch? For many of us, it’s been a while as we
rely increasingly on online banking services. Some
people have never even been inside a traditional
bank branch. And new digital banks that don’t
have brick-and-mortar branches are cropping up
constantly and altering customer expectations.
To meet the growing demand for online banking
services and compete in the digital world, traditional
banks have been undergoing digital transformation
for quite some time, and the Covid-19 pandemic
has accelerated this transformation. But as
banks increase their online service offerings, they
are also opening the door to fraud. Preventing
fraudsters from opening new accounts online
or conducting illegitimate digital transactions is
top of mind in the financial services industry. This
means screening new applicants as well ensuring
the validity of transactions in existing accounts.
In today’s digital world, however, people won’t
tolerate burdensome security processes. This is
especially true for Gen-Z and younger millennials
who have grown up in the digital world and
expect a fast and frictionless online process —
as easy as ordering a book from Amazon.
Banks are under pressure to provide the same fast,
frictionless customer onboarding and transacting
experiences. Smart business practices demand that
they also filter out fraud. To meet both demands,
banks need an effective fraud management strategy
backed by a fraud management platform capable
of streamlining and automating much of the
account onboarding and transacting processes.
A key component of an effective fraud
management platform is an identity verification
solution. Such a solution verifies that the
people opening new accounts or conducting
transactions are who they claim to be.
This paper discusses the growing demand for online
banking, the digital transformation challenges banks
face, and the implications for fraud risk. It describes
the need for a fraud management platform, how
an effective customer identity verification solution
delivers essential capabilities to that platform,
and the crucial role of data in delivering those
capabilities. Finally, it presents the Ekata Identity
Engine: a customer identity verification solution
that enables you to create an exceptional customer
online experience while mitigating fraud.
3
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
The online
banking explosion
Digital transformation is empowering
organizations in all industries to:
∙ Improve the customer experience
∙ Innovate and deliver new products and services
in record time
∙ Rapidly expand into global markets
That’s why digital transformation is now a
top priority for all companies. Boston Consulting
group research shows that more than 80% of
companies plan to accelerate their digital
transformation plans.
The financial services industry is definitely feeling
the impact. Consumer demand for online financial
services has been contributing to market growth
for years.
The COVID-19 pandemic has dramatically
accelerated the growth of online banking as people
sheltered in place to slow down the spread of
the virus. Many traditional banks closed physical
branches, reduced hours of operation, and
instituted appointment-only policies for in-person
interactions. As a result, customers had to rely on
online services. Even people who were
uncomfortable with online interaction adapted to
this new normal.
According to Deloitte 2021 banking and capital
markets outlook, “COVID-19 is reshaping the
global banking industry on a number of dimensions,
ushering in a new competitive landscape, stifling
growth in some traditional product areas,
prompting a new wave of innovation, recasting
the role of branches, and of course, accelerating
digitization in almost every sphere of banking and
capital markets.”
4
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

$31.81
The banking industry had already been digitizing on a
more measured schedule, but environmental factors
and the emergence of digital-only banks have forced
banks to fast-track digitalization. In its Online Banking
Market Outlook – 2027, Allied Market Research billion online banking market to grow by 2027
expects the online banking market to grow from
$11.43 billion in 2019 to $31.81 billion by 2027. This

13.6%
represents a compound annual growth rate (CAGR)
of 13.6%.

The explosive growth in demand for online banking

has fueled the demand for digital banking platforms.
compound annual growth rate (CAGR)
Research and Markets’ Digital Banking Platform
Market - Growth, Trends, COVID-19 Impact, and

11.2%
Forecasts (2021 - 2026) reports that the digital
banking platform market will likely grow at a CAGR of
11.2% during the forecast period. The growth is driven
by real-time payment solutions, convenience, easier
options to access online banking, and increased use expected growth rate (CAGR) of digital
of smartphones. banking platform

5
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

The fraud risk

explosion

In the increasingly digital environment,

financial services providers are being
pressured to scale up online services
at a rapid clip to satisfy customer
demand and improve the quality of
the customer experience. The frenetic
pace of digitalization, however, opens
the door to fraud risk and financial
services is among the most risk averse
of all industries. So providers must not
lose sight of risk management and risk
control. Moreover, financial services
providers must comply with rigorous
regulatory and legal mandates. If they
don’t, they face severe penalties.

6
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
The rapid rise in online interactions has made it
tougher than ever to distinguish between legitimate
customers and fraudsters. Information traditionally
gathered by banks, such as credit histories, is
inadequate to verify online identity.
Not only have fraudsters gained access to this
information, but also, a large and growing portion of
the market has not yet established credit histories.
The impediment for many providers is that they
have already accumulated considerable IT debt
in the form of massive technology stacks. Adding
fraud management technologies to these stacks
would likely involve a major effort. Consequently,
financial institution’s IT professionals must answer
such questions as:
∙ Can the stack accommodate a new plug-in?
∙ How much will it cost and is budget available?
∙ Which stakeholders need to buy in to make
it happen?
∙ What are the risks, such as the risk of
noncompliance, associated with adding
these technologies?
The result is inertia that often impedes the
implementation of new fraud management
technologies. Consequently, fraud leaders are
tasked with identifying fraud with limited fraud
management resources. Many financial services
providers have deployed one or more fraud detection
tools; however, the tools often have been deployed
in a scattered, siloed manner. Consequently, they are
difficult to maintain and support. Worse yet, they
don’t do an adequate job.
Because they have some tools in place, providers
often have a false sense of security about the
adequacy of their fraud prevention strategies.
As a result, their fraud detection and prevention
capabilities remain relatively static. Fraudsters, on
the other hand, are moving ahead with dynamic
schemes, driving up
fraud risk.
7
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
Minimizing risk
To help minimize risk, financial services
providers need to distinguish between
legitimate prospects and fraudsters
when onboarding new customers
and ensure the validity of online
transactions by established customers.
At the same time, providers need
to minimize the friction of both
account opening processes and online
transaction processes.
People, especially Gen-Z and younger millennials,
typically balk at slow, onerous onboarding
processes. Many will abandon the application and
go to other providers if they are asked to manually
submit additional information. Consequently,
financial institutions need to keep the customer
top of mind as they go digital. According to onfido,
customer centricity has become the new norm.
The challenge to minimize fraud risk while keeping
the customer experience fast, simple, and fluid,
and instilling confidence in the customer that
the transaction is secure and safe. Meeting the
challenge is especially important for established
banks because they are competing with challenger
banks that have been developed solely for online
operation and have expertise in creating low-friction
processes.
8
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

Effective fraud Components of a successful payment fraud management strategy

management in Malware detection

digital banking
Bot detection

It’s essential to develop an effective Behavioral analytics & biometrics

fraud management strategy. One
such strategy is Gartner’s Continuous Device telemetry Third-party data 3d-Secure Chargeback alerts
Adaptive Risk and Trust Assessment and id and prevention

(CARTA) strategy, shown in Figure 1. Digital journey

Event monitoring

Session initiation In-session and across sessions Post session

Figure 1. Gartner CARTA strategy

9
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
A strategy such as CARTA requires
a fraud management platform that
empowers the fraud management
team to quickly distinguish between
legitimate and fraudulent activity. A
fraud management platform enables
financial services providers to:
∙ Minimize friction in account
onboarding and transaction
validation processes
∙ Minimize fraudulent activity
∙ Minimize the number of false
positives, that is, misidentification
of legitimate transactions as
fraudulent or questionable
To provide these capabilities
while keeping costs in check,
the platform must meet three
primary requirements:
∙ In account onboarding, the
platform must verify that the
applicant is a real person and that
the real person is the one applying
∙ In account transacting, the
platform must verify that the
actual account owner is requesting
the transaction
∙ The platform must eliminate
siloes by orchestrating all fraud
management processes from a
single point
10
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

No

Figure 2 illustrates an example of how the platform

might process an account onboarding request.

User creates Confirmation User verifies Phone number User verifies

As the figure shows, the workflow consists of a series
account email sent email prompted via SMS
of steps, each one involving additional information. In
the example, there are three approval exit points in the
workflow depending on whether additional information
or manual review is called for.

The goal is to move legitimate applicants through the

workflow quickly — including approving them in fewer
steps wherever possible. That requires automating the
workflow to the highest degree possible. Reject
Manual review Government 3rd party data KYC / IDV data
by support team ID upload verification collection

Approved Approved Approved

Figure 2. Example account onboarding workflow

11
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

Customer identity
verification is a key
component
12

A key component of a fraud

management platform is a customer
identity verification solution that
answers two important questions:

∙ Is the transaction requestor a real person?

∙ Is the requestor who the person claims to be?

To answer these questions, the solution has to uncover

the person behind the transaction by linking the
requestor’s digital ID back to the person.

12
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

The foundational
role of data

A key requirement is that the solution

has access to authoritative customer
identity data. As Figure 3 shows, this
encompasses five types of data:

Name Phone IP

Email Address
Figure 3. Identity data types

13
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
Much of that data must be sourced from
authoritative third parties, such as utility and
telephone companies. Consequently, the solution
must be capable of gathering and normalizing a
huge amount of data from a variety of disparate
sources. Because the data is constantly changing,
the solution must query the data sources
frequently to ensure that the data is accurate and
up to date.
The solution can then leverage the data to gauge
the legitimacy of the transaction request using the
following process:
∙ Transform the normalized data into actionable
information using sophisticated data analytics
∙ Perform probabilistic risk assessment on the
information through the application of rules,
machine learning, and artificial intelligence
∙ Deliver risk assessment results directly to the
fraud management platform and present it in
meaningful ways to support fraud managers and
other appropriate constituencies
It’s imperative that the solution be capable of
accessing the data in real time and processing it
quickly to eliminate delays that introduce friction
into identity validation processes.
14
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
Assessing fraud risk
based on data
An identity verification solution can
examine the data using two analytic
methods to make a probabilistic
assessment of risk. The first method
is to explore how the email addresses,
physical addresses, telephone
numbers, and IP addresses are linked
to the person and for how long.
Example
Carrie Anderson has two email addresses. The first
one appeared two years ago; the second six months
ago. Carrie has also used the same phone number
for two years.
More information is needed to assess risk reliably,
however. That’s where the second method comes
in. The second method uncovers the person’s online
behavior by examining how that person has used
the email addresses, physical addresses, telephone
numbers, and IP addresses in combination and when.
Example
Carrie has used the same combination of phone
number, email address, and physical address twelve
times in the last month when ordering products online.
In the example above, Carrie Anderson’s linkages and
behaviors are reasonable and normal for her, so the
probability of fraud is low. In another example, three
different people used the same email address and
physical address in placing 30 online orders in the last
15 minutes. This behavior points to a high probability
of fraud.
15
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

Communicating
the results

The solution must be able to In addition to communicating directly with the

fraud management platform, the customer
communicate the results of its
identity verification solution should also present
probabilistic fraud risk assessment the information to fraud managers who can use
directly to the fraud management it to make informed decisions regarding manual
platform. The platform can then use acceptance or denial.
the information in processing the
In any case, the customer identity solution should
transaction request.
not introduce friction into the process.
The solution should communicate two types of
information for each transaction:

∙ An overall probabilistic assessment of fraud risk,

for example, through a fraud risk score

∙ The factors it used in determining the score (The

fraud management platform can use this more
detailed factor information to gain deeper insight
into the risk.)
16
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

The role of
customer identity
verification
Figure 2 earlier in this document illustrates an
example of an account onboarding workflow. An
applicant’s path through the workflow can be
determined by the level of risk assessed by the
customer identity verification solution based on the
solution’s analysis of Know Your Customer (KYC)/
Identity Verification (IDV) data and third-party
data. The higher the risk level, the farther through
the workflow the applicant must pass.

17
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

No

Figure 4 illustrates two decision points in the

onboarding workflow in which customer identity
verification can play a part (circled in green). In the
User creates Confirmation User verifies Phone number User verifies
decision point on the right, the fraud management account email sent email prompted via SMS
platform uses the risk level assessment to either
approve the applicant or ask for more information.
Automatic approval based on a low-risk
assessment permits fast, frictionless onboarding of
low-risk customers.

In the decision point on the left, the customer

identity verification solution presents its risk Reject
assessment to the support team, enabling the Manual review Government 3rd party data KYC / IDV
team to make intelligent manual approve/reject by support team ID upload verification data collection
decisions quickly.
Approved Approved Approved

Figure 4. The role of customer identity verification

18
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
Positioned for
the future
As a financial services provider,
you need to establish the right
fraud management strategy
and support it with an effective
fraud management platform. A
key component of that platform
is an effective customer identity
verification solution. With this
combination, you can streamline
online account onboarding and
transaction validation processes
while minimizing fraud risk.
As a result, you’ll be able to rapidly
scale up your online offerings to
meet the demands of the online
banking market while ensuring
frictionless customer experience.
By doing so, you position your
organization to compete
effectively in the exploding online
banking market.
19
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING

The Ekata Machine learning layer

approach

The Ekata engine

The Ekata Identity Engine is a customer identity
verification solution that meets the requirements
described in the previous section. As Figure 5
shows, the engine includes two datasets. The first,
the Identity Graph, includes data gathered from
more than 100 authoritative data sources and
contains in excess of eight billion elements with
100+ billion unique identities. Ekata is continually
expanding the dataset’s data sources, elements,
and unique identities.
Identity Graph Identity Network
Identity graph validates relationship of Identity networks perform behavioral
identity elements analysis

Figure 5. The Ekata Identity Engine

20
FRAU D M A N AGEM ENT I N DI G I TAL BANK ING
The second data set, the Identity Network,
includes first-party data gathered by more than
400 million anonymous customer queries each
month. The amount of data maintained by Ekata,
which includes international data from 238
countries and territories, is unmatched by other
probabilistic assessment solutions. This number
continues to grow.
The Ekata Identity Engine applies sophisticated
data science and machine learning behind the
scenes to generate a probabilistic determination
of the validity of the identity information. The
methodology analyzes linkages and activity
patterns, such as how long identity elements
have been in use and how they have been used
in combination. The analysis derives signals that
indicate the level of risk attributed to the validity
of the identity information.
Access to the signals is available in two ways:
∙ Application programming interfaces (APIs)
permit integration with fraud management
platforms, giving the platforms real-time
access to the signals. The Account Opening API
provides critical insights into customer risk in
the onboarding process.
∙ Ekata Pro Insight, a software-as-a-service
(SaaS) manual review tool that empowers
fraud managers to leverage the Ekata Identity
Engine’s risk analysis in deciding whether to
approve or deny applications and transactions
quickly and confidently.
21
About Ekata
Additional resources
• Ekata identity network one pager
• Ekata buy now pay later case study
• Ekata financial services web page
Contact us to learn more
www.ekata.com
1.888.308.2549
Ekata Inc., a Mastercard company, is a global
leader in digital identity verification solutions that
provide businesses worldwide the ability to link
any digital interaction to the human behind it.
The Ekata product suite is powered by the Ekata
Identity Engine, comprised of two data assets: the
Ekata Identity Graph, a proprietary data store of
over 7 billion entities that validates digital identity
elements and their interlinkages; and the Ekata
Identity Network, a collection of over 16 billion
identity elements and machine learning models
that surface patterns of their use online.
Ekata’s award-winning global product suite
includes high-scale and low-latency APIs used in
transaction, monitoring, and customer onboarding,
along with its Pro Insight SaaS solution for manual
fraud review. These solutions empower over 2,000
businesses and partners, like Alipay, Equifax, and
Microsoft, to combat cyberfraud and enable an
inclusive, frictionless experience for their customers
in over 230 countries and territories.