The evolution of fraud: From 300BC to the digital age
Fraud, as we know it, has existed since 300 BC when shipping merchant Hegestratos changed the world by attempting to con the insurers of a shipload of valuable goods by sinking the boat but keeping the cargo, and claiming the loss anyway. This is the first recorded instance of fraud in history. A trailblazing event in human society, and a harbinger of the financial arms race to come.
This set in stone one of the fundamental emergent properties of exchange-based economies. As soon as a new payments or currency-based instrument evolves, so too does a form of fraud to exploit it. Fraud is now so common, and so deeply ingrained in our collective experience, that consumers now take fraud for granted; they simply accept it as a fact of life.
Such acceptance hasn’t stopped us trying to solve the problem, of course. The latest smartphones now include face recognition algorithms that, in the case of Apple’s new iPhone X, have replaced conventional forms of biometric authentication. Much of this new technology works, at least within the limits of controlled test environments. But right now, it’s all addressing a problem that merchants are apparently not sufficiently addressing themselves. Evidence is growing that merchants are designing services primarily with convenience in mind, with security a secondary consideration; a fact that may be leading both to increased levels of fraudulent activity and increased levels of public acceptance of fraud.
This is a hard problem to fix. The global merchant community is so diverse, and its customers so individual in their preferred payments approaches, that covering every base is problematic. In fact, according to Lost in Transaction data, 71% of merchants globally acknowledge fraud as a serious problem, but 36% fear that introducing more robust security would drive customers away.
Even fraud in card-not-present (CNP), a remote transaction where the cardholder and the card are not present at the point-of-sale, e.g. online payments, and payments by mail and telephone – one of the oldest, most prevalent and best-understood varieties – remains problematic with fraud on the rise in some countries.
Against that background, the potential threat of brand-new fraud mechanisms come even more starkly into focus. Initiatives such as PSD2, an updated directive that has been enshrined in national law in EU states for a little over a month now, are designed to create many new opportunities for third parties as customer data becomes more widely accessible – not just for vendors and service providers, but (potentially) for fraudsters too. So PSD2 regulations will also force merchants and payment service providers to adopt new procedures and methodologies to keep their customers safe.
One thing that does seem certain is that some of the quick-fix proposals being touted in the industry, particularly dynamic CVV and SMS-based authentication, are too clunky for both merchants and consumers, and won’t meet PSD2 standards in the long term. Whatever we come up with in our war against fraudsters, it will have to be something new.
The good news is that some merchants such as Amazon and Apple are showing us that fraud reduction and friction reduction are not necessarily mutually exclusive. Their latest technologies – machine learning algorithms in the case of Amazon, facial recognition in Apple’s new iPhone X – illustrate that it really is possible for merchants to adopt technologies and strategies that defeat fraudsters without deterring shoppers.
Not everyone can afford new iPhone X’s, of course, and Amazon’s proprietary fraud reduction algorithms are unlikely to be made available to the industry as a whole. But elsewhere, Mastercard and Visa are working on next-generation versions of 3D Secure technologies that are less irritating for both merchants and consumers, requiring fewer redirects and thus less interruption of the still-fragile online shopping process. And in time, the relentless march of technology will find other newer, better ways to protect every party in the transaction.
Fraudsters will nonetheless find new ways to scam people. As one bubble is pushed down, so another will rise in response to the new tools and technologies. But as we march through 2018 and its hectic legislative agenda – PSD2, GDPR, and MiFID II, all within a few months of each other – it’s a good time to reflect on strategies that address the fine balance between safety and convenience.
Scammers may not be sinking so many ships these days, but they’re still busy working on their next targets; a fact that is never far from the minds on the board. Organisations are seeking to constantly protect themselves and their customers more effectively, and gain understanding of the real scope of the threats and opportunities that they face as the payment and fraud landscape evolves. Managing fraud and protection strategies effectively is important and organisations should ensure that they invest in the right measures, not just the popular ones based on received wisdom and old ideas.
The millennia-old fraud arms race will undoubtedly continue for years to come, but the advantage increasingly lies with ‘the good guys’.
Daniel Kornitzer, Chief Product Officer, Paysafe
Microsoft: Building a secure foundation to drive NASCAR
Microsoft is a key partner of The National Association for Stock Car Auto Racing (NASCAR) and together they are driving ahead to create an inclusive and immersive new fan experience (FX).
These long-term partners have not only navigated the challenges posed by the COVID-19 pandemic with the use of Microsoft Teams and Microsoft 365, but are now looking to a future packed with virtual events to enhance the FX, well beyond NASCAR’S famous Daytona racetrack.
“Together, we've created a secure environment that's allowed for collaboration, but the future is all about the fans”, said Melinda Cook, General Manager for Microsoft South USA Commercial Business, who cited a culture of transparency, passion, adaptiveness, and a growth mindset as to why this alignment is so successful.”
“We've partnered to create a fluid, immersive experience for the users that is supported by a secure foundation with Microsoft in the background. We are focused on empowering and enabling customers and businesses, like NASCAR, to reach their full potential. We do this with our cloud platform which provides data insights and security.”
“Our cloud environment allows NASCAR to move forward with their digital transformation journey while we are in the background,” said Cook who highlights that Microsoft is helping NASCAR
- Empower employees productivity and collaboration
- Improve fan engagement and experience
- Improve environment security and IT productivity
- Improve racing operations
Microsoft Teams, which is part of the Microsoft 365 suite, enabled employees to work remotely, while staying productive, during the pandemic. “This allowed people to provide the same level of productivity with the use of video conference and instant messaging to collaborate on documents. Increased automation also allows the pit crews, IT, and the business to focus on safety, racing operations, and on the fan experience,” said Cook.
“We have started to innovate to create a more inclusive fanbase, this includes using Xbox to give people the experience of being a virtual racer or even leveraging some of the tools in Microsoft Teams to have a virtual ride along experience.”
“These environments are how we create a more inclusive and immersive experience for the fans. We're working on a virtual fan wall which allows people from new locations to participate in these events,” said Cook, who pointed out Microsoft was also helping bring legacy experiences alive from NASCAR’s archives.
“At Microsoft we can take it one level further by letting fans know what it's like to see the pit crew experience, the data and all the behind-the-scenes action. We will continue to improve automation with machine learning and artificial intelligence, from marketing to IT operations to finance to racing operations,” said Cook.
Christine Stoffel-Moffett, Vice President of Enterprise Technology at NASCAR, said: “Microsoft is one of our key partners. They have been instrumental in helping the NASCAR enterprise technology team re-architect our Microsoft systems to ensure an advanced level of security across our environment, contribute to our business outcomes, and focus on fan experience.”