The digital experience as a competitive advantage

Current context of payment methods

Before the pandemic, the world of financial services and payment methods was already immersed in a process of profound and rapid transformations that challenged the dominant position of the traditional market players. The growing power of consumers, which had significant impacts on other vertical industries, is also strongly manifested in banking activities, progressively forced by the market to incorporate channels and products contemplating new ways of executing financial transactions, better adapted to the lifestyle and consumption habits of the population, especially the youngest, who demand immediacy, mobility, freedom of choice of the channel to be used and new products easier to use and costless.

If we thought that no one could know more about technology than generations Y (“millennials”) and Z (“centennials”), we were very wrong: the Alpha Generation arrived, the first one 100% digital native, made up of those born between 2010 and 2025. The letters of the Latin alphabet are over, so we started using the Greek alphabet.

The proliferation of digital channels was deepened and accelerated and new products such as instant payments began to appear, significantly reducing costs for consumers, extending without limits the execution windows of payment transactions and instantly producing the credit of paid values, regardless of day or night schedules, weekends or holidays. This product began to benefit Clients – Consumers and decreased the margins of financial institutions. And new providers of financial intermediation services known as FinTech began to appear, maximizing the use of digital channels (hence the Tech) tending to offer better conditions for new and traditional products.

At the same time, Open Banking emerged, another global initiative in favour of openness and greater transparency in the payment methods and financial intermediation arena, which reinforced pre-existing concepts about the right of consumers to own their general information (master data) and financial behaviour (transactional data), favoring the arrival of new players, forcing traditional players to allow the integration of these new players through programmatic interfaces (APIs),and the exchange of consumers’ registration and transactional information, always with their prior consent, which facilitates the intermittent use by Customers of the services of numerous traditional and emerging players, simplifying processes and, once again, reducing costs to consumers

In the words of CPA Enrique Iglesias, former Foreign Minister of Uruguay and former President of the Inter-American Development Bank (IDB): More than in an era of change, we are in a change of era”.

In this context, we are witnessing an exponential growth of payment transactions in digital channels, through products that, while better suited to the preferences of consumers by significantly simplifying their user experience, present greater vulnerabilities to attacks by financial criminals, who have also changed drastically, becoming experts in technology, capable of effectively using sophisticated tools such as Big Data Analytics and Social Engineering, to monitor the activities of Customers until detecting opportunities to execute fraud. And when this happens, they quickly escalate, exploiting vulnerabilities to produce significant losses in minutes.

The payment methods are experiencing a substantial increase in the volumes of digital transactions, and, at the same time, a considerable increase in fraud. The predominant traditional second-generation defenses, conceived for another reality, rebelled being completely ineffective to contain this wave of financial crimes in real time, much faster and more sophisticated, thus emphasizing the urgent need to build platforms collaboratively integrated by multiple prevention and detection engines in what constituted the third generation of anti-fraud defenses.

 Exit barriers and “churn”

FinTech and other new players in financial intermediation services began to offer products well adapted to the use preferences of most Clients – Consumers, integrating in them the preferred concepts of mobility, simplicity, immediacy and low cost, unleashing a fierce competition for the conquest of Clients and forcing traditional banks to follow the same path with the consequent erosion of their margins.

The examples of these products are numerous and cover the entire Customer’s lifecycle, starting with the onboarding process, which in this new scenario includes digital onboarding offers, without the need for new customers to go to a bank agency, executing the entire process virtually online through the use of advanced technologies such as biometrics and multi-factor authentication (MFA). Other examples include, the execution of “voice contracts” through a telephone connection recording the customer’s voice authorizing to issue, release and deliver of debit and/or credit cards, or the execution of instant payments through QR codes from the customer’s phone.

The “empowerment” of Customers & Consumers is part of a global social and economic phenomenon covering every industry, as exemplified by the “number portability” established by legislation in many countries, determining that the telephone number belongs to the User, not to the Operator, so, if a User migrates from one Operator to another one, he/she can take his/her number with him/her. The eventual change of the telephone number, known by Customers, colleagues, friends and relatives, used to be an exit barrier that hindered the migration of subscribers from incumbent Operators to other providers. “Number portability” eliminated this exit barrier. 

Personal Data Protection Laws approved in most Western countries go in the same direction, by establishing through legal regulation that Customers´ & Consumers´ master and transactional data, of undeniable market value, belong to said Customers – Consumers, and can only be used for economic purposes through their authorization. Note that these provisions are a basic part of the concepts of Open Banking that oblige financial institutions to share their Customers’ data in the market if they so request it, thus paving a path that opens up opportunities for new emerging players to participate in the financial market, increasing competition and producing improvements in the services received by Consumers at the same time as substantial reductions in the costs that such services entail for them.

In this context of proliferation of attractive and economical product offerings, the exit barriers of Customers from traditional banks are becoming lower and lower, tending to make it as easy to change from “preferred bank” as “preferred airline”. As FinTech offerings increase, “churn” rates exceed acceptable percentages and set off alarm bells for traditional banks.

 The Customer experience

 Never more than now, the main drivers of the banks put the Customer in a central position (“Customer Centric“). This is a strategic and survival issue in a new era, in which the vertiginous rise of digital transactions and the proliferation of highly sophisticated fraud threats exacerbated the need to implement faster and more secure processes.

However, establishing an excess of controls could “plaster” legitimate operations, generating high rates of false positives, which should be avoided at all costs. The reason for this is the growing importance of the experience of Customers, increasingly demanding and with easier capabilities to change banks.

Now, let´s think about the case of a Customer who is buying an air ticket online, and after spending a good time browsing to get the “perfect offer”, he tries to make the purchase, but the bank incorrectly blocks the payment (false alert or false positive) causing the Customer to lose all the effort made and all the time invested to reach the right offer for his/her needs, thus having to restart everything from the beginning. Imagine the customer’s irritation with his/her bank. Indeed, high rates of false positives are one of the main causes of friction and irritation of Customers, characterizing a poor Customer experience. On the contrary, offering services with low false positive rates, not only allows to generate substantial savings in the operating costs of the bank in analysis and investigation, but, fundamentally, contributes to improve the experience of the Clients. 

Most of the predominant defenses, mainly from second generation, are based on neural networks or statistical modeling engines that perform indirect detection (using “consortium data”) in “black box” mode, and produce high rates of false positives.

The third-generation anti-fraud platforms collaboratively combine a variety of fraud prevention and detection engines that perform direct detection (through proprietary data) in transparent “white box” mode, and allow to define and know “a priori” the desired false positive rates (the desired level of service), counting with tools and processes that allow to drastically reduce the rates of pre-existing false positives.

That is precisely one of the competitive differentiating factors of the latest (third) generation anti-fraud platforms: their ability to significantly increase fraud detections with minimal false positive rates. That is why these anti-fraud platforms openly announce that their false alert rates are significantly lower and that they can parameterize the platform to obtain the desired level of service, which typically delivers false positive rates in the 1:3 range, as shown by some real cases of installations that significantly reduced their false positive rates by replacing their previous solutions by third-generation platforms.

Such are the cases, for example, of the National Payment Switch of France STET with 10 billion annual transactions, sustained peaks of 4,000 TPS, 1 billion euros of savings for avoided fraud and false positive rate 1:1, or the North American Processor FIS that declares having reduced net fraud by 72% and false alerts by 90% after replacing its previous second generation solution,  implementing a third-generation platform.

But, how is this substantial improvement in the false positive rate achieved? Analyzing this question is particularly relevant.

Let’s start by mentioning that third-generation anti-fraud platforms (3G-AFP) are “channel agnostic“, because they were designed for an environment with multiple digital channels. 3G-AFP are “cross channel“, meaning that, they analyze and qualify transactions generating a “score” (scoring) regardless of the channel through which they arrived, and considering profiles calculated based on all existing channels. Keep in mind that most second-generation solutions proclaim themselves as “multichannel”, because they were designed for some channels and subsequently adapted to other channels, which is very different from being authentically “cross channel“. 

Secondly, 3G-AFP use a wide range of information sources in their decision process, not only transactional data (primary data), but also Master Data and information from other external sources such as “black” and “white” lists, and device reputation and IP addresses (secondary data), which allows them to perform direct detection (with proprietary data), but also to combine it with indirect detection (with consortium data).

Finally, 3G-AFP combine these data sources with the use of functionalities that allow them to voluntarily dose, in order to reduce the false positive rate, such as their powerful Entity Profiling capabilities. Profiling consists of recording typical behaviors of different entitiesto be accessed very efficiently (through indexes). Profiles are calculated from past information of those entities (statistical capability). The entities subject to profiling can be numerous, such as “transactional sequence patterns” (financial crime types), devices, Customers and Merchants, to name a few of the main entities subject to profiling.

The combination of the “cross channel” condition (not to be confused with multichannel) with numerous sources of information and with the functionalities of integral profiling, or profiling through all channels, allows 3G-AFP to generate in milliseconds a 360º insight of Customers´ behaviour, which makes it possible to produce fewer false positives and a 360º insight of the criminal activity,  that allows to obtain higher detection results.

Let’s look at an example. A Brazilian bank receives a credit card payment transaction belonging to a Customer who typically only executes transactions initiated from Brazil. The IP address of the device is from Japan and the account to be credited belongs to a Japanese bank, which is completely different from the Customer’s usual behaviour pattern.

A second-generation solution will recommend declining to process the transaction, while a third-generation anti-fraud platform (3G-AFP), through cross-channel profiling, will confirm in milliseconds that the Customer made an online purchase a few days ago from a Merchant, that is an airline company, and that he also made a withdrawal from an ATM in Tokyo the previous day. The result: the third generation platform will recommend the authorizing system to process  the transaction, thus paying the Japanese restaurant, considering it legitimate, avoiding the Customer unnecessary hassle. All in less than a hundredth of a second!

It is also pertinent considering 3G-AFP simulation functionalities, which allow the bank’s Anti-Fraud Analysts to work with real production data from the past and with profiling results, in a simulation model (“Challenger”) to carry out fine tuning activities on the parameters and rules, dosing and knowing “a priori” (before placing anything in production) which would have been the result of applying this model in simulation, in terms of fraud detection and false positive rates. That is another example of the truly cognitive characteristics of 3G-AFP (because they combine the automatic functionalities of prevention and detection engines with the knowledge of the Analysts) and of transparency (“white box”) by allowing the Analysts not only to visualize the rules that would be applied, but also to adjust these rules and to know “a priori” what their result would have been if they had been truly executed in production.  In other words: the control and the last word will always be in the hands of the bank’s Analysts, not in the software´s hands, and even less in its provider´s hands.

Banks have always been concerned with customer loyalty and retention; this is not a novelty of this era. But if we combine some elements of the current scenario we will find the ingredients of a “perfect storm”:

  • Customer dissatisfaction with products unsuitable for their usage preferences
  • irritation due to the repetition of false positives;
  • easily accessible availability of other service offerings better adapted to to the profile of current Consumers; and
  • ease of migration to the new providers of such services.


Today, real-time anti-fraud systems are more demanded than ever, due to the significant increase in digital transactional volumes through products and channels increasingly comfortable for Customers – Consumers, with greater vulnerabilities and fraud opportunities.

The banks’ “traditional recipes” are insufficient to deal with increasingly rapid and sophisticated fraud. Making an illustrative comparison with Medicine: it is not possible to combat “new diseases” with “old medicines”; using traditional second-generation anti-fraud solutions at this time would be like trying to fight cancer by bleeding the patient instead of using the emerging discoveries of immunotherapy and other therapies resulting from the latest advances in medical science.

The new “FinTech” players do not have “the backpack” of old second-generation anti-fraud solutions. They directly combine their innovative digital banking products with third-generation anti-fraud platforms, offering their Customers a doubly comforting experience: by adapting to their habits of lifestyle and consumption habits and by avoiding the frictions and frustrations of false positives.

For the above reasons, the Implementation Project of a new Anti-Fraud Platform will allow traditional banks to reconfirm a leadership role in technology and services, offering their Customers an improved experience of safe and efficient use of their financial services, with the most advanced technological components of Artificial Intelligence and Machine Learning protecting the most innovative products available in all their preferred channels.

José C. Nordmann
SME in real time Digital Fraud
Member of the World Council for a Safer Planet
Member of ACFE (Association of Certified Fraud Examiners)