There was a recent discussion among members of the Anti Fraud experts group on LinkedIn regarding collaboration among financial institutions to combat fraud. Most posters agreed on the benefits of such collaboration but were cynical when it came to anything of substance, such as a shared data network, getting off the ground. I happen to agree with some of the opinions on the primary challenges faced in getting cross industry (or even single industry!) cooperation to prevent both consumer and commercial fraud. Those being: 1) sharing data and 2) return on investment.
Despite the challenges, there are some fraud prevention and “negative” file consortium databases available in the market as fraud prevention tools. They’re often used in conjunction with authentication products in an overall risk based authentication / fraud deterrence strategy. Some are focused on the Demand Deposit Account (DDA) market, such as Fidelity’s DebitBureau, while others, like Experian’s own National Fraud Database, address a variety of markets. Early Warning Services has a database of both “account abuse” – aka DDA financial mismanagement – and fraud records. Still others like Ethoca and the UK’s 192.com seem focused on merchant data and online retailers.
Regardless of the consortium, they share some common traits. Most:
– fall under Fair Credit Reporting Act regulation
– are used in the acquisition phase as part of the new account decision
– require contribution of data to access the shared data network
Given the seemingly general reluctance to participate in fraud consortiums, as evidenced by the group described above, how do we assess value in these consortium databases? Well, for one, most U.S. banks and credit unions participate in and contribute customer behavior data to a consortium. Safe to say, then, that the banking industry has recognized the value of collaboration and sharing data with each other – if not exclusively to minimize fraud losses but at least to manage potential risk at acquisition. I’m speaking here of the DDA financial mismanagement data used under the guiding principle of “past performance predicts future results”.
Consortium data that includes confirmed fraud records make the value of collaboration even more clear: a match to one of these records compels further investigation and a more cautious review of the transaction or decision. With this much to gain, why aren’t more companies and industries rushing to join or form a consortium?
In my next post, I’ll explore the common objections to joining consortiums and what the future may look like.