Economies of scale is one of my favorite economic principles. It’s especially cool to see how FICO customers can realize associated benefits by using our behavioral analytic technology.
IDC predicts that in 2017, behavioral analytics across compliance, fraud, and cyber detection and prevention will be in place at 15% of banks, helping them to avoid losses, regulatory fines and sanctions.
Banks have already made a big start in the fraud space. FICO introduced behavioral analytics in the early 1990s and we currently analyze two-thirds of the world’s payment card transactions, in real time, for fraud.
Now, FICO’s proven behavioral analytics can be applied by forward-thinking institutions to fight a wide range of financial crimes. In doing so, banks can gain powerful technology economies of scale, too, leveraging mature, market-proven analytic models to benefit new domains within their business.
How do behavioral analytics work?
A quick search may tell you that “behavioral analytics” measure the behavior of consumers on ecommerce platforms, online games, web and mobile applications or Internet of Things (IoT) devices. In fact, “behavioral analytics,” from a pure data science point of view, help us to understand much more:
- what an individual person or device does, and
- what they don’t do, but might in the future.
The first comparison is of the customer or device in the context of their own history of events, where one can determine changes from historical behaviors. A second comparison is done by grouping customers or devices into similar clusters, and then analyzing how much the behaviors of individuals deviate from their associated groups.
Depending on the degree of variance, we can assess how likely the behavior is to be aberrant and thus potentially fraudulent or criminal — or, in the case of a network device, how likely that endpoint is to have been compromised by a cyber attacker.
Power at scale: Enhancing fraud, compliance and cyber security defenses
Behavioral analytics are a mature technology in fraud prevention. Behavioral analytics technology allows us to flag potentially fraudulent transactions with pinpoint accuracy, greatly reducing the volume of “false positives,” or transactions flagged as potentially fraudulent that are, in fact, legitimate. FICO has honed its fraud detection technology to identify the needles in the haystack.
In terms of compliance — particularly anti-money laundering (AML) and terrorism financing — the most prevalent transaction monitoring solutions used to identify illicit activity in these domains are extremely imprecise. The compliance solutions generate tens of thousands of alerts for every genuinely criminal transaction requiring a formal suspicious activity report (SAR). The volume is so great that that compliance officers can only investigate a small fraction of suspected SARs. As a result, illegal transactions slip through, continuing through the global payments system.
It’s the same situation with cybersecurity. In any security operations center, there’s a cacophony of alarms, 24-7. It’s impossible for operators to tell which alarms are calling out truly meaningful intrusions, and which are just noise. That’s why so many cyber attacks go undetected for weeks, months or even years.
Benefits beyond cost savings
As IDC noted, behavioral analytics technology can help financial institutions to avoid regulatory fines and sanctions. The benefits extend farther: in terms of fraud and compliance, behavioral analytics will allow more illicit transactions to be stopped as they occur, saving untold amounts of financial and reputational loss.
With regard to cybersecurity, the ability to pinpoint cyber attacks more quickly greatly reduces the “dwell time” of malware, ransomware and other malicious code that causes data breaches and other damage. Again, this can significantly reduce the costs of remediation that result from breaches, as well as major financial and reputational losses.
Want to know more? Check out my latest FICO Hot Topic Q&A, “Behavioral Analytics: Boosting Protection across Fraud, Compliance and Cybersecurity.” Follow me on Twitter, too, @ScottZoldi to keep up with my latest analytics rants, raves and musings.