Fraud Protection & Compliance
The payments market in Brazil is undergoing radical change as the country moves from a traditionally cash-based society to new flexible payment products and services. This shift has created significant opportunities for local banks, however with this growth comes the inevitable threat of increased fraud, exacerbated by the Covid pandemic and the explosion in ecommerce and card-not-present fraud. To counter this threat, Elo needed a best-in-class transaction fraud solution for their expanding network of issuing banks, both large and small.
With a sizeable unbanked population of over 36 million, and a system dominated by no-contract, cash-in-hand jobs that results in the use of cash in 47% of transactions, market conditions have meant that the local payments market has traditionally been dominated by foreign brands. Local Brazilian banks however recognised there was an opportunity to create a competitive and agile payments brand to service the local market, and in 2011 Banco do Brasil, Bradesco, and Caixa Econômica Federal created Elo, a new Brazilian financial and payment technology network, offering services and products such as credit cards, debit cards, prepaid cards, 3DS authentication, tokenization, and NFC-enabled payments to domestic customers.
The domestic network created new convenient, and flexible payment services and solutions for Brazilians, and the company has now evolved to offer cards, not only by its three founding shareholder banks, but by more than 30 other issuers.
Expansion Brings Fraud Challenges
Elo began to extend its offering with custom card solutions for local customers, as well as expansion into other regions and a strategic collaboration with Discover Global Network. This growth and expansion created a new challenge for Elo: controlling fraud, particularly card-not-present fraud with an explosion in growth of online payments driven in part by the Covid pandemic.
“We were growing rapidly and it was important to our management that we invest in a fraud system that could scale with international transactions and e-commerce,” said Lori Grandin, Fraud Prevention Head at Elo. “Most Latin American card networks rely on chip and PIN fraud detection technology. While this method is effective at detecting fraud in person, it provides only limited protection during card-not-present transactions.”
Elo began to search for a fraud solution and a partner that could offer protection across a diverse range of payments products, could scale with their business growth, and provide international support, critically to protect against CNP fraud driven by the growth of e-commerce, and also importantly provide best-in-class scoring and analytics for both large and small issuers.
After an extensive and careful search, Elo chose FICO as preferred partner, implementing FICO Falcon Fraud Manager on the cloud, which offered a simpler and more agile implementation process. In addition, by operating in the cloud, FICO is responsible for updates, ensuring that Elo is always able to provide their clients the most recent technology and analytic enhancements. Another decisive factor in the decision was the FICO Intelligence Network, a powerful data consortium of more than 9,000 global banks that helps to drive fraud-specific machine learning innovation.
“FICO is very well established in Brazil and we knew about FICO Falcon from some large players in the market,” said Grandin. “There were many factors that contributed to our decision to partner with FICO, but the Intelligence Network was a unique differentiator that continues to give us great confidence in fighting fraud in Brazil.”
Gains from Using Falcon
The rollout has helped Elo capture around 15% market share, and brought first-rate fraud protection to all issuing clients, particularly small issuers that would otherwise struggle to afford the most recent fraud protection technology. Following implementation of the FICO solution, Elo has seen a significant reduction in fraud basis points year-on-year, with most noticeable improvements in the key area of CNP fraud.
“In partnership with FICO, we now have the technology to scale across many issuers without feeling held back by the risk of fraud,” said Grandin. “We are bringing new people into the banking system, people who have never before had access to financial tools.”
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