Hyper-Personalization for Payments and Fraud Protection

As I was enjoying an afternoon iced tea recently, I came across this fascinating article in the New York Times, about the potential risks of storing money in real-time payments (RTP) apps like Venmo and PayPal, instead of traditional financial institutions. The Consumer Financial Protection Bureau officially warned consumers not to keep money in these kinds of accounts because it is not insured against loss by the government – which is a bit misleading, based on the specific accounts and products a consumer has.

These nuances got me thinking about how I, as a customer, put a lot of faith into the belief that my money is safe regardless of where I decide to keep it. It also got me thinking more broadly about personalizing my financial experiences, especially things like notifications and engagement as I embrace digital banking and real-time payments.

Notifications are kind of a big deal for me, especially with the skyrocketing global growth of scams (also known as authorized push payment (APP)/authorized user fraud.) I want the kinds of personalized notifications that I call “sensible friction,” which give me a chance to change my mind before I act – the exact opposite of what a fraudster wants.

Please Notify Me Personally and on My Terms

I don’t want that friction dictated to me. Instead, I want to be able to personalize how, when, and which notifications I get.

For example, my bank might email a reminder that fraudsters love to use real-time payments, so be sure to double check the recipient details before sending RTP. But I might want to receive a text notification any time a legitimate payment is sent from any of my accounts, whether those are credit cards, RTP from my checking, or from another P2P app.

But customer communication preferences are diverse and varied, as we found out in our recent scam survey. When asked how they would like to be notified that a payment could be part of a scam, 29% of global respondents said they would prefer a phone call, 28% would prefer a bank app notification, and 25% would prefer email. 

The more visibility a bank can provide about the money moving in and out of accounts, the better customers will be at protecting themselves against fraud and taking quick action if it does happen. I have an expectation that my bank, and any other financial tools that I use, can deliver that kind of personalized customer experience for me – and fortunately, there’s excellent technology available to support this kind of fraud detection.

As a consumer, I know that I need to take responsibility for my payments behavior, and the safety and security of my money, in ways past generations have not had to think about. I have to follow through on my desire not to be scammed by using the personalization tools, like notifications, that banks typically provide and staying aware of what I am doing in regards to payments. The right chain of notifications will let any customer monitor transactions in near-real time and can help protect how we send and spend money.

Regulators Are Paying Attention

Regulators around the world are looking closely at how much banks should be liable for different types of payments fraud – whether customers authorized the fraudulent payment or not. This raises the stakes for banks who seem likely to be on the hook for some degree of reimbursement and will want to do more to prevent these frauds from happening in the first place. Here’s a quick status check on how some of the reimbursement regulations have begun to unfold:

UK: The UK’s Payment Systems Regulator (PSR) caught everyone’s attention in June 2023 when it announced that sending and receiving firms will split customer reimbursement 50/50 when authorized push payment (APP) fraud happens, within five business days. This is a big step up from the current contingent reimbursement model, which doesn’t specifically address APP fraud, but rather online fraud in general, and is a voluntary process.

Australia: Financial Services Minister Stephen Jones echoed the UK’s move in a radio interview. He  acknowledged the need for action on RTP fraud after Aussies lost more than $3 billion to real-time payment scams in 2022. He said the Australian government plans to “ensure the banks are accountable for much more” and expects to rule like the UK on reimbursements.

US: Senator Elizabeth Warren put US banks’ real-time payment systems in the regulatory spotlight late in 2022. Hard questions were addressed about whether banks should be liable to reimburse customers for authorized payment scams and to what degree. US banks have responded with more education, awareness, and customer controls, especially for Zelle transactions. Whether there will be additional regulatory oversight remains to be seen, but I know I’m not the only one who is very curious about next steps in the US.

Whether it is inevitable that banks across the globe will bear some or all the reimbursement costs when fraud happens, banks can use hyper-personalized approaches to help address emerging regulatory concerns, while working to detect and prevent scam payments from happening in the first place.

Customers Don’t Want to Get Scammed

Banks can’t control how regulators will rule on reimbursement, but common sense says that customers don’t want to be scammed even if they will be reimbursed. The data backs this up: FICO’s global survey on real-time payment scams found that 65% of customers worldwide say they would prefer more warnings mixed right into the real-time payment processes.

By hyper-personalizing fraud and transaction interactions based on customer data, banks can give customers a better ability to secure their accounts and payments against scams, hacks, and any other schemes that impact their financial wellbeing.

At the same time, banks can respond to customer demand for better education and fraud prevention while showing regulators they are not waiting for the rules to evolve to decide it’s time to push back against fraudsters and payment scams.

How FICO Empowers Hyper-Personalization for Fraud Prevention

• Learn more about FICO’s comprehensive fraud protection technology
• Read how seamless, real-time customer communications can deliver 1:1 experiences to help stop fraud
• Explore FICO’s award winning, machine learning retail banking model with scam detection score
• Download the FICO 2023 Scams Impact Survey

For more of my latest thoughts on fraud, financial crime and FICO’s entire family of software solutions, follow me on Twitter @FraudBird.