Fraud Protection & Compliance
The Communications Fraud Control Association (CFCA) recently released the findings from its Global Telecom Fraud Survey. Whilst the headline figures show that fraud has increased by 37% since the last survey in 2017 (when measured as a % of overall revenue) it should be noted that the ‘global’ survey is heavily skewed toward Western Europe and North America, which made up 55.7% of respondents. Also, questions can be asked about the number of respondents and how representative this really is of the global industry.
That said, there are a number of factors that resonate from our interactions with customers and knowledge of the industry.
- Fraud teams operate with lean structures. They have relatively small teams, considering the diverse breadth of activities that they are expected to undertake, and the emerging fraud risks from new technologies and services their organisations offer. However, new job roles that are being created sit within digital areas such as IoT, online digital security and cyber security, suggesting that some preparation is happening for identifying and addressing new risks.
- The majority are still using primarily rules-based fraud management systems, with just 6% using AI and machine learning. The existing solutions are creating a large volume of false positives, suggesting that perhaps either they are not being effectively managed, or that the solutions themselves just aren’t evolving to meet industry needs.
- 52% are not using any third-party data to enrich the detail that their systems use to drive decisions. This may be due to an inability to easily plug new data sources into the legacy frau systems and use it operationally. It could relate to a failure to understand that bringing in additional data can add greater context and increase the accuracy of decisions.
- Subscription fraud continues to be a major issue for operators, whether 1st party no intent to pay, identity theft, synthetic identities or (to a degree) account takeover. Subscription fraud won’t always be identified by a fraud system, as many are designed to monitor CDRs and usage. In our experience, there can be a lack of clear ownership for identifying fraud at the point of sale vs. once it is on the customer base. Further impacts of subscription fraud are evident, as misclassification results in an increase in fraud being classed as bad debt and sitting within collections. According to the CFCA survey there has been an increase in the proportion of bad debt that is actually fraud, which agrees with our observations of the industry.
So, the lack of human resources and immaturity in AI / machine learning provides an opportunity to ‘do more with less’ and introduce a level of sophistication that can monitor more risks, take automated corrective action where appropriate, reduce false positives and leave analysts / investigators with the most relevant cases to review.
There is also opportunity for fraud management systems to ingest a wider set of data, by using APIs, and by using a system that is built for business agility, configurability and to minimise the burden on IT and legacy technology.
What I don’t see reported by the survey are any results pertaining to lines between fraud and compliance teams becoming ever blurrier. We see a move toward these teams becoming consolidated and having increased visibility, as mobile money services continue to grow, or as operators deploy financial instruments for customers to finance or lease devices. The ability to have an enterprise-wide solution that encompasses identity management, application fraud, usage fraud and compliance all within one common platform will become a necessity for the digital telco.
It may be easy to critique the validity of the CFCA survey, yet there isn’t a perfect view of exactly how big a global problem telecoms fraud presents. There is no doubt that it is a significant issue, not just in terms of the billions of dollars in financial losses for operators, but also for the victims of fraud and people globally that are impacted by the criminal organisations that perpetrate fraud.
Telecommunications providers can request a copy of CFCA survey by emailing firstname.lastname@example.org.