A decentralized approach in combating Credit Fraud
Despite the efforts made by Financial Institutions, currently they are losing the battle against financial fraud. Credit card fraud continues to grow faster than credit card spending. Data breaches have resulted in more card details being compromised and the growth in online shopping has led to more opportunities for eCommerce fraud.
Credit Card Fraud
According to a 2016 report by Nilson, losses from credit card fraud amounted to $21.8 billion in 2015 That’s an increase of 162% from the 2010 figure which was $8 billion. The losses for 2016 are already estimated at over $24 billion, and these losses are expected to reach $31 billion by 2020.
The total value of credit and debit card transactions was $31 trillion in 2015. So, nearly 0.6 percent of the value of all transactions was lost to fraud. While the total value of credit card transactions is growing at close to 7 percent a year, credit card fraud is growing at over 16 percent every year.
According to the same report, gross fraud losses accounted for 6.9 cents per $100 spent. That was up from 5.7 cents per $100 in 2014. Credit card issuers bare 72% of these losses, while merchants and ATM operators share the other 28% of the losses from card fraud.
Data breaches are also growing at a rapid pace and compromising more cards every year. And, while eCommerce continues to take market share from in store purchases, the opportunities for fraud continue to grow.
Other Transaction Fraud
While credit card fraud accounts for the lion’s share of bank fraud, identity theft and eCommerce fraud are also on the rise.
Identity theft allows criminals to empty savings accounts and commit other forms of fraud. While merchants and card issuers usually bear the losses from credit card fraud, account holders often bear the losses incurred through identity fraud.
Experian reported that eCommerce fraud rose 33% in 2016. eCommerce fraud takes many forms, usually involving stolen credit card details or identity theft, while charge back schemes, or friendly fraud, are also on the rise.
Combating Fraud
To combat fraud at a global scale we need a decentralized system with high availability and providing live risk scores for transactions. Storing the anonymous transaction data securely on a decentralized data network and building a shared layer to access this network on a block chain will create an entirely new set of possibilities for AI capabilities and insights.
The benefits of decentralized/shared control, particularly as a foundation for AI results in more data, thus improved modelling capabilities and Qualitatively new data leading to entirely new models.
Such an open network will yield many interesting byproducts such as Credit scores providing financial inclusion for Credit invisibles. Transaction scores to predict transaction fraud, Shared Global Intelligence which would make the risk models portable especially online transaction patterns and eventually becoming a playground for data scientists, which will encourage them to mine the up to date data and even come up with revolutionary risk models to safeguard the global community from fraud.
Announcing soon, stay tuned..
