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#FinTech Enablers in Covid-19 – Combating Payment Frauds with 5 Disruptive Technologies

With a sudden surge in the digital payments in midst of the corona virus fear, the risk of cyber fraud has also amplified. Online payments and other digital methods like UPI, wallets, USSD, etc. are prone to a number of cyber-attacks and are attractive targets for cyber criminals, especially during the ongoing pandemic.

According to a recent study, almost 50% Indian consumers are more concerned about digital payments fraud now than when COVID-19 first emerged!

Further, 31% of Indian consumers have been recent victims of card or digital payments fraud or know someone among their immediate family or friends who has been impacted through such cyber frauds.

Additionally, key digital payment fraudulent concerns of Indian consumers includefake apps and websites-biggest concern (52%), compromised password/credential information (43%) and spyware/malware (39%).

Despite being at high risk for advanced persistent threats, many digital payment solution providers lack integrated technologies to prevent, detect and respond to these threats.

Considering the rising consumer concerns over digital frauds, it is even more crucial now for digital payment solution providers to address these with upbeat cyber security solutions, especially in the current times when India is also embarking upon a new era of digital payments – 2.0.

Strategic deployment of some of the key technologies like Machine learning, sound wave technology, QR code technology, etc. can be phenomenal in combating spyware, malware threats and some of the other cyber frauds in digital payments in a big way.

Let us look deeper:

5 Disruptive Payment Innovations to Combat Fraud:

  1. Machine Learning & AI – Monitoring transactions in real-time is the key to fight digital payments fraud. Machine learning can be effectively used to find the fraudulent patterns in the historical transactional data and apply those learning to current transactions as they are attempted.

Based on this, preventive actions can be taken in real-time, including informing the concerned parties, or in extreme scenario, blocking the transaction completely.

A few Fintech Startups are offering innovative payment fraud detection solutions using AI & ML.

Mumbai based, Quotientica, offers a real-time platform to mitigate digital payment risks using artificial intelligence and machine learning. It deals with financial transactions fraud scoring using multiple channels and multiple data use cases. It also provides prediction insights and fraud patterns graphically.

Bengaluru based, Razorpay provides an AI-enabled fraud prevention solution to protect digital payment transactions. The fintech acquired Gurgaon based ThirdWatch in Aug 2019, whose proprietary machine learning engine ‘Mitra’ leverages behavior analysis, location profile and other multiple signals to prevent fraudulent payment activity.

FRS labs, FrauShield are more such Fintechs in India using ML and AI for combating digital payment frauds

  1. Network Tokenization – Network Tokenization is a technology measure that safeguards a card number by replacing it with an exclusive series of numbers, called a token. The sensitive card number of a customer is substituted by a unique token for every merchant transaction, that has no value outside the specific merchant channel, thereby securing the entire transaction.

Fintechs like TokenSoft, and many others are rapidly enabling banks and payment solution providers with tokenization based digital payments, helping to combat frauds in a big way.

  1. Biometric Authentication – Biometric authentication technology is an effective way to quickly identify fraudsters and eliminate digital payment frauds.

By applying biometric authentication like voice, finger, eyes biometrics to digital payment channels, payment providers can easily distinguish fraudsters from legitimate customers by mapping the pre-saved physiological characteristics unique to each customer. Thus, combating payment frauds to great extent, which becomes especially crucial in the current pandemic hit era.

According to a recent Juniper Research Study on biometric authentication, mobile biometrics (including voice, facial, finger biometrics) will authenticate close to $2 trillion digital payments by 2023, up from $124 billion in 2018!

  1. Sound Wave Technology – Sound wave technology is another new disruptive tech innovation in the payment fraud prevention space. This technology leverages the medium of sound to carry out transactions!

In the case of Soundwave-based payments, a merchant’s device can transmit secured and encrypted data through a unique sound wave, which the customer’s phone can obtain and validate in a real-time basis, thus fulfilling the transaction process in an extremely secured manner.

Relatively inexpensive to deploy and highly secure, soundwave technology holds the potential to create major transformational disruptions in the digital payment fraud prevention space.

Bengaluru based, FinTech firm ToneTag is one such novel fintech firm that uses encrypted sound waves to make offline, proximity-based contactless payments on any device, thus enabling fraud prevention in a big way

However, the deployment is still in very initial stage and has not yet taken off in India.

  1. Blockchain – Blockchain can immensely help in digital payment fraud detection by augmenting real-time transaction data sharing and agreement of all parties, thus eliminating fraudulent activities.

32% of anti-fraud professionals had planned to adopt Blockchain and distributed ledger technologies to combat digital payment frauds in 2019 itself. This number is all set to magnify with the additional cyber threats coming in the Covid era.

Some Fintechs are already looking to enable various banks and payment solution providers with their blockchain based fraud prevention solutions.

To list, Credito is a newbie fintech that provides blockchain-based anti-fraud solutions for digital payments. Transactions are scored and validated against the known fraud patterns. Utilizes blockchain, AI and machine learning to continuously evolve the Risk models along with the fraud patterns. Solutions offered by the fintech can be used for combating frauds in card transactions, and other forms of digital payments.

The Way Forward:

Cyber security and digital payment fraud cases are a critical concern when it comes to digitization of payments, especially in the Covid era which is bound to see a huge surge in such payments due to the virus fear.

Banks and other Digi-payment providers in the ecosystem will have to take the right steps to combat such frauds at the earliest.

Investments in next-level authentication methods, machine learning,  behavioral biometrics, real-time monitoring of frauds, and blockchaineither through in-house tech setups or through strategic partnerships with next-gen fintechs in payments fraud preventions  – are some of the key ways  –  that can be leveraged to diminish frauds and instill consumer confidence in digital payments.

References:

https://economictimes.indiatimes.com/tech/internet/nearly-half-of-consumers-worried-about-frauds-in-digital-transactions-study/articleshow/75715926.cms?from=mdr

https://www.newsgram.com/indians-anxious-digital-payment-fraud-pandemic

https://www.paymentssource.com/list/5-ways-biometrics-are-going-mainstream-for-payments

https://economictimes.indiatimes.com/small-biz/sme-sector/soundwave-technology-the-new-frontier-in-digital-payment-space/articleshow/68532986.cms?from=mdr

https://www.financialexpress.com/industry/technology/can-blockchain-adoption-be-a-silver-bullet-in-fraud-detection/1626666/

https://www.pymnts.com/news/payment-methods/2018/tonetag-sound-waves-cashless-contactless-commerce/

NASSCOM Insights

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