In recent years, fraud and financial crimes have become one of the greatest risks facing many companies and organizations which require countermeasures to strengthen risk management and fraud prevention.
On March 1 (Wed.), 2017, GoodWay visited the Roppongi Hills headquarters of SAS Institute Japan, located in Minato ward, to meet with fraud consultant Derek Wylde and discuss fraud countermeasure initiatives in the financial industry as well as the purpose of his current visit to Japan. (The discussion was accompanied by Alastair Sim, Vice President who is in charge of Global Marketing – Asia Pacific, and some other SAS experts.)
Derek Wylde Biography
After joining HSBC in 1976, Derek gained a broad range of experience in financial services and has served as the Chairman of the Credit Card Fraud Prevention Forum, Chairman of the Mastercard UK Security Committee, and UK Representative to the Mastercard Europe Fraud Advisory Council.
Derek currently works as a self-employed fraud countermeasure consultant and advisor engaged in discussions of how to prevent and detect fraudulent transactions, and he is also involved in initiatives to understand new technologies that can reduce fraud risk.
[GoodWay] Please tell us the purpose of your current visit to Japan.
[Derek] Previously, I was involved for a long time with policy and strategy in the field of fraud management for financial institutions and was active around the UK and Europe. However, I came to Japan this time to exchange opinions with financial institutions to advance the discussion and increase understanding as part of educational activities in this field together with SAS Institute and to engage in fraud countermeasures which use new technologies and analytics.
[GoodWay] As new payment methods and service user experiences such as ApplePay and Uber continue to appear, how should we confront the emergence of new types of fraud and threats?
[Derek] As you mentioned, the world is heading toward increased digitization, and both consumers and criminals are riding on this wave. Businesses are always evolving as they try to meet consumer expectations and requirements such as convenience and agility. It is becoming increasingly important to educate business managers to deepen their understanding of new services and products as well as to build an appropriate defensive system to handle the issue of the appearance of previously unforeseen risks and threats.
[GoodWay] In this situation, how should we think about the return on investment (budgeting) to build the appropriate defensive system?
[Derek] There are four key factors. (1) The avoidance of direct loss due to fraud, (2) the avoidance of loss due to damage to your reputation, (3) the maintenance of trust relationships with regulatory authorities, and (4) the maintenance of trust relationships with customers. You have to think about how much you should invest in each area by looking at it from each perspective.
[Alastair Sim (SAS attendee), hereafter mentioned as Al] The role of data scientists who can evaluate investments from the three perspectives which are the process by which fraud occurs, personnel skill, and technologies which utilize analytics is increasing. It is also important to develop human resources who understand both business and fraud countermeasures.
[Derek] With the realization of highly accurate analytics, it will become possible to capture and model information about businesses, stores, time, and locations where fraud frequently occurs as well as customer consumption trends and usage, forecast future consumption trends based on past patterns, and compare that with actual activity to detect fraud.
[GoodWay] In recent years, the field of cybersecurity has also become an important factor along with fraud countermeasures.
[Derek] Yes, that is true. In the field of cybersecurity, coordination with the IT department is essential. In the retail area of financial institutions, problems such as the leaking of credit card information frequently occur and have a close relationship to fraud countermeasures together with operations management based on the global security standard, PCIDSS (Payment Card Industry Data Security Standard) developed by Master and Visa.
[GoodWay] Against a background of FinTech innovation, APIs and data integration with financial institutions continue to grow and non-financial businesses and ventures are starting to offer financial services to consumers. Are there any points that we should pay attention to in this regard?
[Derek] Compared to traditional financial institutions, the new FinTech companies put a priority on creating new and revolutionary services, so there might be cases of ignorance where not enough attention has been paid to risks, threats, and fraud. Therefore, thorough educational activities are needed. At the same time, FinTech companies exist as an enabler of more business as an intermediate go-between with consumers. Regulatory authorities are paying attention and must closely monitor these companies.
[GoodWay] Tell us about the use of Big Data and AI in fraud countermeasures.
[Derek] The use of Big Data in the field of fraud countermeasures is not a recent development and has been going on for many years. It has already been shown that you can get incredibly amazing results from advanced analytics, so there are similar expectations for the use of AI. At the same time, concerns about data transactions that cross national borders are also increasing. When it comes to handling massive amounts of data, there are many points to keep in mind such as establishing governance, avoiding the deterioration of the customer experience, and not putting customers at a disadvantage when it comes to offering credit, etc.
[Al] As digital technologies and social media are used more and more, the Risk Management and Marketing Departments are working together, and it is important to know the customer more deeply through the completion of a single view of the customer. In some cases, criminals who commit fraud are also included within that view, and it is becoming important to analyze the associations with criminals by using AI and Deep Learning.
[GoodWay] As information sharing based on Open Data and Blockchain technology continues to grow, what are your thoughts on future SAS initiatives and the current state of changes that you see?
[Derek] Starting with Open Data, new services are being created one after another. In an era of extremely rapid change, fraud will always target the weak points, so the issues and risks are never ending. Also, while the advantages brought about by the Blockchain are huge, the fundamental issue of authenticating whether or not the actual individual is executing a transaction has not been completely resolved and must continue to be thoroughly strengthened.
[Al] As technologies and systems continue to change, human beings must also change. We need people who are knowledgeable about not only risks but also technology and possess a broad perspective which can foresee future problems. It is extremely important to train a new type of fraud countermeasure manager who can utilize analytics for business models that are always changing due to technology innovation, and we would like to provide solutions to support such efforts.
[GoodWay] Thank you for such an enlightening discussion today.
[Derek] Thank you for having me.
(News coverage, photography, writing, editing, and production: GoodWay Media Promotion Division @GoodWay Inc.)