LONDON - Mastercard is selling a new artificial intelligence (AI)-powered tool that helps banks more effectively spot if their customers are trying to send money to fraudsters.
Nine of Britain’s biggest banks, including Lloyds Banking Group, NatWest Group and Bank of Scotland, have signed up to use the Consumer Fraud Risk system, Mastercard told Bloomberg News.
Trained on years of transaction data, the tool helps to predict whether someone is trying to transfer funds to an account affiliated with “authorised push payment (APP) scams”.
This type of fraud involves tricking a victim into moving money into an account falsely posing as a legitimate payee, such as a family member, friend or a business.
The tool comes as British banks prepare for new rules from the Payment Systems Regulator that will require them to compensate customers affected by APP scams from 2024.
Historically, banks have not been liable for this type of fraud, although some signed a voluntary agreement to pay back victims.
Mr Ajay Bhalla, president of cyber and intelligence at Mastercard, described APP scams as a “huge problem” that banks have historically struggled to detect because victims’ accounts are not compromised.
Clients voluntarily make the transfer and so pass many of the security checks used to identify other types of fraud, such as unauthorised payments, he said.
In Britian, victims of APP scams lost £484.2 million (S$831.9 million) in 2022, according to research by banking industry association UK Finance.
Losses to APP fraud across the United States and Britain are expected to hit US$5.25 billion (S$7.1 billion) by 2026, according to a report by ACI Worldwide and GlobalData.
TSB Banking Group, the first bank to implement the system four months ago, has seen a 20 per cent increase in detection of this type of fraud, said the bank’s head of fraud Paul Davis.
TSB estimates it could save Britain’s banks about £100 million per year if the tool was rolled out across the industry.
“It’s a good example of the power of sharing data,” Mr Davis said in an interview. “It’s the first time we’ve been able to see both sides of the payment – sending and receiving.”
Consumer Fraud Risk works by assigning a risk score from 0 to 999 on any attempted bank transfer within half a second – similar to a system it already uses to identify fraudulent credit card payments.
The bank can combine this risk score with its own analytics to create an assessment of the transaction and, if necessary, block it before the money leaves the victim’s account.
TSB’s Mr Davis said the system has been particularly good at detecting purchase scams, where fraudsters posing as merchants trick people into paying for goods or services that are never received, which represent about half of all APP fraud.
It has also helped reduce false positives – genuine transactions flagged as potential fraud.
Mastercard, which charges banks a fee for the product based on transaction volume, plans to roll out the tool globally.
It is in discussions with potential clients in markets with mature, real-time payments systems and significant APP fraud, including the US, India and Australia. BLOOMBERG
