EXCLUSIVE: “First Responders” – Otto Benz, Nationwide in ‘The Fintech Magazine’
The shocking rise in financial fraud is driving UK banks like Nationwide to adopt a new approach, as its Director of Payments Otto Benz explains
2021 was something of an annus horribilis for many unwitting consumers in the UK, with fraud victims conned out of an incredible £1.3billion. Digging a little deeper into the data, there were 195,996 separate instances of authorised push payment (APP) scams, which saw Brits tricked into handing over £583.2million last year. App frauds are usually simple but effective; criminals posing as trusted organisations or financial institutions, persuading victims to make a payment in the belief that their money was in safe hands.
These scams often use legitimate platforms to reach victims, borrowing the credibility of the platforms and services they abuse. The harm is, of course, primarily felt by the individual persuaded to part with their cash through fake calls, text messages, social media posts and seemingly legitimate websites. But banks are also impacted – not only if they reimburse the customer, but also by the detrimental affect it has on consumer confidence in their brands. Add to the mix a steep rise in the number of digital communications and transactions encouraged by the COVID-19 pandemic, and the environment exists for financial fraud to become something of a national crisis.
Institutions haven’t been sitting on their hands, though. What could be described as a ‘fourth emergency service’ was launched in the UK in September 2021, whereby customers who think they might be being scammed, can call 159 for assistance. The secure number connects to the individual’s bank and is a safe avenue for anyone who believes someone is trying to trick them into handing over money or personal details.‘Call 159’ was introduced by Stop Scams UK, an organisation created in 2020 to help firms ‘protect customers based on First responders proactive collaboration, and sharing insights and best-practice’.
To date, Barclays, BT, The Co-operative Bank, Gamma, Google, HSBC, KCOM, Lloyds Banking Group, Meta, Microsoft, NatWest, Santander, Starling Bank, TalkTalk, Three, TSB and Nationwide Building Society have signed up to the initiative, covering more than 80 per cent of primary current account holders and the majority of telecoms subscribers.
Trust is key to all banks but none more so than the one that ranks as the UK’s most trusted financial brand, which is regularly in the top two for customer satisfaction. Nationwide Building Society, with 16 million members, has something of a reputational imperative to address the industry’s authorised fraud crisis.
“explainsJust providing a standard message, asking somebody ‘are you sure you know this person?’, is probably not good enough to prevent some of the frauds we’re seeing”
Before joining the Stop Scams UK initiative, it had launched its own Scam Checker service, which encourages its members to check any payment they are worried about, either in branch or by calling a 24/7 freephone number. More than 300,000 of them used Scam Checker last year. Along with additional staff training, awareness programmes and investment in its data-handling infrastructure, Nationwide helped to prevent £97million of attempted card and online transaction fraud in 2021/22. But it has gone further.
Its 2022 annual report describes how the Society has also ‘enhanced our fraud detection system for payments, and improved our scam warnings, to simplify them and to highlight social media scams’.
It continued: “We are educating more broadly beyond our own membership, too, and ran national media campaigns on scams awareness. We are also playing our part to tackle this growing problem by taking an active role in cross-sector working groups, including campaigning for changes around greater data sharing between financial services providers to reduce payments fraud.”
Nationwide’s approach to fraud prevention clearly has data at its heart. Otto Benz, director of payments, says there is an accelerated move by banks to improve payments data, driven not just by changing consumer habits but also by the urgent need for increased security.
“We are definitely seeing a move away from cash and into electronic payment mechanisms, and particularly account-to-account mechanisms, through open banking,” he says. “A lot of the participants in the payments ecosystem – banks, building societies and others – are refreshing their payments platforms and infrastructures, both to support things like ISO 20022 [the global payments messaging standard] and also their own need to improve resilience.”
That plays into consumer expectation, particularly in the UK, for real-time payments to be processed quickly and with minimum fuss. But can speed compromise security? How do you ensure that these ‘fast and frictionless’ payments are not fraudulent?
Benz believes that AI can play a central role, particularly when it comes to fraud based on psychological manipulation.
“A lot of the problems now are social engineering issues, where customers are persuaded to make payments to people who seem reasonable at the time. It’s only when they’re interrupted in their thought process and made to think about whether this is something they really should be doing, that these fraudulent payments are stopped. And that’s where I think some of the new technologies can really help, because just providing a standard message, asking somebody ‘are you sure that these are the details of your payment? Do you know this person?’, is probably not good enough to prevent some of the frauds we’re seeing. AI can help with specific interventions, and also putting suitable friction into the payment process,” he says.
Benz believes the standardising of electronic data exchange between financial institutions, under the framework of ISO 20022, will also have an impact. Data provides knowledge, with knowledge comes transparency, and this transparency delivers enhanced security.
“Ultimately, payments is a collaborative ecosystem,” he says. “You need to collaborate on what the format is for a payment, and how it’s best enabled. Underneath it all is a demand for more data in the payment itself.
“The ability to track international payments, end to end, with new guaranteed references, through the unique end-to-end transaction reference (UETR) on SWIFT, is a real benefit. Just understanding who you’re sending your payment to should reduce the effort required to check it – through sanctions processing, for example – because the parties will be more easily identifiable.
“All of these things will improve straight-through processing rates and make it easier to detect any potential issues. Just providing the basic facilities to track for individuals and their financial institutions, will help. For banks, too, it will improve accuracy, speed up processing and reduce costs. “Institutions still need to innovate to make use of all the data that’s becoming available, though,” says Benz, “and it’s still unclear as to how companies will be able to provide that information to their customers. Despite the fact that this has been coming for several years, nobody’s come out with great use cases to leverage this enhanced data. This is still an opportunity for us in the industry, but it’s not ready yet.”
Anticipating these opportunities, Nationwide has invested heavily in improving its technology estate, much of it architected internally.
But it also has key partnerships with external providers. Only recently, it announced a deal with digital transformation company AND Digital, to improve the data experience of users. Digital will look to help deliver real-time information across touch points, for both Nationwide employees and members – in person, online or on the phone – through ‘optimising work processes and developing bespoke platforms that require minimal technical capabilities of the user’.
Benz believes that financial institutions will have to continue to evolve to cater for an ever-changing landscape. And whether it be countering fraud, delivering faster transactions or simply communicating better with customers, organisations like Nationwide have, in many cases, embraced the Cloud to improve their offering.
“We, like many others, have inherited technology infrastructure, which ages over time, and it’s very difficult to cater for the changing types of payments, the changes in the international landscape and also the volume of interactions,” says Benz.
The building society recently upgraded to IBM’s z16 mainframe, which is future-proofed for AI applications and cyber-resilient security. It also maximises Nationwide’s technology options, being suited to hybrid Cloud environments. Nationwide completed its first Cloud-based payments test through PayUK’s New Payments Architecture programme earlier this year.
“We’ll roll that out and build our new payments infrastructure on that Cloud platform,” says Benz, “to leverage the new payment standards from day one.”
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