The main challenge that an online forex broker faces is how to detect fraudulent customer behaviour in real-time without damaging its approval ratio for genuine customers, and providing the right balance between ease of use for the customer and security for the merchant.
Detecting fraud is much to do with analysing customer behaviour, developing patterns and trends. The main problem is that of the first time customer, with this player there are no behavioural patterns and trends to base analysis on. Fraudsters know this and so will often only use a site once with each stolen card and then quickly move on, so traditional fraud detection patterns are inadequate here. To help a broker combat first-time fraud it’s essential to get as much information as possible as soon as possible on a new user. Information such as email, phone, IP address, country etc. will start to build a picture of whether a player is low or high risk.
An interesting fraud pattern was recently detected in China. Users were utilizing multiple credit cards that were issued in other countries other than China, specifically the US, and depositing high amounts. Once this fraudulent pattern was identified measures were put in place to address this new fraud pattern. Very specific rules and alerts were set for brokers to ensure that when this fraudulent activity occurred, all transactions were routed to 3D secure and accepted only once full authentication was received. Once these new rules and alerts were implemented, fraudulent activity dropped to zero.
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Tell-tale signs of what to look out for in potentially fraudulent transactions; traders from high risk countries (although the fraudsters often try to cover up their location), traders using similar BIN card numbers which may show a batch of stolen cards, traders registering for the site at a similar time, traders who may have patterns in their user names such as similar free email addresses and traders depositing large sums of money soon into the site.
Detecting fraudulent behaviour is a skill based not just on rules and trends, but is an art where human interaction from a fraud risk specialist plays a big part. An experienced online fraud analyst will often be able to smell something untoward and then be able to closely monitor behavior.
Brokers need to stay one step ahead of the fraudsters. The bad guys are becoming increasingly more sophisticated, and with developments such as mobile, which open up huge opportunities for brokers, also come higher risks. For example with mobile there are more complex challenges such as there not being a fixed IP address for a mobile device and with advanced payment mechanisms such as e-Wallets these are often untraceable. So, a good payment provider will assist its customers not just against routine fraud but increasingly in areas of combatting money laundering, and areas such as Know Your Customer (KYC). By increased knowledge of customers, good systems and good risk teams a broker is best placed to be able to combat the ever present risk of fraudulent customer behaviour. It’s about balancing and achieving the most reward with the least risk.