Skip to content

Scam Interdiction — “Banks Battle Scams With Tough Love”

The latest Frank on Fraud blog explores Scam Interdiction, a practice that is currently in use all over the world and may be coming to the US.

Simply put, Scam Interdiction is the use of AI and other tools to pause or decline suspicious transactions in real-time before any money is lost.

Screenshot-2024-02-21-at-7.51.50 AM-1

Frank on Fraud Graphic

In other words, banks are starting to decline or pause high-risk customer activity until they can confirm it’s not a scam or, in some cases, convince customers that it is.

Banks in Australia and the UK are adopting these approaches, which have led to reported fraud reductions of 30%. As regulators push banks to reimburse fraud losses, interdiction will surely become more common and important for banks to manage their financial risks from scams.

Some customers, however, may find declined transactions inconvenient.

Learning From History: FICO Falcon to the Rescue

Inconvenience aside, Frank on Fraud sees Scam Interdiction as an effective weapon based on past experiences three decades ago.

Scam interdiction will work. And that is because it relies on the old fraud fighters playbook from the 1990’s.

In 1991 card fraud rates were soaring, and there was no end in sight. At that precise time, FICO Falcon was introduced, and it changed the fraud paradigm forever.

Card issuers started to decline customer’s transactions using AI before the transaction was approved. The result? Card losses plummeted 70% as it gained widespread adoption.

"Sand in the Gears"

Frank on Fraud reports that in Australia, banks have agreed to start using a “sand in the gears” approach. This slows down instant payments in light of the huge growth of scams in recent years.

And that is significantly different than the approach that the UK government is taking. Australian banks don’t think the reimbursement model will work. They call that a “honeypot” for scammers since it will create less onus on the entire ecosystem – including customers to avoid scams.

This is sure to cause -- pardon the sand pun -- friction among certain customers. David Lacey of IDCare, a company that helps victims of identity theft and cybercrime, says it's a good trade-off.

"Hey, more friction is on the way, but we don't lose half a billion a year. I think it might be worth it."

Indeed, interdiction looks to be an inevitable trend that may face resistance from some but is necessary given the rising costs of fraud.


Can Interdiction Protect Customers from Check Fraud?

So, what can interdiction do to help with the challenges of check fraud? Well, it's already in utilization currently -- particularly in both behavioral analytics and image forensics.

Interdiction is most prevalent within behavioral analytics, as the system is analyzing behaviors and transactions of an account. What occurs is that a transaction is made via check, and the system will analyze the transaction to determine if it's outside the norm of the account.

This includes: the vendor, when and where the transaction was made, and the amount -- amongst other factors.

For a business account, there are typically standard transactions that occur with checks, including rent, utilities, and payment to vendors. However, if a check is written to an unrecognized vendor (payee), deposited in a different state or country, and/or the amount is significantly higher than previous transactions, this could be flagged and payment held or stopped completely.

The process is similar for personal accounts, where an account has the standard check payments, but a large dollar check is deposited that is outside the norm -- i.e. $5,000 for "lawn care."

For image forensics, interdiction occurs in many ways -- including, but not limited to:

  • If the payee is altered -- I.e. If the payee has an "& 'NAME'" added, which is common for fraudsters
  • If the amount of the check is higher than the threshold established -- I.e. the financial institution has created a rule that if the amount is over $2,000, the bank wants to hold the deposit until its verified
  • If the signature is inconsistent with previous cleared signatures -- I.e. either the signature appears to be traced, or it is a new signature that does not match previous signatures

Interdiction can indeed lead to friction between the account holder and the financial institution. However, if the financial institution makes it clear that this protects the customers and their funds, most consumers and businesses will be tolerant of occasional inconvenience in order to avoid losing money to fraud.

Leave a Comment