In the event of a possible recession, it’s important for acquirers to make their businesses as efficient as possible. Increasing sales is one important part of that, but so is reducing transaction fraud. Yet, being overzealous with transaction fraud detection has its risks. If false declines on transactions are too high, customers become frustrated and stop shopping with certain merchants. This can lead some merchants to switch acquirers, which in turn ends up costing acquirers billions of dollars.

In a recent podcast, PaymentsJournal sat with Amyn Dhala, Chief Product Officer at Brighterion, a Mastercard Company, and Brian Riley, Co-Head of Payments Research at Mercator Advisory Group, to discuss why optimizing transaction fraud detection is important in the face of increased volatility.

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Overview of the Transaction Fraud Space

Banks and acquiring banks are making use of machine learning (ML) models. They are leveraging internal data to predict which transactions are most likely to be fraudulent and stopping them pre-authorization.

“The key objective for acquirers is the same as it has always been — increasing revenue for merchants, increasing approval rates, and reducing fraud,” said Dhala.

What’s different now, according to Dhala, are the new tools and developments during the pandemic. They have changed the way fraud may be tackled in an economic downturn.

Brighterion uses artificial intelligence (AI) models to leverage Mastercard network data. And these models are trained on billions of transactions, and the latest payment trends.

During the last few years, customers have changed. “Over the last couple of years, we’ve seen an increased use of [digital] wallet payments. For example, making payments using messaging apps. There’s also the use of newer credit products such as buy now, pay later (BNPL),” said Dhala.

Optimizing Transaction Fraud Detection

Combatting fraud is part art and part science, according to Riley. “You could stop fraud by not approving any transactions,” he said. “Or you could increase sales by approving every transaction. It’s finding the balance between the two that’s important. If you think about the number of false positives that you can control, it’s crucial to set the dial for false negatives right. Learning from the customer’s experience with the fraud system,