As financial fraud continues to become more intricate and more commonplace, and risk remains a deterrent for innovation, the inadequacies of “black box” solutions of third-party fraud vendors are coming to light. To effectively detect and mitigate fraud – and protect the FIs, their customers and their shareholders — banks need full transparency into the strategies, tactics and performance of their third-party fraud solutions.

Transparency between parties is the key to successful fraud mitigation, and during a  recent PaymentsJournal podcast, Matt Raile, SVP of Fraud & Bill Pay Operations at BillGO, and James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research, delved into the importance of choosing the right third-party vendors to mitigate fraud, the red flags FIs should look out for, and why transparency is the linchpin in the battle against financial fraud.

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Identifying Red Flags with Third-Party Vendors

When vendors approach financial institutions, it’s common practice for them to proverbially beat their chest and announce just how many transactions they have processed, along with other success stories. Although this information may sound impressive, it does little to demonstrate what they can do for a particular organization.

“There [needs to be a] hard conversation with these vendors,” Raile said. “That’s great what they’re advertising for other portfolios, but what are they going to do for your portfolio? How transparent are they going to be with you on the performance of your specific portfolio? And how they are managing your portfolio?”

According to Wester, the right technology partners will offer a more customized solution, not just something out of a box. It’s a partnership, and an important one.

“A key point that really resonates in terms of the research that we’re doing when it comes to vendor management is that idea of the cookie-cutter model versus what a vendor is actually providing—either more personalized or actually being a partner and knowing what a financial institution is really looking for,” Wester said. “That takes time. It takes effort.”

Transparency Overrides Everything Else

A true partnership between a financial institution and a third-party vendor involves sharing goals and pooling resources and information to meet those goals. Above all else, there needs to be trust.