The Green Sheet Online Edition
March 3, 2025 • 25:03:01
Intelligent risk management - its time has come
"Data is the currency of the future," said Ed Vincent, CEO at SRA Watchtower, a SaaS provider that bills itself as a holistic risk and business intelligence platform. "All institutions need to turn their data into a value-added asset."
Vincent understands this firsthand, as he works with community financial institutions and credit unions to integrate their siloed technologies and solutions in ways that enable them to compete with large regional and national banks.
"Our view is that small businesses are the lifeblood of this country, and that it is the local credit unions and banks that bankroll these businesses," Vincent said. "So, in order for the heartbeat of this country to exist, there's a need to keep those community financial institutions happy, healthy, safe, sound and risk informed."
Recently, SRA Watchtower acquired Lumio Insight, a cloud-based data management and analytics provider—a move Vincent said will enhance SRA Watchtower's ability to provide a holistic risk and intelligence platform to community banks and credit unions so that they can make better risk decisions.
Providing a holistic view of risk is no easy task; FIs have always been run in and around siloes. To achieve an intelligent approach to risk management, an FI needs to break down those siloes and bring together information. Only then can they create the analytics and intelligence necessary to turn that data into a strategic asset.
In a rapidly digitizing world, intelligent risk management signifies the transition from reactive to proactive approaches to managing risk. Leveraging technologies such as artificial intelligence for risk management not only refines the accuracy of predictions, but also expedites the process, ensuring timely interventions.
The payments component
In payments, intelligent risk management is necessary to create a comprehensive plan that can identify, assess and mitigate potential risks associated with the decision making required for everything from boarding a merchant to processing payments. In this context, risks can stem from fraud, chargebacks, data breaches, operational failures and more; risks can be reputational, regulatory (think PCI and EMV), third-party and cybersecurity-related.
And as technology evolves, so do the associated risks, for example, new threats like synthetic identity fraud and deepfake scams.
Advanced technologies, notably AI and machine learning tools, pave the way for advanced risk intelligence, SRA Watchtower explains on its website. The ability these tools bring to swiftly respond to risk scenarios plays a crucial role in enhancing overall organizational resilience.
Leveraging advanced analytics, ML, and predictive modeling, FIs can gain deeper insights into risks, identity patterns and trends to make informed decisions. This comprehensive approach helps FIs to not only mitigate risks, but also seize potential opportunities, contributing to improved operational efficiencies and sustainable growth.
Adoption of suitable technology is not enough, however. Integration is equally important. The seamless integration into the existing infrastructure unlocks the full potential of an FI's technology suite.
Visa and Mastercard lead the way in payments IRM
Mastercard and Visa have taken the lead in intelligent risk management (IRM) as it relates to payments. But these are what Vincent describes as point solutions. In 2004, Mastercard acquired the global threat intelligence company Recorded Future to bolster insights and intelligence used to secure the digital economy.
"Trust is the foundation of any relationship," said Craig Vosburg, chief services officer at Mastercard. "Recorded Future adds to how we deliver that greater peace of mind before, during and after the payment transaction. Together we will innovate faster, create smarter models and anticipate emerging threats before cyber-attacks can take place – in payments and beyond."
Recorded Future provides real-time visibility into potential threats by analyzing a broad set of data sources to provide insights that prompt actions that mitigate risks. Coupling Recorded Future's AI, ML and other technologies with Mastercard's identity, fraud prevention, real-time decisioning and cybersecurity services, presents expansive threat intelligence capabilities to Mastercard's network of merchants and financial institutions.
"Recorded Future has been a pioneer in using AI-powered analytics to generate insights that are easily accessible to and understood by customers," Christopher Ahlberg, CEO at Recorded Future, said when the acquisition was disclosed last year.
Back in 2010, Visa acquired the payment gateway CyberSource, which brought with it fraud management tools that it continues to enhance. More recently, Visa acquired Featurespace, a developer of real-time AI payments protection technology that prevents and mitigates payments fraud and financial crime risks.
In 2023, Visa introduced Visa Provisioning Intelligence (VPI), an AI-based product designed to combat token fraud at its source. It uses ML to rate the likelihood of fraud for token provisioning requests.
VPI provides a real-time fraud propensity score between one (lowest probability of fraud) and 99 (highest probability).
These acquisitions are key as fraudsters add AI and ML tools to their own arsenals. "We developed our innovations to help crack even the most complex fraud cases," Dave Excell, founder of Featurespace, said in a statement. "As part of Visa, we will be able to set a new standard in AI-fraud powered fraud protection and integrate our solutions into a series of products and services."
Fraudsters are adjusting to new reality
"While tokenization is one of the most secure ways to transact, we're seeing fraudsters use social engineering and other scams to illegitimately provision tokens," Visa said in a statement. For example, advanced language models, such as ChatGPT can be exploited by fraudsters to create malware that assists in the development of malicious code that can be deployed to execute digital skimming or other attacks to steal payment account credentials.
Digital skimming is the online version of POS skimming. Instead of concealing surveillance devices on POS devices to capture card and other pertinent information, criminals sneak malicious code into ecommerce sites to steal the payment data of consumers who shop on those sites. The information then is sold on the black market.
Meanwhile, rarely a week goes by without reports of a data breach. Most recently, it was disclosed that the personal details of more than 3.3 million people were exposed when DISA Global Solutions, which provides background checks and drug testing services to some of the largest companies in the United States, was breached in early 2024.
Mastercard reported that in 2023 there were 416,582 cases of identity theft in the United States facilitated by skimmed card data, alone.
FBI, others sound alarm bells
So dire is the threat situation, that the FBI issued a public service announcement (PSA) in December 2004 warning the public that criminals are exploiting generative AI to commit fraud on a larger scale than ever before. "Generative AI takes what it has learned from examples input by a user and synthesizes something entirely new based on that information," the FBI wrote in the PSA.
And it's not just the FBI sounding alarm bells. The online newsletter FrankonFraud dubbed 2024 "Fraud at full throttle," as fraudsters upped their games. They did so using social media outlets, like Meta and Telegram, which allow fraudsters to quickly spread tricks of the trade. AI conversations by fraudsters increased 644 percent between 2023 and 2024, according to FrankonFraud.
According to the Global Anti-Scam Alliance, scammers siphoned $1.3 trillion globally from consumers last year, a figure that rivals the gross domestic product of some countries. But the reality is that the true cost of fraud is hidden. Despite the significant financial and emotional toll, only 28 percent of scam attempts are reported to authorities, and just 4 percent of victims recover their lost funds.
Modern, proactive, AI-driven approach needed
In its report titled Top banking fraud types to watch in 2025, the Swiss company NetGuardians emphasized the need for FIs to adopt advanced fraud prevention measures, including AI and ML tools, to detect and prevent fraud in real time. Traditional fraud tools just don't cut it anymore. Cybercriminals are using automation, deep fakes and social engineering to outsmart outdated security measures, the report noted.
"Fraud is no longer just about stolen money, it's about trust," said Joel Winteregg, co-founder and CEO of NetGuardians. "The sophistication and scale of modern fraud schemes demand a proactive and secure AI-driven approach."
That's one reason why Visa acquired Featurespace in September 2024. "We developed our innovations to help crack even the most complex fraud cases," Dave Exell, founder of Featurespace, said at the time of the acquisition.
"Both our companies have been at the forefront of using AI to solve longstanding challenges and pain points in the payments industry," said Antony Cahill, president of value-added services at Visa. "Together we will offer a valuable combination of cutting-edge technology and industry expertise to help our clients continue to grow amidst an increasingly complex threat landscape."
But as Vincent explained, managing payments risk is only one component of intelligent risk management.
A modern risk management approach can significantly transform financial services, which in the case of SRA Watchtower, involves community banks and credit unions. Benefits include improved risk mitigation, enhanced regulatory compliance and better strategic decision-making. Leveraging risk intelligence also helps organizations streamline operations, which can lead to more sustainable growth.
The key to everything, however, is a willingness to embrace change. "You have got to get the right mindset first," Vincent said.
Patti Murphy, self-described payments maven of the fourth estate, is senior editor at the Green Sheet. She also co-hosts the Merchant Sales Podcast, and is president of ProScribes Ink.
Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.
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