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What is Fraud and Risk Management?

Fraud Risk Management (FRM) is a systematic approach to reduce frauds, especially transaction related. It encompasses identifying, managing, and mitigating breaches in addition to preventing frauds and risks. Businesses that include financial institutions, ecommerce companies, healthcare providers, government agencies, and insurance companies, use FRM systems to combat risks associated with digital transactions.

Types of Cyber Fraud

Account Takeover (ATO) Frauds: Account takeover fraud occurs when hackers gain unauthorized access to a victim’s online account and take control, often without their knowledge or consent.

Phishing: Phishing is an attacking method used in ATO where the hacker sends an email to a user posing as a genuine entity. The user gets tricked by believing the email to be legitimate and discloses their private information.

Brute-force Attack: Hackers try a combination of username/password on multiple accounts till they crack into a user’s account.

SIM Swap and Device-related Fraud: SIM swap is a technique used by fraudsters to get control of a user’s phone number. By controlling the phone number, hackers can take advantage of two-factor authentication to access the user’s devices, their bank accounts, social media accounts, and more.

How to Design an FRM System for Subspace

Subspace is a new payment system that uses cryptography to secure transactions. It is still under development, but it has the potential to be a very secure way to pay for goods and services.

One way to design an FRM system for Subspace is to use a layered approach. The first layer would be to implement basic security measures, such as strong passwords and two-factor authentication. The second layer would be to use more sophisticated security measures, such as machine learning to detect fraudulent transactions.

Another important part of designing an FRM system is to have a plan for responding to fraud incidents. This plan should include steps for identifying and containing the incident, recovering from the incident, and preventing similar incidents from happening in the future.

Authentication Protocols to the Rescue

Subspace is a new payment system that uses cryptography to secure transactions. It is still under development, but it has the potential to be a very secure way to pay for goods and services.

One way to protect Subspace from fraud is to use authentication protocols such as 3-D Secure Authentication (3DS) and Two-Factor Authentication (2FA). These protocols add an extra layer of security to transactions by requiring users to provide additional information to verify their identity.

3DS is a protocol that requires users to authenticate themselves with their bank before completing a transaction. This is typically done by entering a one-time password (OTP) that is sent to the user's phone.

2FA is a protocol that requires users to provide two factors of authentication to verify their identity. This is typically done by entering a password and an OTP.

How to Design a Robust FRM System for Subspace

When designing an FRM system for Subspace, it is important to consider the following:

Use a risk-based approach. Not all risks are created equal. Some risks are more likely to occur than others, and some risks will have a greater impact on your organization if they do occur. When designing your FRM system, focus on the risks that pose the greatest threat to your organization.
Use a layered approach. No single security measure is perfect. By using a layered approach, you can make it more difficult for fraudsters to succeed.
Continuously monitor and improve your system. The threat landscape is constantly changing, so it is important to continuously monitor and improve your FRM system.

Subspace is a new and untested technology. This means that there is a greater risk of unknown vulnerabilities.
Subspace is a decentralized system. This means that there is no single entity that can control the system. This makes it more difficult to track and prevent fraud.

To mitigate these risks, it is important to have a strong focus on fraud detection and prevention. This can be done by using machine learning to detect fraudulent transactions and by implementing strong security measures at the user level.

It is also important to have a plan for responding to fraud incidents. This plan should include steps for identifying and containing the incident, recovering from the incident, and preventing similar incidents from happening in the future.

Accessing Requisite Data

In order to design a robust FRM system for Subspace, it is important to have access to the requisite data. This data includes:

Transaction data: All financial data related to digital transactions, including credit card transactions, bank transfers, wire transfers, etc. This data must include the transaction amount, date, time, location, and other details.
User data: User information such as name, address, phone number, email address, employment, income, credit history, etc.
Device data: Device type, operating system, browser type, and other technical details.
Geolocation data: Location of the transaction – IP address, GPS coordinates, and other data that can be used to determine the user’s location.
Behavioral data: Browsing history, search history, and other online activities that may be relevant to the transaction.
External data: Information from external sources, such as credit bureaus, public records, and other third-party sources that can provide additional insights into the user’s risk profile.

Customer Profiling

Customer profiling is the process of collecting and analyzing information about customers to understand their behavior, preferences, and potential risks. Comprehensive customer profiling enables businesses to design the most appropriate models and rules to mitigate fraudulent transactions.

Introducing the Right Balance between Frictionless Flows and Challenges

When designing a fraud and risk management (FRM) system for Subspace, it is important to strike a balance between frictionless user experience and introducing challenges. This means that the system should be easy to use for legitimate users, but also difficult for fraudsters to bypass.

One way to achieve this balance is to use a risk-based approach. This means that the system should assess the risk of each transaction and apply the appropriate level of challenge accordingly. For example, a low-risk transaction may only require a password, while a high-risk transaction may require additional authentication factors, such as a one-time password (OTP) or two-factor authentication (2FA).

Another way to achieve a balance between frictionless flows and challenges is to use a configurable challenge experience. This means that the system can be configured to present different challenges to users based on their risk profile and the context of the transaction. For example, a user may be presented with a different challenge if they are logging in from a new device or if they are attempting to make a large transaction.

Interfacing FRM with External Systems

To enhance the security capabilities of the FRM system, it can be interfaced with external systems such as whitelists, hotlists, spam lists, and disposable lists. These systems can provide additional information about users and transactions that can be used to identify fraud.

For example, a whitelist is a list of known legitimate users or devices. If a user attempts to log in from a device that is not on the whitelist, the FRM system can flag the transaction as suspicious. Similarly, a blacklist is a list of known fraudulent users or devices. If a user attempts to log in from a device that is on the blacklist, the FRM system can block the transaction.

Embracing Advanced Risk Checks

In addition to traditional rule-based risk checks, the FRM system can also embrace advanced risk checks such as behavioral biometrics. Behavioral biometrics is the analysis of a user's digital behavior, such as mouse movements, typing cadence, and swipe patterns, to identify them.

Behavioral biometrics can be used to detect fraud in a number of ways. For example, if a user's mouse movements or typing cadence are different from their usual patterns, this could be a sign that their account has been compromised. Similarly, if a user is attempting to log in from a new device and their behavioral biometrics do not match the expected patterns, this could also be a sign of fraud.

Adopting Rules and Models

When building an FRM system, it is important to adopt a combination of rules and models. Rules are good for identifying known fraud patterns, while models can be used to identify emerging fraud patterns and anomalies.

For example, a rule could be used to identify transactions that exceed a certain amount or that are made from a high-risk location. A model could be used to identify transactions that have unusual patterns of spending or that involve multiple accounts.

Testing and Improvement

Once the FRM system is deployed, it is important to test it periodically to ensure that it is effective at detecting and preventing fraud. This can be done by simulating fraudulent transactions and seeing how the system responds.

The results of the tests can be used to improve the system by fine-tuning the rules and models. This process should be continuous, as fraudsters are constantly developing new techniques.

By following these best practices, you can design a robust FRM system for Subspace that will protect your users from fraud.

Subspace Fraud and Risk Monitoring System

Subspace's Fraud Risk Monitoring system leverages all the best practices in designing a risk engine. It evaluates the risk associated with various use cases (transaction, onboarding, login, and other non-payment scenarios) across all channels, including cards (authentication & authorization), BNPL, core banking, payment gateway, UPI, etc.

Subspace's FRM system combines many sources of data and performs customer profiling by interfacing with external systems. It also deploys advanced risk checks such as behavioral biometrics to classify genuine users and follows a holistic approach that combines rules and models.

Why Subspace FRM?

Effective Rule and Data Management

Subspace's FRM lets the user upload historical data, review rule performance, and deploy it after fine tuning the rules. Depending on the implementation of risk rules, the users can run the system in a listening mode (without uploading any historical data). In this case, the source system receives the risk score but does not make business decisions. Users can turn off the listening mode once the risk rules have been finalized.

If users do not have any pre-defined rule set, Subspace's system provides a standard rule set covering all mandatory and a few optional/ conditional parameters.

Customizable Case Management Modules

The case management section allows the issuer to flag a certain type of transaction as a case (based on a case definition) and conduct further analysis to determine if the transaction was genuine/fraudulent. The case management flow can be customized as per business & risk preference.

Subspace's Case Management module can help you:

* Set case definition (automatic rule) to flag certain transactions as cases
* Prioritize cases as high/medium/low
* Assign cases to be investigated by analyst
* Automate case investigation via IVR/SMS/WhatsApp
* Assign and reassign cases based on category, ageing, priority, etc.

Comprehensive Reports and Dashboard section

From fetching detailed transaction report, rule performance report to case management report till managing overall FRM system performance, filtering the dashboard by score, transaction outcome, genuine vs. fraudulent transactions, etc., Subspace's FRM gives a comprehensive reports and dashboard section to the users.

Seamless Feedback

Subspace's FRM eases the life of the fraud analysts. Whenever the analysts come with feedback, it is easy for them to incorporate into Subspace's risk engine.

Conclusion

Fraud is a serious problem, but it can be mitigated with a robust FRM system. By following the best practices outlined above, you can design an FRM system that will protect your organization from fraud. Subspace's Fraud and Risk Monitoring system is a powerful tool that can help businesses to protect themselves from fraud. It is easy to use and customize, and it provides comprehensive reports and dashboards to help businesses track their progress.

Building a Robust Fraud and Risk Management (FRM) System for Subspace