Have you ever thought, What if your banks, the guardians of all your monetary assets, face severe financial fraud risks? The heights of fraud and financial crimes hit new levels every day, challenging acquirers to operate financial transactions. The occurrence of financial fraud has always been a complex issue in the banking landscape; however, the introduction of real-time payments has alleviated this scenario to more advanced levels, requiring proactive measures that are real-time and preventive.

Acquiring banks play a pivotal role in processing real-time payments, handling transactions, and ensuring compliance and security. Any error or mismanagement in this process can lead to significant risk and potential loss for all users involved. Implementing a real-time fraud management system can empower acquirers to monitor, manage, and track fraudulent transactions and other illicit activities of merchants instantly, mitigating these risks.

In this blog, let’s discuss and analyse the significant contribution of real-time fraud prevention solutions to acquiring banks in today’s banking ecosystem. Also, let’s explore how BANKiQ’s professional partnership enables acquiring banks to mitigate risks and threats in merchant acquisition and payment processing.

The Role of Acquiring Banks in Payment Processing

As discussed, acquiring banks allows businesses to perform payment processing, acting as intermediaries between merchants and the financial network. Here is a list of activities where the influence of acquiring banks plays a major role.

1. Merchant Onboarding

As a primary step, this involves evaluating, examining, and approving merchants before onboarding them into financial services. This step is crucial for acquirers because onboarding a risky and illegal profile can alter the payment ecosystem with fraudulent and risky transactions.
To prevent this, it is necessary to check and verify the merchant’s business identity, transaction volumes, and compliance adherence. This helps establish the merchant’s risk level in advance, preventing major mishaps.

2. Transaction Processing

The acquirers verify and authorise the payment that the merchant initiated at the point of sale by communicating with the issuing bank.
Once authorised, the acquiring bank settles the funds by transferring them from the issuing bank to the merchant’s account.
As a final step, the acquirers ensure that all details are accurate and reconciled between the merchant and the issuing bank.

3. Chargeback Handling

The acquiring banks handle the chargeback issues of merchants by examining and verifying their dispute claims.
They also support merchants with best practices and guidance to minimise chargeback challenges and conduct transactions successfully.

4. Compliance and Regulatory Adherence

Check the merchant’s adherence to Payment Card Industry Security Standard Data (PCI DSS), which is crucial for securing the cardholder’s information from unauthorised access and breaches.
The acquiring banks recommend implementing anti-money laundering solutions and KYC to monitor and track transactions involving money laundering activities and customer verification.

5. Technological Integration

Acquiring banks facilitates the integration of payment gateways, a necessary digital medium for digital transactions, into merchants’ payment processing platforms.
They also offer APIs and Software Development Kits (SDKs) that allow merchants to incorporate their payment processing features into their websites or applications, enabling customised payment solutions.

From merchant onboarding to fund clearance, acquiring banks’ role is non-negligible, requiring advanced technologies that support them with the above operations. Thus, acquiring banks’ contribution to the modern payment ecosystem has enhanced and improved the way financial services operate.

The Upside of Employing a Fraud Management System

So, where does the need for a fraud management system come from? Well, let’s discuss that in detail

Prevent Financial Losses : The acquiring banks allow merchants to perform large volumes of transactions from anywhere, anytime. But what is the chance that these transactions will be legal and secure? To monitor them and respond in real time, a fraud management system is required. This system will track each transaction in real-time, preventing financial fraud and data breaches.
Reduce Chargeback Costs : An increase in chargeback issues will lead to severe penalties and increased operational costs. An effective and comprehensive fraud management solution assists merchants in mitigating chargebacks that result from risky and illegal transactions.
Enhance Operational Efficiency : Monitoring, detecting, and preventing fraudulent transactions with manual intervention involves large operational costs, limiting the ability of the acquirers to spot and respond to fraudulent transactions in real-time. This may also lead to ignorance and the prevention of tracking suspicious activities, resulting in heavy financial and operational costs
Improve Trust and Reliability : Merchants rely on acquiring banks to enable a seamless and secure payment processing system. Implementing a robust and advanced fraud management system builds trust with merchants, ensuring their transactions and customer data are secure and protected. This will also help foster long-term business relationships with merchants and customers.

This demonstrates how a fraud management system in place for acquiring banks can significantly benefit operational efficiency and business enhancement.

What Constitutes a Fraud Management System?

Fraud management is a comprehensive approach designed to prevent, protect and respond to fraud and threats. It involves a series of components that help acquirers monitor, detect and safeguard financial transactions from unauthorised access.

1. Fraud Detection

As a primary component of a fraud management system, this helps in detecting risky and illegal transactions with the following,

Behavioural Analytics : This allows the fraud detection system to study and examine consumers’ patterns, transaction locations, and transaction frequency. This helps in understanding the normal and acceptable behaviour of consumers; any deviation from this can be considered mysterious and not in the right direction.
Machine Learning and AI : With AI and ML algorithms, the fraud detection system can analyse large volumes of datasets, identifying patterns of fraudulent activities. These algorithms, with regular practice, become more accurate and reliable, helping to detect fraud or illegal transactions before they occur. Thus, they serve as an additional layer of security compared to traditional methods.
Rule-based criteria : The fraud detection system utilises a set of predefined rules that help trigger alerts or flag transactions when certain critical conditions are met. These conditions are defined based on high-risk indicators such as unusual transaction volumes, transactions from risky areas, or emerging threats. These criteria can be altered and made flexible per requirement.

2. Risk Management

This component of the fraud management system helps to proactively identify and mitigate potential risks in advance with the following:

Risk Scoring : This involves assigning risk levels to transactions based on their amount, location, and customer behaviour. Transactions exceeding the usual range and behaviour are determined to be flagged as risky and illegal, thus empowering organisations to manage risks in real time and that too in advance.
Transaction Limits : Setting transaction limits helps organisations flag or track large-scale transactions exceeding the defined limit. This allows customers to spend only within the defined limits, enabling them to manage the risks effectively and efficiently.
Geo-location : Enabling geographical location helps verify the legitimacy of the transactions. This helps compare the location of the current transaction to the customer’s usual location. Any difference in location from the customer’s usual spot can be triggered, ensuring they stay well aware and informed about the ongoing risk or fraud happening in their account.

Protect your business from fraudulent merchants. Explore our Risk Management Solutions

3. Compliance and Regulatory Adherence

As a component of the fraud management system, this ensures that acquiring banks meet and are compliant with the latest regulatory practices in the following ways,

KYC Procedures : Regularly collecting and verifying client information, such as name, address, and document identification, helps monitor their activities, adherence to compliance measures, and current business happenings. This helps categorise the level of risk and implies potential risk management accordingly.
Anti-money Laundering : Utilising an AML helps acquirers detect and analyse transactions that follow a money laundering pattern, such as cash deposits, rapid fund movements and frequent transactions. Also, the AML helps file reports with regulators, ensuring strict compliance.
PCI DSS Compliance : With PCI DSS, acquirers can be assured of the compliance and regulatory practice of cardholder information, as this helps them employ encryption and safety protocols and conduct regular audits and assessments.

4. Fraud Prevention

As a crucial component of the fraud management system, this enhances the security and protection of transactions against various frauds in the following ways:

Identity Verification : In the fraud prevention system, acquirers can identify the user initiating the transaction either by two-factor authentication or a biometric model, where the user’s passcode or identity is utilised to enable the transaction. This way, acquirers can rest assured that a valid identity is accessing the account.
Encryption and Tokenization : Another approach to fraud prevention is enabled through encryption and tokenization, where the data is converted from plain text into coded format, ensuring it is made accessible only with a decryption key. This ensures the data is safe and protected, both during transit and at rest. Also, it supports fraud prevention by substituting sensitive information like credit card details with unique identifiers called tokens. If any unauthorised user gains access to this, they may find it useless, minimising the risk of data exposure.

5. Fraud Response

As a final component in the fraud management system, this plays a major role in the mitigation and elimination of fraud incidents, building a secure environment for acquiring banks and their customers. This is supported through the following ways:

Alert System : This serves as a prompt fraud response system for acquiring banks and users. They will be notified via SMS, email, or app alerts when any suspicious activity is detected, an unauthorised user tries to gain access to the account, or an unusual transaction pattern is tracked. This helps inform the concerned authorities in advance, ensuring a swift response to potential threats.
Transaction Blocking : With predefined rules and real-time analysis, high-risk and suspicious activities can be monitored and tracked, enabling transaction blocking. This automatic fraud response system is advantageous in cases where banks and users are not able to respond to alerts and notifications. By blocking transactions, the system will no longer be able to continue any transactions, requiring additional verification from authorised representatives to proceed. This automatic fraud response system helps build a robust and effective environment against fraudulent and illegal transactions.
Incident Management : A thorough investigation and analysis of the fraudulent incident, including transaction location, user name, and amount, helps understand the purpose and method of the fraudulent activity. Also, with incident management, the fraud response system can document the incident and report it to regulated authorities, helping file the records for future compliance measures and monitoring.

This summarises the components involved in a robust fraud management system and the effectiveness they empower in acquiring banks if implemented with the right approach and at the right time.

Introducing BANKiQ

BANKiQ is a modern, real-time fraud prevention solution equipped with advanced technologies. It provides a ready-to-use portfolio of products designed to address the evolving fraudulent behaviours and financial crimes faced by acquirers. BANKiQ extends its support to acquirers through its FRC platform, which helps to identify, prevent and respond to fraudulent, risky and illegal transactions. With predefined rules and scenarios, adaptive analytics, deep learning algorithms, behavioural rules, and transactional profiling, BANKiQ’s real-time FRC solution helps acquirers with the following:

1. Merchant Onboarding Risk Scoring

With BANKiQ’s FRC solution, acquirers can screen and analyse merchant profiles before onboarding and post onboarding. This gives them the ability to

Identify the type of business the merchant is associated with
Kinds of transactions in which the merchant is involved
Perform attribute linking to verify any business link the merchant holds secretly.

2. Real-time Transaction Monitoring

Adopting a real-time transaction monitoring solution assists acquirers in monitoring and tracking payment processing for suspicious and illegal activities in real-time. This helps them detect and rectify potential fraud, ensuring a reliable service for merchants and customers.

3. Suspicious Transaction Reporting

The BANKiQ STR module seamlessly integrates with the FRC-FRM and sanctions screening modules, allowing acquirers to monitor merchant lists and report any suspicions to the relevant authorities. These integrated modules (STR, FRM, and Sanctions Screening) collaborate to offer a comprehensive solution, including real-time alerts and regulatory-compliant reporting for acquiring banks, ensuring robust fraud protection while maintaining operational efficiency.

4. Acquirer Fraud Management

BANKiQ’s acquirer fraud management solution is a real-time fraud prevention platform designed to assist acquiring banks and is equipped with best-in-class alert handling, queue management, workflow, and investigative case management capabilities. This supports the following:

Allows for a detailed examination of transaction relationships, enabling the identification of complex fraud patterns and the efficient resolution of fraud cases.
Monitoring of events such as returns, reversals, and refunds helps understand transaction trends and improve the fraud management strategy.
With advanced technologies such as deep learning, machine learning, and adaptive analytics, acquirers can detect patterns and behaviours beyond human understanding and knowledge.
Providing portal access to acquiring banks and top merchants for a checker role enhances fraud prevention by enabling real-time monitoring, review, and verification of transactions.

Thus, the role of acquiring banks in today’s payment landscape is increasingly challenging and complex. To ensure they operate in a fraud-resistant and secure environment, it is crucial to provide them with an advanced and sophisticated platform. BANKiQ excels in this regard, offering a ready-built solution that perfectly meets these needs. Get in touch with the experts who can guide you through each step of the platform, ensuring you are never left alone in the battle against fraud and threats!

Conclusion

Acquiring banks plays a pivotal role in the modern payment landscape, tasked with the critical responsibilities of merchant onboarding, transaction processing, chargeback handling, compliance, and fraud prevention. As these responsibilities grow more complex and challenging, the need for advanced and comprehensive fraud management solutions becomes paramount. Gaining assistance from professionals like BANKiQ assists acquiring banks in maintaining a secure and efficient payment environment. Equipped with real-time fraud prevention monitoring, advanced analytics, and seamless integration capabilities, BANKiQ ensures acquiring banks can detect and mitigate fraud effectively while maintaining operational efficiency. Navigate the complexities of today’s payment landscape with a real-time, advanced analytics platform that ensures your merchants operate in a secure, fraud-resistant environment, ultimately enhancing the trust and reliability of the payment ecosystem. Don’t let fraudulent merchants cost you. Contact BANKiQ today!

Fraud management for Acquiring Banks - The role of real-time payments fraud prevention in ensuring transaction security