Keep innovative fintech open to customers, closed to fraudsters

An innovative digital bank, Chime, reduces fraudulent user accounts and transactions while introducing new features to manage money by adopting advanced fraud detection.

innovation concept

Fintech innovations have let us use technology in a way we never imagined. Emerging fintech companies all over the world, in every financial sector you can think of, are actively creating new cloud-based solutions meant to assist users in making the smartest, most financially responsible choices with their money. These technological advancements in the financial sector have let us manage our resources and optimize our spending, no matter how little or how much we earn. Fintech companies have made digital wallets, mobile wallets, and peer-to-peer payments easy, intuitive and almost second nature. In recent years, more and more specific use cases of remittances, loans, and wealth management have been digitized, sped up, and made available to the public. The superior user experience and convenience created by forward-looking fintech companies have been a key point of disruption in the financial services industry.

Although this rapidly evolving frictionless payments market has created new revenue opportunities for financial institutions and has benefited us as end users and consumers, it has also opened the door to increased risk and financial crime, putting the very principle of frictionless banking in question.

In 2016, Chime, a San Francisco-based mobile-focused bank targeting millennials, grew successfully by differentiating itself with features like no monthly fees, minimum balance requirement, or overdraft fees. Compared with traditional banking, Chime offered millennial customers lower thresholds for credit checks, fewer account-origination requirements, and a rewards program, appealing to those who came of age in the mobile-first era. While the acquisition of these customers was great from a growth standpoint, their riskier profiles meant the bank had to have a sophisticated fraud-detection system in place. In fact, in early 2016, Chime observed as much as 18 basis point of fraud.

Beth Vogelsang, director of card operations at Chime, was tasked with reducing risk and fraud management for the company’s online checking account. She quickly realized a big problem: many fake users were creating fake user accounts to make fraudulent transactions.

Because fraud could hamper Chime’s bottom line, brand reputation, and customer loyalty, Beth wanted to help Chime’s fraud analysts easily identify fraudulent users and limit their transactions.

To fix the problem of fraudulent accounts, Chime looked at several different technologies and ended up trying out Simility in July 2016.

Simility's anti-fraud platform was built by former Google engineers specializing in halting abuse and ad fraud, and became generally available in May 2016. A machine-learning-based multi-layered platform, it can detect anomalous activities and thwart fraud before it can affect fintech progress. It understands what’s normal for device activity and user behavior and, conversely, what indicators might indicate abnormal behavior. The platform can enable fintech companies to continuously adapt and outperform the fraudsters by capturing some exceptional instances where human powered intuition, rules, and analysis are required. All without writing a line of code!

It analyzed Chime’s data across various checkpoints (including number of ACH declines, user IP, email addresses, cardlink, and devices) and found potential fraudulent activities by leveraging its powerful machine-learning models combined with a flexible rules engine. Further, expert data scientists provided Chime with some control points to help them decide on a user’s status.

“Within six months, we were able to reduce basis point for chargebacks and fraud by 40 percent,” Beth said. The anti-fraud technology with superior data analytics capabilities and intuitive link analysis has been able to help Chime's operations, in-line and in real time, to identify fraud rings and reduce their activities.

By using data from both structured and unstructured sources, the artificial intelligence-powered tool has been able to detect anomalies in security and fraud applications for some of the leading fintech and financial services companies. It can provide any fintech company with the same sophisticated, customized, fraud-fighting software usually reserved for large companies that have dedicated fraud detection and management departments.

Read the case study to explore how state-of-art fraud prevention technology helped Chime cut right through the biggest security challenge that many fintech businesses are facing today.

Copyright © 2017 IDG Communications, Inc.

Make your voice heard. Share your experience in CSO's Security Priorities Study.