Best Practices for Achieving Success with Custom Modeling and Machine Learning

One of the most common reasons organizations fail to realize significant improvements in risk management after implementing custom modeling solutions can be described with one phrase: Junk in. Junk out. This article discusses best practices as it relates to data management and other factors that are shown to improve performance when it comes to custom modeling and machine learning or artificial intelligence.

It’s not just breadth of data, but also quality of data, that is important. One of the biggest misconceptions about machine learning (ML) and artificial intelligence (AI) is that you can just flip a switch and let the technology work its magic.

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Custom Modeling for Risk Management Requires Human Element, Not Just AI

While there is value in leveraging Artificial Intelligence for modeling and analytics to detect cyber threats and fraud, security professionals are still more likely to indicate that a human touch is more valuable. A recent survey found that half of organizations are making use AI or machine learning but 60 percent put more trust in findings verified by humans. Meanwhile, changing consumer patterns and the rush to work from home in response to the pandemic has likely led to higher rates of false positives.

This isn’t to say AI and ML are not important – they are. In the same survey, 65% said these tools allow them to focus more on preventing cyber attacks than before and 40% reported feeling less stress.

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PayPal Completes $120 Million Acquisition of Simility

PayPal completes their fifth acquisition in the past 12 months, this time purchasing machine learning fraud prevention provider Simility for $120 million. PayPal COO Bill Ready says each of these five recent acquisitions are part of the company’s effort to strengthen the services they provide to merchants.

Simility was founded in 2014, they are based in Palo Alto and provide advanced risk analytic and modeling solutions for fraud prevention in the Customer Not Present (CNP) channel. Major clients include eBay/StubHub, Dick’s Sporting Goods and OfferUp. The fraud prevention provider had previously raised $25 million, including PayPal as one of their early investors.

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NYPD Trials New Skimming Detection Device “Skim Reaper”

A computer science professor and two graduate students invented a device used to check ATMs and card readers to detect the presence of a skimming device. Dubbed the Skim Reaper, the New York Police Department has been using a handful of these devices since February to combat card skimming.

Card skimming at ATMs, gas pumps and other locations is a major source of the compromised payment card information used to commit fraud today. Card skimmers install an additional piece of hardware known as a read head to copy a payment card’s data, but a new device was designed to detect their presence, while providing an alert to the ATM user that a card skimmer may be installed.

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Global Spending to Increase on Fraud Detection, Cybersecurity and Big Data Analytics

Multiple studies and sources are coming to the same conclusion: organizations will be spending more on risk management and data analytics to keep up with growing fraud and business trends. This includes $9.2 billion spent on online fraud prevention services, $170 billion spent on cybersecurity and over $200 billion spent on big data analytics globally by 2020.

With payment and online fraud continuing to increase globally, Juniper research predicts annual spending on online fraud detection services across eCommerce merchants and financial institutions will reach $9.2 billion worldwide by 2020. This is just one aspect of risk management that online merchants and financial institutions have to deal with. Gartner estimates the global cybersecurity market exceeded $75 billion in 2015.

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The Fraud Practice and CardinalCommerce Kickoff the 3rd Annual Consumer Authentication Survey

Take the survey today to be entered in up to 5 drawings to win a new Apple Watch Sport™. The earlier you take the survey the more chances you have to win as a new drawing will be held each week.

The Fraud Practice and CardinalCommerce are proud to announce that the 3rd Annual Consumer Authentication Survey is now underway. Continuing with the success and momentum of the first two installments, the latest survey and coming 2016 report will continue to track the changing perceptions and trends around Consumer Authentication programs, how they are most successfully implemented and their impacts on chargebacks, risk management and the customer experience.

Please be sure to take the Consumer Authentication Survey this week. All who complete the survey will be entered in up to five drawings to win a brand new Apple Watch Sport™, and will additionally receive an advance copy of the Consumer Authentication Survey Report.

Take the Survey Today

More information about the Consumer Authentication Survey

Meet with The Fraud Practice at the Upcoming CNP Expo in Orlando, Florida

If you are attending the CNP Expo May 18-21 then be sure to see The Fraud Practice at booth number 418 in the Exhibit Hall. For those who would like to find out more about our online training certification programs, we will be giving out free copies of David Montague’s Essentials of Online Payment Security and Fraud Prevention book with valuable online training discount coupons inside.

There are a limited number of books available, so be sure to stop by The Fraud Practice’s booth before we run out. In addition to visiting us at the booth, you may want to attend the May 20th breakout session titled Fraud on the Move, moderated by The Fraud Practice’s Justin McDonald, Sr. Risk Management Consultant.

If you’d like to schedule a time to meet with one of our consultants at the CNP Expo, or just be sure we hold you a copy of the book, please contact us today.

If you haven’t yet registered for the CNP Expo and would like to attend, you can use The Fraud Practice’s discount code below.


CNP Expo


With Custom Modeling, Deployment is Just as Critical as Design

Whether an organization is building a custom modeling solution in-house, using a service provider or combining both in-house and third party resources, the fundamental components of an effective custom modeling solution are the same. Statistical models must first be created, which requires historical data, a team of modeling experts, as well as the right tools and software to design effective models. Next, the organization will need the infrastructure or platform to actually apply this model to live transactions, interpret the results and route the transactions accordingly. A commonly observed problem in the market, however, is that organizations put forth such great effort in ensuring the statistical models are accurate predictors of risk that the next step, how these models are actually deployed, is often overlooked or just an afterthought.

This isn’t to say that model design is not a critical step. What’s the good in efficiently deploying custom models if they are not effective at distinguishing fraudulent from legitimate transactions? But organizations must also consider the other side of the coin: even if a custom model was accurate at predicting fraud most all of the time, it is of no benefit unless it can be applied to transactions, meaning the transactional and customer data can be fed to the models and the results can be interpreted to decide the course of action for each order.

Deployment is the second major step in executing custom models after model design, but is at least equally as important of a step.

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Press Release: The Fraud Practice Releases New White Paper and Hosts Webinar on Utilizing Post-Transaction Fraud Prevention in a Risk Solution

Although often overlooked, post-transaction monitoring and reporting are important secondary capabilities that can lead to improvements in a risk management program. Post-transaction procedures often increase the value of existing techniques such as velocity checks, link analysis and other techniques. This enables organizations to utilize these techniques more proactively to better prevent repeat and morphing fraud attacks rather than just containing them.

For all organizations, it is worth taking the time to consider how the use of post-transaction monitoring and reporting tools could augment and improve current risk management practices and strategies. To help organizations better understand these post-transaction techniques, The Fraud Practice has released a free white paper titled “Utilizing Post-Transaction Fraud Prevention in a Risk Solution” which is now available.

Additionally, The Fraud Practice is hosting a webinar on September 30th at 1:00 PM ET including David Montague, President and Lead Consultant of The Fraud Practice, along with Erika Gallo, Director of Global Risk Management for ReD, elaborating on the best practices and considerations for making effective use of post-transaction risk management techniques.

Request your copy of this free white paper

Register for the webinar

View the full Press Release

New Technique Course and Data Sheet on Identity Document Verification

The Fraud Practice releases new online course on the use of identity document verification in a risk program and the current vendor market providing these services.

Organizations that are using or considering identity document verification need to understand how it is best applied, where it fits into a risk strategy, as well as the capabilities and features of ID document verification services offered by third party vendors. The Fraud Practice has released an Identity Document Verification Training Course with accompanying Technique Data Sheet to provide this information. The online training course discusses the use of identity document verification in a risk program and the current vendor market providing these services.

More information about the Identity Document Verification Technique Course & Data Sheet

The first 100 eligible organizations can attend the course and download the data sheet for free – Register Here