The presentation provides not only a coherent description of the process of credit card fraud risk management and why it is important in today business but also presents a psychological approach inspired by the content creator to be applied in such process for better understanding of biases that could lead to undesired misjudgements.

1. Fraud Risk Management
Inspired by Sameh Darwish

2. Contents
• What is Fraud and what is Risk ?
• The concept of Fraud risk management
• Involved Fraud parties
• Fraud risk management tools
• Fraud detection-deterrence Quality

3. What is Fraud ?
• Fraud
• Is an act perpetrated using deception, trickery
and cunning
• An act that presents falsehood and suppresses
truth

4. Types of fraud
• Letter of Credit Fraud
• Pyramid schemes
• Pay offs fraud
• Identity Theft

5. To what extent is fraud critical?

6. Fraud statistics
• Retailers incur $580.5 million in debit card fraud
losses and spend $6.47 billion annually on credit
and debit card fraud prevention annually.
• (Source: PaymentsJournal, Feb. 2012)
• Financial institutions incurred $955 million in
losses due to debit card fraud in 2010 – a 21%
increase from the $788 million in losses incurred
during 2008.
• (Source: ABA Deposit Account Fraud Survey,
2011)

7. •

9. What is Risk ?
• Risk
• Is a small probability of a big loss
• Risk arises from uncertainty
• Risk incurs a strategic decision process

10. • So we are facing risk associated with the
may-to happen losses that arise from fraud
• And we have to put a strategy or
methodology to combat this risk
• So we need the Fraud Risk Management

11. Fraud parties
• Card
• Fraudster
• Financial Data
• Card holder
• Fraud detection agent
• Fraud detection system
• Merchant
• Issuer
• Acquirer
• Payment systems

12. Fraud combatting methodologies
• Detection
• Deterrence
• Prevention

13. Card
• Technology of card security is always in
improvement
• As in EMV,IPIN

14. • Who is the fraudster?
• A person who has a financial pressure and has
the rationalization in an atmosphere when
opportunity is there to commit fraud
Fraudster

15. Types of fraudsters
• A fraudster may be
• A self-interest fraudster

16. Or may be those;

17. • Terrorists can finance their operations by the
proceeds coming from;
• Oil
• Trafficking
• Money laundering
• Weapons deals
• Credit cards fraud

18. Fraud triangle

19. Fraudster’s psychology
• Psychological Motives
• The concept of “every one is getting rich and I
want to be so”
• The inherent concept of “catch me if you can”,
“I am professional and could not be caught”
• The financial pressure or the economic need

20. To catch a crook think like a crook

21. To catch a fraudster think like a fraudster

22. Exercise
• In front of you a card with 50.000 usd
• In 5 minutes just list all the possibilities to get
whatever you can of the amounts imbedded
in the card.

23. Financial data
• What matters is how to secure the financial
data against breaches

24. Card holder
• Cardholder has to be well informed about
security measures as in;
• Not to deal with but recognized
merchants/sites
• Has to secure and not prevail pin code/cvv2

25. Merchant
• Merchant role is to
• Perform internal audit against employees
• Perform well verification to cardholder
• Be aware of latest fraud trends
• Secure its network/database

26. Issuer
• Issuer role is to;
• Secure its database system
• Update its network of information in regard to fraud
triggers
• Manage capable systems to deter fraud
• Have a coherent KYC approach
• Cooperate with Acquirers for fraud investigation
• Educate cardholders of data security

27. Acquirer
• Acquirer role is to;
• Well screening of its merchant activities
• Cooperate with issuers for fraud investigation
• Secure its database
• Manage capable systems to deter fraud
• Update its network of information in regard to
fraud triggers
• Provide training to merchants

28. Payment system
• Payment system role is to;
• Circulate its valuable information gathered
from internal investigation or major
intelligence bodies to issuers and acquirers

29. Fraud detection systems
• Role of fraud detection and deterrence
system is to;
• Easily detect fraud triggers
• Guarantee flexible algorithms and
methodologies
• Guarantee effective action techniques

30. Fraud detection-deterrance systems
• Offline system
• Quasi-online system
• Online system

31. Offline system
• Its methodology;
• Is generating a report from system including
all transactional flow that occurred for a
specific bank during a specific period based on
basic parameters or guidelines inspired by the
payment system
• Action against profiles is handled manually

32. Quasi-online system
• Its methodology;
• Is filtering the transactional flow after
authorizations have been obtained in a very
short period of time based on flexible preset
rules and algorithms in the light of alert
grouping
• Action against suspected profiles is handled
manually

33. Online system
• Its methodology;
• Is permitting or declining authorizations on
the spot based on preset parameters and
algorithms
• Action against suspected profiles is handled
automatically

34. Fraud detection-deterrence clerk
• His role is to;
• Analyze transactional flow to abruptly detect
fraud triggers
• Help in taking the proper decision against such
triggers

35. • Has to have;
• Updated information regarded the fraud
trends
• Experience in dealing with transactional flow
• Decision quality
• Abrupt intuition and snap judgments
• Basic information upon geographical regions
Fraud detection-deterrence clerk

36. What matters in fraud
combatting is decision
quality and analysis

37. • Decision in setting algorithms
• Decision in taking actions
against off-pattern
transactions

38. What are the types of decisions
Strategic decision
•
Organizational decision
•

39. Decisions
• Rigorous Decision
• Of life shaping importance
• Difficult
• Incurs much time
• Conscious
• Critical but not of life shaping importance
• Quick
• Every-day easy decisions

40. Exercise
• A man and his son are in a serious car accident.
The father is killed, and the son is rushed to the
Emergency room. Upon arrival,
• the attending doctor looks at the child and
gasps, “This child is my son!”
• Who is the doctor?
• Please do not answer before taking time
From "blink" book

41. The answer is
The doctor is the child’s mother

42. Most of the people were unable to answer the
question simply because the word “doctor”
is subconsciously related to males more than
females so most of the people did not link the
female gender to the word that ,in their
subconscious, is naturally a word for males.

43. The exercise leads us to tackle two different types of thinking

44. Deliberate thinking
Instinctive Thinking

45. • Deliberate thinking
• -when there is much time available
• -when volume does not matter
• Instinctive thinking
• -when there is no enough time
• -when volume matters

46. Deliberate
thinking
Instinctive
thinking

47. • The appropriate decision is achieved when
making a proper balance between
• Deliberate thinking
• As spending more time in inspection could
lead to upcoming authorized fraudulent
transactions
• Instinctive thinking
• As spending less time in inspection could lead
to oversight that lead to a wrong decision

48. Quick rational decision
• To achieve a high quality quick decision there
should be
• Sharp and quick analytical skills
• Snap judgments +rational thinking
• Experience+ Intuition+ Sense+ Training

49. Analytical skills
Combines;
• Ratio analysis
per merchant
per country
per amounts….etc
• Statistics
False-positive statistics

50. Fraud deterrence quality
Useful
information
Abrupt
analytical
skills
Advanced
capable
system

51. Cognitive biases and fraud detection
Effect of cognitive biases in fraud detection quality

52. What is cognitive biases?
Cognitive biases and fraud detection

53. is a pattern of deviation in judgment, whereby
inferences about other people and situations
may be drawn in an illogical fashion.
Cognitive biases and fraud detection

54. Types of cognitive biases
Availability
Anchoring and adjustments

55. • Availability
• The availability heuristic is a mental shortcut
that relies on immediate examples that come
to a given person's mind when evaluating a
specific topic, concept, method or decision.
Types of cognitive biases

56. • It happens when incidents that are
recent/dramatic /redundant are easily to be
recalled
Types of cognitive biases

57. Relation to fraud triggers
• If a major hack incident occurred in Mexico,
we are much likely to relate any single
transaction in Mexico to be a fraudulent one
which is not true.
• However, our psychology plays a big role in
leading us to stereotype such a dramatic and
recent incident.

58. Solution to availability Bias
• We can overcome the bias by;
• Proposing percentage for the likelihood of the
event
• Such percentage to be proposed by specific
tools so as to avoid anchoring
• Based upon the proposed percentage as well
as the sound statistics we can determine
whether the transactions are genuine or not

59. • Anchoring and adjustments
• The anchoring and adjustment heuristic ;is a
mental shortcut that relies on having a prior
estimate that we adjust whatever we have of
information to meet such prior estimate
Types of cognitive biases

60. • It happens when we lean on our prior casted
probability percentage and adjust our
conclusions to meet such prior estimate.
Types of cognitive biases

61. • When we cast a probability percentage on a
specific incident to be fraudulent
• We usually lean on this percentage in our
analysis and statistics gathering.
Relation to fraud triggers