Strength in Numbers

Empire Startups Contributor Trisha Kothari dives into how harnessing collaboration and consortium data can lead toward a fraud-free future.

Hi there,

It's been less than a year since I last wrote about fraud, yet so much has changed in that short time. But if there is one thing that’s stayed consistent for any financial institution—be it a bank, credit union, or Silicon Valley FinTech startup— it is the ongoing need to stay ahead of fraud and bad actors. The FTC continues to find that U.S. consumers lose big regarding fraud. In 2023, that number surmounted to over $10 billion, a 14% increase from 2022. 

No matter what part of the fraud problem we solve within the financial services industry, we are in this fight together. As technology advances, creativity and collaboration between financial institutions are more critical than ever. 

Data & Collaboration

Fraudsters are known to be some of the most entrepreneurial and creative people. They often collaborate, making tackling fraud rings at scale extremely difficult. 

But with access to the correct data, we can also take an entrepreneurial, collaborative spirit. Fittingly, over the past few months, we’ve seen multiple consortiums pop up, not to mention incumbent players like Early Warning and more. Built, owned, and operated by the seven largest banks in the United States, Early Warning started one of the most successful consortiums for banks and credit unions, with solid data coverage from over 2,500 FIs. It has served as the benchmark for fraud consortiums in the traditional finance sector. 

But there is still room to grow.

For example, as of now, only chartered financial institutions can participate in the Early Warning Consortium. Of course, FinTech comes with challenges, given its wide variety of use cases, risk thresholds, and regulatory landscapes. However, we must be included in the conversation alongside the traditional financial players to build an all-inclusive community of insights.

This one consortium has provided great collaboration and successful data sharing to combat fraudsters—but is just scratching the surface of what’s possible when working together. 

Community Over Competition

With the ongoing trend to digital banks, neobanks, and crypto, fighting fraud through a consortium via FI data is fighting half the battle. Morning Consult found that in 2021, 10% of Americans are unbanked, and 24% are underbanked. While the “good guys” are often left at a disadvantage; needing to adhere to numerous laws and regulations, such as where and how they operate, what information is disclosed, and to whom–collaboration across the full range of financial services providers is a non-negotiable in 2024.

A comprehensive consortium approach encompasses all data sources and collaboration across financial institutions and fintech. Given that many fintechs are on a mission to create a more inclusive financial system, neobanks, and digital banks are going to be able to help complete the data picture. 

Let’s look at some insights recently gleaned from having this type of FinTech collaboration involved at the forefront:

Digging into the data, we can see that elder abuse is unfortunately representing a significant portion of identified fraud at over 32%. With this, moving beyond mere reporting to proactive prevention is crucial. While the ABA advises financial institutions to report elder financial exploitation to FinCEN, participating in a consortium allows for a more dynamic approach,  preemptively identifying and flagging known perpetrators, effectively barring them from the financial system. 

Transparency: The New Currency

Sure, there are bitcoin and NFTs, but we think there is a "new" currency that is just as powerful: transparency. The value of transparency in building customer trust and industry resilience cannot be stressed enough. A recent Ipsos report found that the reputation of financial services has improved markedly in recent years. But there is still work to be done. The report also found that "[being open] and transparent about what it does" tied for second in "drivers of trust in banking - what attributes have the greatest impact."

Trust and transparency are essential for financial institutions, especially as more Personally Identifiable Information( PII ) data is shared daily.  Because of this, sharing and analyzing data for fraud prevention by participating in a consortium has traditionally had a high barrier to entry for many organizations. However, a comprehensive defense strategy that integrates vast data sources is highly valued when done correctly.

For example, if one institute flags a fraudster account, the consortium proactively alerts all other members, preventing a chain of fraud and shutting down all related accounts.

Beyond the Buzzwords

Financial institutions must consider going beyond buzzwords or what's "hot" and instead focus on data and knowledge sharing within and across organizations. Creating a think tank culture will help organizations stay ahead of sophisticated fraud schemes without spending too many resources or too much time. 

—

Trisha Kothari, Co-Founder & CEO of Unit21, Empire Startups Contributor

Empire Startups Contributors are a community of experts providing unique perspectives and insights on the latest in FinTech. Our model is is merit-based and does not offer monetary compensation.

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