Analysis on fraud detection in local acquiring banks

Abstract

Consumers are shifting from physically buying from the stores to conducting more and more transactions online. This is mainly resulting from an increase in the development of electronic payment systems (Fernandes, 2013). For this reason, the financial services industry has become the target of fraudsters (Lewis, 2018). This study mainly focuses on fraud risk in acquiring banks. Acquiring banks provide services related to the processing of payments to their merchant clients. They act as a middleman between merchants and the respective issuing banks and for this reason they are considered to be an important aspect from the whole payment cycle. Therefore, acquiring banks like every other financial institution have to combat fraud in order to safeguard their existence. This study aims to see which methods are used by acquiring banks in order to detect and prevent fraud. It also analysis whether acquiring banks use the same tools and methods for detecting fraud and which of such methods are considered to be the most efficient. Finally, it tries to see whether there is room for improvement when it comes to fraud detection. The study was conducted through semi-structured interviews. Representatives from both fraud and risk departments of three Maltese acquiring banks were interviewed. Results from the interviews showed that overall acquiring banks must detect all types of fraud which are related to merchant fraud as well as card payment fraud. The methods used vary from one company to the other, but they all serve for the same scope which is that of detecting fraudulent transactions after such actions would have taken place. By the end of this study, it was concluded that fraudsters are always one step ahead. All three acquiring banks agreed that there is always going to be room for improvement when it comes to the detection of fraud. Acquiring banks can never be ahead of fraud and thus fraud prevention may be difficult at times. It was also concluded that overall acquiring banks do consider themselves to be efficient in detecting fraud however, they have to make sure that they are keeping up with the latest developments in relation to monitoring tools and be on the lookout for better systems in order to be as accurate as they possibly can.