Countering growing internal fraud

Though banks and other financial services
companies place a heavy emphasis on combating external fraud they
neglect internal fraud risk at their peril. This warning comes from
business intelligence consultancy Fair Isaac Corporation.

“Increasingly, fraudulent activity is being
found to originate inside the company, posing a dual threat to a
financial services firm’s balance sheet and its reputation,” said
the head of Fair Isaac’s Fraud Product Management unit, Doug
Clare.

Underscoring his view George Tubin, research
director at consultancy firm TowerGroup said: “We are witnessing a
market convergence where cross-channel fraud is becoming
increasingly common and approaches to internal fraud are becoming
bolder and more sophisticated. As a result, banks and other
financial institutions recognise they must make smarter decisions
at the enterprise level in order to fight fraud effectively.”

To assist in addressing the problem of internal
fraud Fair Isaac has teamed up with Memento, a US company
specialising in the development of fraud and compliance solutions
for banks and credit unions. Under an agreement Fair Isaac is to
offer Memento’s enterprise fraud management platform, to financial
services companies worldwide.

For Momento, a company founded in 2003 with the
backing of four venture capital firms and private investors, the
alliance with Fair Isaac is of considerable significance. The
alliance opens the door to Fair Isaac’s formidable customer base
that includes 90 of the 100 largest financial institutions in the
US and all the 100 largest US credit card issuers and two-thirds of
the top 100 banks in the world. Fair Isaac’s anti-fraud portfolio
includes protection for more than one and a half billion payment
cards worldwide.

“Historically, financial institutions have had
challenges trying to identify internal fraud proactively, in
addition to conducting investigations after a whistleblower
complaint, tip, or coincidental discovery,” said Memento’s CEO BC
Krishna. “In forging this partnership with Fair Isaac, we can help
financial institutions monitor, detect, investigate and prevent
internal fraud in ways that haven’t been possible before
now.”

Among users of Memento’s enterprise fraud
management platform is US bank Wachovia which processes 210 million
transactions daily and 400 terabytes (400,000 gigabytes) of data
annually. Initially the subject of an extensive pilot programme by
Watchovia, Momento’s solution was implemented in 2007.

Watchovia’s technology leader Jim Heery
explained that the bank began evaluating solutions for identifying
internal fraud in 2005.

“We identified multiple, potentially viable
solutions but preferred Memento’s technological approach, since it
was non-intrusive within our infrastructure and because their
method of managing data doesn’t require use of a data warehouse or
relational database,” said Heery.

“The central benefit of Memento Security is
that it lets us identify fraudulent activity more quickly, reducing
our losses significantly,” commented Wachovia’s head of corporate
fraud investigative services, Mike Fusko.

Faster action is made possible by faster
delivery of inquiry results, he added. For example, examining one
day of one employee’s transaction records used to require more than
four hours of response time and a mainframe search.

“Now that information is available in 35
seconds,” said Fusko.