The Simility Blog
Driving Value with Machine Learning-Powered Fraud Prevention
Jayan TharayilMarch 27, 2019
PayPal EVP and Chief Operating Officer Bill Ready published a fascinating blog post from the annual World Economic Forum (WEF) event in Davos, Switzerland a few weeks back.1 It describes how AI, machine learning and automation are combining with internet platforms and other trends to fundamentally change the way people live and work.
It also got me thinking about how we’re leveraging the power of machine learning and automation to help countless global firms better manage risk, meet regulatory compliance requirements and exploit new economic opportunities.
A Global Challenge
Bill’s blog confirms PayPal as an industry leader keenly aware of emerging trends in financial services — and that PayPal is using this insight to anticipate the changing needs of businesses and end users with new solutions. I’m proud that our Risk Management team is playing a key role in this ongoing mission by helping global businesses drive value through innovative adaptive fraud prevention. Our recent acquisition of Simility has further strengthened our capabilities in this area.
Simility has been named best in class in the recent Aite Group’s AIM Evaluation: Fraud and AML Machine Learning Vendors Report. Download the full report HERE.
Digital transformation represents a huge opportunity for modern global businesses, but also a risk. Identity fraud reached an all-time high in the US in 2017, rising 8 percent to impact 16.7 million consumers. Despite the best efforts of risk teams, fraudsters managed to increase their takings to $16.8 billion, according to Javelin Strategy & Research.2 It’s all fueled by huge volumes of breached identity information flooding dark web trading sites, with cybercriminals using automated tools to test stolen credentials en masse, hijack existing accounts and even create new accounts with stolen and synthetic identities.
The PayPal Difference
At its heart, PayPal is a data-driven enterprise. No one knows better than us that data can be a powerful differentiator in the quest for digital growth. Advanced machine learning is one of our key tools here, helping to drive success for businesses all over the globe in a range of areas, including:
Taking a risk-based approach is key to competitive differentiation.3 Yet many businesses are focused on innovation and growth, rather than risk. Data is the key to success here. Because we can ingest a variety of structured and unstructured data into our data lake and then apply smart algorithms, we’re able to harness insights to proactively block sophisticated fraud without impacting the customer experience. That’s a sure-fire way to drive growth through risk management.
New European banking regulations known as PSD2 mandate that e-commerce firms implement strong customer authentication (SCA) later this year. This could add friction to the payment process, causing consumers to abandon transactions and impacting the overall customer experience. The key is to invest in machine learning-powered tools like ours which monitor transactions with a high level of granularity and provide detailed reporting on the results.
By doing so, merchants will be able to identify and report on those transactions that qualify under the rules as “low risk” and are therefore exempt from SCA. Clear-box machine learning has a native advantage here thanks to the built-in transparency and traceability it offers, helping businesses alleviate regulatory concerns.
PayPal offers enterprise-grade fraud protection to businesses of all sizes. This is important as historically many smaller firms haven’t been able to benefit from the kind of risk-based capabilities we provide. The bottom line is that, once firms are able to manage fraud risk to acceptable levels, they can have the confidence to build out new business opportunities and digital growth.
In the long run, that will benefit not only these businesses but also society as a whole, by empowering consumers with greater choice and democratizing access to key online services. That’s something Bill and I believe strongly in, and at PayPal we’re committed to delivering.