Mobile’s Bigger Role in Payments Offers Data With Dual Benefits for Combating Fraud

Acquirers and financial institutions can put consumer and merchant affinity for smart phones to work for them when trying to comply with anti-money-laundering and know-your-customer regulations.

Smart-phone activity, whether it’s purchasing behavior, location habits, or personally identifiable information associated with the wireless carrier account, can be used to vet the identity and credentials of individuals wanting to store a credit or debit card in a mobile wallet or open a new merchant processing account.

Using smart-phone data presents two benefits to the payments industry, says Thomas C. Brown, senior vice president of U.S. commercial markets and global market development at LexisNexis Risk Solutions, a unit of RELX Group plc, a U.K.-based entity.

One is that it affords more data to use during the vetting process, and the other is that mobile enables more consumers to participate in the electronic payments industry, Brown tell Digital Transactions News. “Mobile drives both of those,” Brown says.

The goal, of course, is to determine who are the bad actors, and ensure their access to the payments industry is monitored as outlined by industry rules and government regulations. That’s an expanding challenge, Brown says.

“The environment in which one has to monitor activity is becoming broader and broader,” he says. Acquirers and financial institutions that incorporate AML and KYC vetting protocols into their standard operating procedures will be at an advantage, Brown says, adding, “We will see more and more companies screen and treat their customers much like a bank would.”

Though some organizations may not have AML and KYC compliance requirements, adopting such screening measures could prevent the possibility of harmful reputational exposure, Brown says.

Such efforts may have merit, says Rick Oglesby, president of AZ Payments Group LLC. “Having a mobile in play gives banks and acquirers an entirely new way to link consumers to their true identities,” Oglesby says via an email to Digital Transactions News.

“On the banking side, companies like Early Warning enable banking identities to be linked to phone identities, as well as geolocation data can be used for authentication,” Oglesby says. One example is using a mobile device’s geolocation data to determine if a customer is near the ATM into which a consumer’s debit card has been inserted, he says.

“On the merchant side, companies like Square use similar approaches to assess merchant risk by evaluating information that is available from the device itself, from carriers, from manufacturers, and from social networks,” Oglesby says. “They’ll do that when a merchant first activates, when it transacts, and when payments are made.”

While mobile data provides additional insight in terms of location and the potential to bind a secure element to an identity and cross check with other data sources, it should not alter the application of AML and KYC practices, says Ben Knieff, senior analyst specializing in fraud detection and identity verification at Aite Group LLC, a Boston-based financial-services advisory firm.

“Institutions should leverage all data points available to them,” Knieff says via email, “but there is no reason that mobile-initiated interactions should be treated any differently than other transactions.”