EXCLUSIVE: “First Responders” – Otto Benz, Nationwide in “The Fintech Magazine”

The shocking rise in financial fraud is prompting UK banks such as Nationwide to adopt a new approach, as payments director Otto Benz explains

2021 was something of an annus horribilis for many unsuspecting consumers in the UK, with fraud victims conned out of a staggering £1.3 billion. Digging a little deeper into the data, there were 195,996 separate cases of authorized push payment (APP) fraud, which saw Britons tricked into handing over £583.2m last year. App scams are usually simple but effective; criminals posing as trusted organizations or financial institutions, persuading victims to make a payment in the belief that their money was in safe hands.

These scams often use legitimate platforms to reach victims, lending credibility to the platforms and services they abuse. The damage is, of course, primarily felt by the individual who is persuaded to part with their money through fake phone calls, text messages, social media posts and seemingly legitimate websites. But banks are also affected – not only if they refund the customer, but also by the damaging effect it has on consumer confidence in their brands. Add to the mix a steep increase in the number of digital communications and transactions encouraged by the COVID-19 pandemic, and the environment exists for financial fraud to become something of a national crisis.

However, the institutions have not sat on their hands. What could be described as a “fourth emergency service” was launched in the UK in September 2021, where customers who believe they may be being scammed can call 159 for help. The secure number is linked to the individual’s bank and is a safe route for anyone who thinks someone is trying to trick them into handing over money or personal information. ‘Call 159’ was introduced by Stop Scams UK, an organization set up in 2020 to help businesses ‘protect customers based on first aid proactive collaboration, and the sharing of insights and best practice’.

To date, Barclays, BT, The Co-operative Bank, Gamma, Google, HSBC, KCOM, Lloyds Banking Group, Meta, Microsoft, NatWest, Santander, Starling Bank, TalkTalk, Three, TSB and Nationwide Building Society have signed up to the initiative , which covers more than 80 percent of primary current account holders and the majority of telecom subscribers.

Trust is key for all banks, but none more so than the one that ranks as the UK’s most trusted financial brand, regularly ranking in the top two for customer satisfaction. Nationwide Building Society, with 16 million members, has something of a reputational imperative to deal with the industry’s authorized fraud crisis.

“explains Just giving a standard message, asking someone ‘are you sure you know this person?’, is probably not good enough to prevent some of the scams we see”

Before joining the Stop Scams UK initiative, it had launched its own Scam Checker service, which encourages members to check any payment they are concerned about, either in branch or by calling a 24-hour freephone number. More than 300,000 of them used Scam Checker last year. Along with additional staff training, awareness programs and investment in its data management infrastructure, Nationwide helped prevent £97m of attempted card and online fraud in 2021/22. But it has gone further.

The 2022 annual report describes how the association has also “enhanced our payment fraud detection system, and enhanced our fraud alerts, to simplify them and highlight social media fraud”.

It continued: “We are educating more widely beyond our own membership too, running national fraud awareness media campaigns. We are also playing our part to tackle this growing problem by taking an active role in cross-sectoral working groups, including campaigning for changes around greater data sharing between providers of financial services to reduce payment fraud.”

Nationwide’s approach to fraud prevention clearly has data at its heart. Otto Benz, director of payments, says there is an accelerated move by banks to improve payment data, driven not only by changing consumer habits but also by the urgent need for increased security.

“We are definitely seeing a movement away from cash and into electronic payment mechanisms, and particularly account-to-account mechanisms, through open banking,” he says. “Many of the participants in the payment ecosystem – banks, building societies and others – are updating their payment platforms and infrastructures, both to support things like ISO 20022 [the global payments messaging standard] and also their own need to improve resilience.”

It plays into consumer expectations, particularly in the UK, for real-time payments to be processed quickly and with minimal fuss. But can speed compromise safety? How do you ensure that these “fast and frictionless” payments are not fraudulent?

Benz believes that AI can play a central role, especially when it comes to fraud based on psychological manipulation.

“A lot of the problems now are social engineering problems, where customers are persuaded to make payments to people who seem reasonable at the time. It’s only when they are interrupted in their thought process and forced to think about whether this is something they should really be doing, that these fraudulent payments are stopped. And that’s where I think some of the new technologies can really help, because just giving a standard message, asking someone ‘are you sure these are the details of your payment? Do you know this person?’ , is probably not good enough to prevent some of the fraud we’re seeing. AI can help with specific interventions, and also put appropriate friction into the payment process,” he says.

Benz believes the standardization of electronic data exchange between financial institutions, within the framework of ISO 20022, will also have an impact. Data gives knowledge, with knowledge comes transparency, and this transparency gives increased security.

“At the end of the day, payments are a collaborative ecosystem,” he says. “You have to work together on what the format is for a payment, and how it is best possible. Underlying it all is a demand for more data in the payment itself.

“The ability to track international payments end-to-end, with new guaranteed references, through the Unique End-to-End Transaction Reference (UETR) on SWIFT is a real advantage. Just understanding who you are sending the payment to should reduce the effort that required to control it – for example through sanctions processing – because the parties will be easier to identify.

“All these things will improve direct processing speeds and make it easier to spot potential problems. Just providing the basic facilities to track for individuals and their financial institutions will help. Also for banks, it will improve accuracy, speed up processing and reduce costs.” Institutions still need to innovate to use all the data that becomes available,” says Benz, “and it remains unclear how companies will be able to provide this information to their customers. Despite the fact that this has been going on for several years, no one has come up with good use cases for leveraging this improved data. This is still an opportunity for us in the industry, but it is not ready yet.”

In anticipation of these opportunities, Nationwide has invested heavily in improving its technology space, much of it built in-house.

But it also has key partnerships with external suppliers. Only recently it announced an agreement with digital transformation company AND Digital, to improve the computing experience of users. Digital will help deliver real-time information across touchpoints, for both nationwide staff and members – in person, online or on the phone – through “optimizing work processes and developing tailored platforms that require minimal user technical skills”.

Benz believes that financial institutions must continue to evolve to accommodate an ever-changing landscape. And whether it’s to combat fraud, deliver faster transactions or simply communicate better with customers, organizations like Nationwide have in many cases embraced the cloud to improve their offering.

“We, like many others, have inherited technology infrastructure, which ages over time, and it is very difficult to take into account the changing payment types, the changes in the international landscape and also the volume of interactions,” says Benz.

The building society has recently upgraded to IBM’s z16 mainframe, which is future-proofed for AI applications and cyber-resilient security. It also maximizes Nationwide’s technology options, and is suitable for hybrid cloud environments. Nationwide completed its first cloud-based payments trial through PayUK’s New Payments Architecture program earlier this year.

“We will roll it out and build our new payment infrastructure on that cloud platform,” says Benz, “to leverage the new payment standards from day one.”

This article was published in The Fintech Magazine issue 25, pages 18-19