Transaction Tagging is One Bank’s Weapon to Combat Payments Fraud

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Stopping fraudsters can be a lot like the arcade game Whac-A-Mole.

"We have been putting some focus recently on credit-push fraud. Whenever banks ramp up and start stopping fraud somewhere, fraudsters are going to try to find a new avenue," Jordan Bennett, Nacha Senior Director, ACH Network Risk Management, told Nacha's Payments SmartCast podcast.

JPMorgan Chase regularly sees new schemes and fraud techniques attempted. But the nation's largest bank by assets, and a Nacha Direct Member, isn't taking the threat lying down. JPMorgan Chase has developed "transaction tagging" for ACH debit. Matthew Friend, Managing Director of New Payment Rails at JPMorgan Chase, said "it really comes down to looking at every transaction on the network and being able to essentially tag it, and tag it with the payment flow."

"We're focused on safety and soundness across the board. JPMorgan Chase is a large originator and a large receiver. We sit on both sides of this equation," said Friend. Solving both sides of the equation, he said, "starts with the first step, and that first step is data, data, data. And that transaction tagging is what gives us the underlying data to make informed choices."

Transaction tagging allows Chase to identify attributes of each transaction. Chase can identify the use case, including whether it's bill pay, account funding, e-commerce, etc. And then they look at the industry segment: "Is it a gig economy service? Is it gambling? Is it telecommunications?" Other tags include one-time or recurring, and whether a digital wallet was used. Having all this information, Friend said, allows JPMorgan Chase to "make much more informed decisions" about the transaction, understand customer trends and better serve customers when they have questions.

Bennett noted that one of the new avenues fraudsters are attempting is first-party fraud, of which there are two main scenarios.

"There's a scheme out there where fraudsters are opening accounts at financial institutions and then saying, 'I didn't authorize that,' when they authorized a debit to fund that new account. There's also false claim fraud, where someone makes a payment such as to a biller then claims that they've never heard of this," Bennett said. He noted Nacha's Risk Management Advisory Group (RMAG) recently conducted a survey which revealed that first-party fraud "is a growing problem among all the respondents," with nearly each bank that answered saying it has recently been victimized.

Transaction tagging allows JPMorgan Chase to capture more granular context about the payment starting with its purpose in order to understand customer activity and to identify potential fraud including first-party fraud. The data can be used to feed machine learning models that are used to alert customers of potential unauthorized activity, as well as be used for investigation of claims.

Much more was discussed, including a detailed look into transaction tagging. You can listen to the complete podcast below.