Financial Crime Risk Management Systems: Enterprise Fraud: Market Update and Vendor Landscape, 2019

Market update

As we highlighted in the previous iteration of this update report¹, the landscape for enterprise fraud is increasingly dividing into two distinct areas: account-based fraud and payments-based fraud. While the former has retained its position as a relatively static (though highly important) issue for financial institutions (FIs) to manage, payments-based fraud has been growing, driven by the rising and increasingly diverse nature of electronic payment mechanisms and faster-payments initiatives. 

Against this backdrop, two major developments are driving anti-fraud capabilities: 

• In payments fraud, the increasing ubiquity of digital payments means that fewer transactions are cash-based. Even the smallest transactions are now digitally driven, making payment processors and (by association) anti-fraud systems for payments more important than ever.
• In both payments- and account-based fraud, the era of Big Data is driving the development of an environment in which an increasing number of vendors provide curated data sets. In both cases these are being used primarily as part of identification and verification processes.

These two changes are causing shifts in the marketplace, and the payments market in particular has become a hotbed of company acquisitions. Acquirers with significant core banking capabilities are buying up payments firms, and as a result their presence in the anti-fraud space will become more pronounced. If a single firm can provide payments processing, core banking and anti-fraud capabilities, it has an opportunity to cross-sell these capabilities and keep clients within its own ecosystem.

Vendor landscape

This trend toward acquisition means that vendors of anti-fraud solutions, especially those in the payments space, should determine whether they may be in the sights of an acquisitive core-banking provider. Elsewhere, the trend may also create challenges for vendors in high-volume, low-value marketplaces such as those occupied by Tier 2 and Tier 3 US FIs. These are currently dominated by core banking providers that may be offering their own packaged capabilities.

The bifurcation of fraud systems will clearly impact vendors’ strategies. In particular, vendors will need to decide if and how they want to specialize (by, for example, focusing on a specific area, or by spreading their bets across both areas). In general, firms tend to be more effective in one area or the other, dictated by factors such as their underlying infrastructure capabilities. For example:

• Account-based solution providers will already have specialist capabilities in areas such as case management and libraries of anti-fraud analytics. Their specific strengths are often in behavioral modeling. Account-based anti-fraud is also being affected by the drive toward the cloud; by assigning analytics and monitoring capabilities to cloud deployments, firms can tune and manage them within a single remote environment.
• Payments-based fraud also contains its own specialist firms. Streaming capabilities (such as Kafka, Apache’s distributed streaming platform) are typically necessary to manage low-latency, high-volume payment volumes. In addition, the growth of mobile payments has put more pressure on institutions to provide additional identification capabilities (including biometrics and device-ID management services). As with transaction monitoring, these should be accessed and processed at low latencies.

In fact, we are continuing to see divergence among vendors in terms of their strategies and their underlying technologies. Payments-based fraud in particular is currently undergoing seismic market shifts, driven by the rapidly changing payments landscape. Vendors of account-based fraud solutions should take particular note of the shift toward cloud-based fraud systems, since it has implications for the way they should manage new types of fraud (such as so-called ‘synthetic fraud’²).

This report uses Chartis’ RiskTech Quadrant^® to explain the structure of the market. The RiskTech Quadrant^® uses a comprehensive methodology of in-depth independent research and a clear scoring system to explain which technology solutions meet an organization’s needs. The RiskTech Quadrant^® does not simply describe one technology solution as the best risk-management solution; it has a sophisticated ranking methodology to explain which solutions would be best for buyers, depending on their implementation strategies.

This report covers the following providers of enterprise fraud risk management solutions: ACI Worldwide, BAE Systems, BPC, Clari5, FeatureSpace, FICO, FIS, Fiserv, IBM, InfrasoftTech, LexisNexis Risk Solutions, Manipal Group, NetGuardians, NICE Actimize, Oracle, Pelican, Quantexa, and SAS³.

We aim to provide as comprehensive a view of the vendor landscape as possible within the context of our research. Note, however, that not all vendors we approached responded to our requests for briefings, and some declined to participate in this research

^{1 Financial Crime Risk Management Systems: Enterprise Fraud; Market Update 2018’}

^{2 See the box-out on page 8.}

^{3 Note that references to specific vendors within the text of this report do not constitute endorsements of their products by Chartis.}

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• Topics
• Financial Crime
• Anti-fraud