Federal Reserve Releases New FraudClassifier Model for Payments

Thoughtware Alert Jun 23, 2020
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In 2018, as part of the FedPayments Improvement initiative, the Federal Reserve (Fed) commissioned a secondary research study titled “A View of Payments Security: Trends, Gaps and Vulnerabilities.” This study identified issues with classification and reporting of fraud associated with Automated Clearing House, wire, and check transactions. The results were clear—payment fraud trends could be better identified and tracked, which ultimately would more effectively combat fraud.

In March 2019, the Fed created the Fraud Definitions Work Group (Group). The Group’s members include individuals from the Fed, as well as individuals with big names in the financial industry—NACHA, JPMorgan Chase, Jack Henry, and FIS, to name a few. The Group’s goals are to:

  • Bring together relevant expertise and a range of experience from across the payments industry
  • Develop a recommended fraud classification model that includes detailed definitions and/or categories to better understand key data points in payment fraud
  • Propose a road map to encourage broad industry adoption of its recommended model

As a result of the Group’s efforts, a model was created to assist an organization with accurately categorizing fraud. 

Fraudclassifier Model

The model isn’t being mandated and is completely voluntary to adopt. The Group believes adopting this FraudClassifier model will create the following benefits for an organization:

  • Facilitating consistent fraud information and tracking. The FraudClassifier model can be applied across an organization to help ensure greater internal consistency in fraud classification, more robust information, and better fraud tracking.
  • Improving customer education. An organization can better understand fraud through insights the FraudClassifier model provides and more effectively educate its customers on current fraud methods and how to protect themselves from being victimized.
  • Understanding fraud across payment types and fraud methods. The FraudClassifier model was designed to help classify fraud for multiple payment types and fraud methods. Such insights can help improve fraud response strategies.
  • Speaking the same language about fraud. If adopted across the payments industry, the FraudClassifier model can facilitate a common fraud language and help organizations work together to better identify and fight fraud, fostering a safer payment system for all. 

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