Cyberspace has always been clogged with threats and dangers, one of them being fraud attempts. With COVID-19 entrapping employees at home and enterprises relying on online communication, there has been an escalation in fraud attacks.
Many organizations have received fraudulent messages at least once in their lifetime and sometimes, they are very easy to spot. Fake names and misspelled words – these are some of the most common characteristics of fraud messages that employees spot. However, with all the cybersecurity tools in the world, it is not always possible to guarantee that employees will distinguish professional fraudster emails from official ones.
For this reason, we invited Hubert Rachwalski, the CEO of the fraud protection company Nethone, to have a discussion about fraudsters and how to prevent falling victim to their crimes.
How did the idea of Nethone come about? What was the journey like since your launch?
Nethone was founded in 2016 by specialists in the field of Data Science, IT security experts, and experienced managers. However, the company’s beginnings can be traced back to 2015 within the structures of Daftcode – the largest venture building company in Poland. At the time, the team was small but set itself the goal of proving that our original idea was valid – that the Nethone Profiler could aid the fight against fraud. We could achieve this by collecting thousands of pieces of data to improve the prediction of a user’s behavior, providing relevant and useful data in real-time. With this approach, we were able to prove that our idea was indeed valid, and this is essentially how our fraud solution still works today.
On a global scale, we work together with eCommerce, digital goods, travel, and financial industries. Our first customers were predominantly from Latin America, mainly Brazil. There, the phenomenon of payment fraud is a huge problem, and effective solutions or systems that bring new value in this fight are of course in great demand. Therefore, we started our activity there rather opportunistically. We also operated in other Western markets, but we are increasingly cooperating with clients from Poland, as well as from Central and Eastern Europe. Our company continues to grow, and in mid-2021, we raised $6.7 million in Series A funding to provide further features to our advanced fraud solution. Towards the end of the year, we were also named Poland’s fastest-growing company in the “Deloitte Technology Fast 50 Central Europe”.
You describe Nethone as a Know Your Users company. Can you tell us more about this approach?
We have created and developed our proprietary anti-fraud solution based on the Know Your User (KYU) concept as it is a far more advanced and effective approach in preventing cybercrime. Fraudsters are continually adapting tools and techniques to circumvent rule-based fraud systems, therefore, the best way to combat the threat is to use advanced solutions that work far more efficiently.
Our KYU approach consists of multi-dimensional profiling of users in terms of their true intentions towards eCommerce merchants and financial institutions (detection of anonymization tools, automation, and suspicious or irregular behaviors) – anything that suggests a user is trying to hide their true intentions, identity, location, and hardware/software setup. We believe that in the new era of customer-oriented services, merchants should not only get to know their users but also understand their motives. Analyzing unique data about users during their interaction with the client’s website or application on a mobile device in real-time has proven extremely successful in combating fraud.
What set of tools do you use to detect fraud? How is artificial intelligence (AI) incorporated into your services?
Nethone’s SaaS fraud solution is effective as, at its core, it analyzes thousands of pieces of data in real-time incorporating digital fingerprinting (device setup, etc.) and behavioral biometrics – spotting irregular behaviors that may be deemed suspicious, such as making concerted efforts to hide identity, location and, of course, true criminal intentions. These core tasks are backed up by artificial intelligence and machine learning models that allow for their automation.
The end result is to provide eCommerce merchants with a detailed analysis of their users without affecting the customer experience as it runs in the background, completely unseen, with no negative effect on the browsing session. The use of AI/ML is innovative and allows for our solution to continually adapt and evolve – this is essential as cybercriminals are always trying to find ways to get around fraud detection systems.
Do you think the pandemic changed the way threat actors operate?
There is perhaps a prevalent image of typical fraudsters and how they must have advanced skills to perform their fraudulent activities. The reality can be somewhere different, and this has become quite evident in the time of the ongoing COVID-19 pandemic. Fraudsters are using tried and tested social engineering methods to defraud their victims, that is, manipulating victims into giving up personal information.
And how are they doing this? By encouraging victims to install malware using scams such as phishing (email), vishing (voice call), and SMiShing (text message). They often require visiting a fake link that then enables fraudsters to steal all manners of personal information to use in identity theft, account takeovers (ATO), etc. The reason these less sophisticated methods are succeeding is because eCommerce has grown greatly since the beginning of the pandemic. Shoppers who previously avoided or limited internet purchases were forced to go online when lockdowns forced brick-and-mortar shops to close. These same users are often unaware of the dangers that can be encountered online, let alone how to effectively safeguard themselves against them.
What security risks do you think owners of online businesses often fail to take into account?
Very often eCommerce merchants will choose to ensure continued revenue growth over fraud management concerns. They are aware that their businesses may be prone to fraud, however, they accept this state of affairs as they believe ensuring a positive customer experience is far more important.
Ineffective rule-based fraud management systems may require customers to undergo authentication processes such as completing CAPTCHAs and verifying identity with two-factor authentication via SMS during the payment process. These can be sources of checkout friction which can frustrate customers and lead to cart abandonment. Aside from lost custom, this can also lead to negative customer online reviews – something that can be damaging for any eCommerce business.
Ironically, putting revenue above fraud concerns can actually have the opposite of the intended effect – negative reviews from fraud victims will be more damaging to a merchant as they show potential customers that their payments may not be secure. A shopper will ditch this merchant in a heartbeat, moving on to another online shop.
The problem we have with this situation is that it is completely avoidable. Advanced fraud solutions can guarantee effective fraud prevention while ensuring a smooth customer payment process without the need for invasive authentication measures. Digital fingerprinting and behavioral biometric analyses backed up by ML models meet the requirements for authentication and are far safer than 2FA, which can be bypassed by determined fraudsters. Customers experience a smooth transaction, no negative feedback is necessary, and the merchant continues to improve sales growth. A win-win situation that only advanced solutions can provide.
What red flags indicate that a user might be malicious or their account has been taken over?
Fraudsters will take many steps to ensure their fraud activities end in success. The key to this success is to hide behind a smokescreen that will include masking true identity, location, hardware and software setup, and even true intentions. This is why the need to know your users is necessary as advanced fraud solutions can distinguish genuine users from fraud actors. If an online account has been taken over, there will be key indicators that can be analyzed automatically and in real-time – it is possible to identify if the current user’s behavior differs greatly from previous activity on the account. This can include changes to the type of purchases and the amounts of goods; perhaps buying more expensive electronic goods (that can later be sold for profit). The user’s geolocation may have changed from the previously recognized location from where the genuine account holder will have logged in. Using TOR to mask your location is indicative of suspicious activity and so is the hardware and software setup, which again, may be completely different than what the original account holder may have. Our solution scans 5000+ pieces of data, therefore, it is much harder for fraudsters to succeed with ATO.
In your opinion, which organizations are attractive targets for fraudsters and should be especially concerned with implementing proper security measures?
The simple answer to this question is any eCommerce business or financial institute with an online presence that facilitates payments and transactions. There is no one particular target for cybercriminals as they will always try to find the path of least resistance with the highest possible financial returns. The professionalization of fraud with ready-made tools available for purchase on dark web markets allows even novice but determined cybercriminals to defraud victims with relative ease.
Talking about average internet users, what security measures do you think everyone should adopt to keep their accounts safe?
Education about the dangers of the internet is the key for everyone and of all ages. Now more than ever the key messages need to be spread as global eCommerce continues to grow – as do the threats! One of the most important steps anyone can take is to ensure any devices people use are kept up-to-date with the latest operating system and software updates (such as antivirus).
Ensuring people have the latest updates means they will have security patches applied to any loopholes or exploits discovered by security experts. Also, a very important measure is ensuring that all passwords are long, with mixed numbers, letters that are both upper and lower case, and some symbols thrown in for good measure. The more random and complex a password will be, the harder it is for fraudsters to hack. And of course, what we often hear about in the news: never click on suspicious links in emails or SMS messages and do not follow instructions to download suspicious software. Doing so can lead to fraudsters taking over your online accounts, or worse, stealing your identity.
And finally, what’s next for Nethone?
Nethone has grown since its inception, and we now have a dedicated team of people that are helping us to continually improve our fraud solution. We are always looking for innovative ways to improve the efficiency of our solution. With this in mind, we wish to expand the capabilities and features to secure mobile payments. I must stress, we already do this, however, as global eCommerce continues to grow, it is important to know that the share of mobile payments (via apps and digital wallets) will make up 50% of all such transactions by 2025. This is a huge development and one which is already evident in Asia, where the uptake of mobile payments has been firmly established (above 80%) even before the pandemic forced merchants and shoppers online. Europe is catching up but is still behind in global terms. This is why we wish to be the go-to solution to ensure mobile payments are performed smoothly and safely.
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