Payments expert Matt Davies talks fraud prevention

Matt Davies, payments outreach officer for the Federal Reserve Bank of Dallas, traveled to Wichita this week to give a presentation about payments fraud.

The talk was put on by UMB Bank and focused on helping businesses better protect themselves against fraud. Eagle business reporter Bryan Horwath caught up with Davies before his presentation Thursday afternoon at the Abode Venue.

Q: So, what are you in town to talk about?

A: The event is about payments fraud. UMB put this on for their corporate clients and some of their bankers.

With payments fraud, there are a lot of hot topics in that space. Probably the hottest topic right now is this idea called business e-mail compromise, which is the phenomenon where a corporate customer might receive an e-mail that appears to be from a vendor. This e-mail might say that the vendor/bank relationship has changed and that payment should be mailed to a certain routing and account number. The payment might go out to this new place with the person who received the e-mail realizing later that this e-mail wasn’t from the vendor, but rather from a fraudster.

Q: It would seem that such an e-mail would be easily decoded, but these types of messages are designed to trick people. Explain how that can happen, possibly even to some of the most deliberate employees within a company.

A: There are different ways that fraudsters try to go about this. Somebody at a company might get an e-mail that appears to be from their CFO that says, ‘we’re closing on this acquisition, and I need you to wire $10 million to this bank in Hong Kong. You and I are the only people in the company that know about this, and I know I can count on you to get this out.’ That person doesn’t want to let their CFO down, so they go ahead with the transaction.

We hear stories from our bankers, and from companies that we talk to, where people are catching these before the transfer goes out, but others are not so lucky. It’s hard to get good figures on losses or frequency of success for these scams, but I would say the attempts are pretty rampant.

Q: When you talk about a $10 million transaction, that’s pretty significant, but you’re also here in Wichita to talk to small business owners and operators who would could fall victim to these schemes, correct?

A: Absolutely. Large businesses tend to have bigger budgets for information technology security and training for employees. A small businessperson, however, is trying to run their business – they may not be as well-versed in hot topics or trends like the bigger businesses are. Education about these trends, it’s really important.

Q: There was a change last month in the U.S. where many businesses – because of shifting liability – have begun changing over to chip card-enabled payment technology on point-of-sale transactions. How has this change been going?

A: Traditionally, it’s been the bank that eats the loss on a fraudulent charge if a card is compromised. Starting Oct. 1, the party that is responsible for a transaction not being a chip transaction is the party held liable for the fraud. In this area, some of the bigger merchants already have chip card technology, like your Wal-Marts, but others do not. A lot of merchants have the terminals but have not turned them on yet.

We’re starting to see progress, but some small and mid-sized businesses are looking at their fraud track record, limited in many cases, and they’re not wanting to go through the expense of buying new chip acceptance terminals. We’re seeing a lot of those smaller businesses waiting to see what happens.

Q: In your line of work, you’re playing kind of a virtual cat-and-mouse game with criminals looking to defraud people and businesses. What is that chase like on a daily basis?

A: I tell audiences that the fraudsters are always kind of a half-step ahead of the bankers. If you think of fraud like a balloon, if you start to squeeze on card-present fraud, you start to see fraud pop out somewhere else. Online, for example. If you shut off one channel to the fraudsters, they end up moving on to the next.

This story was originally published November 13, 2015 at 6:33 PM with the headline "Payments expert Matt Davies talks fraud prevention."