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USING THE PAST TO MANAGE PAYMENT FRAUD RISK

Andrew Davies VP, Global Market Strategy, Financial Crimes Risk Management, Fiserv

Andrew Davies has 25 years experience in financial services and risk management with particular focus on AML, fraud, risk management, settlement risk and payment processing. He is responsible for working with Fiserv customers around the world to design and deploy effective financial crime risk management solutions. Andrew has experience working for and with organizations like Nomura, The Federal Reserve Bank of New York, the Continuous Linked Settlement Bank, ING, Sun Life, Manulife Financial, Citizens Bank, Deutsche Bank and the Bank of Tokyo-Mitsubishi, among others.

Dave Richardson Senior Manager Fraud & ATM Operations First National Bank of Omaha

Dave brings 19 years experience in fraud prevention field as it relates to various on-line channels, primarily within the financial services industry. He has successfully created a best-in-class fraud prevention team responsible for monitoring and mitigating fraud against consumer, business, and commercial bank accounts. He is an expert at building out tools to prevent losses through ACH, wire, ATM, and mobile channels. Also, he has developed risk control guidance for mobile banking deposit products, on-line money movement, business mobile banking, and enterprise-wide transaction monitoring. His approach focuses on the impacts of fraud prevention to the customer experience. He is focused on building out fraud prevention practices with minimal negative customer experience.

As Faulkner said, “The past is never dead. It’s not even past.” Managing risk and customer experience in a world of real-time payments continues to be a challenge. We will discuss the key ways to maintain a view of the payment life cycle and identify risk indicators in a connected environment while enhancing the customer experience.

In this session, we will discuss the following: • Payment landscape • Fraud landscape • Faster payments • Leveraging data in fraud prevention

FORTUNE Magazine World's Most Admired Companies® 4 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Several Indicators Point to the Continued Challenge of Managing Risk

61% increase in account take 84% increase in mobile remote over losses deposit capture fraud losses • Losses are not slowing down • Call centers are being challenged • Mobile is growing concern • Continued breaches enable • Checks as a whole are coming back social engineering • No longer part of doing business

Faster Payments was implemented in $16B in losses for identity theft May 2008 in the U.K. • Competitive advantage as a • Highest number of victims: 16.7M • Result was a 132% increase in differentiated • EMV® breaches fan the fire online banking fraud compared to service 2007.

Source: Javelin Strategy & Research, 2017; Aite Group, 2017; Nilson Report, October 2017; Market Research Future 2017; EMV ® is a registered trademark or trademark of EMVCo, LLC in the United States and other countries around the world, 2018.

FORTUNE Magazine World's Most Admired Companies® 5 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Blockchain, Evolution of Financial Crime Mitigation Biometrics, Artificial Intelligence and Machine Learning Hybrid Analytics Scoring

Expert Rules In a world of Leverage internal increase data and Investigations and consortium faster speed of data and deeper technology learning algorithms continues to impact to increase scoring the mitigation of Leverage Leverage Science precision and fraud at the speed of automated rule and Fraud uncover more life. Reliance on systems written Consortiums to build scoring on fraud across all Investigators to by experts to flag stop fraudsters single channels channels suspicious things that reduce fraud

1980 1995 2000 2015 2018

The Evolution of Financial Crime Solutions

FORTUNE Magazine World's Most Admired Companies® 7 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 User Options to Access Products Across Multiple Platforms Create Complexity

Mobile Login credentials Social media Debit cards Voice messaging Desktop Knowledge-based

Credit cards Text Tablets Wallets One-time password User Gaming ACH App Banking Fingerprint

ATMs Cryptocurrency Website Alternate payments Facial Branch FORTUNE Magazine World's Most Admired Companies® 5 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 The World Is Changing – Pace Is Accelerating

Simple digital Transactions Integration experience

• Days, weeks • Next day • Instant, real time • Customer service • Self-service • Customer experience • Transactions • Pay online, mobile • One-click • Multistep • Contactless • Biometrics • Physical location • Regulation • Tokenization • Cyber security • Card-free • Social media • AI • IoT / IoE

FORTUNE Magazine World's Most Admired Companies® 9 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 ‘Improvements to Speed and Efficiency Are Transforming Banking’ 73% Consumer expectations Safer Consumers say direct deposit via are driving innovation than paper ACH helps them pay bills on time

Reduced risk Convenience and access to money 87% over other payment methods Users are highly satisfied with direct deposit Direct deposit users Faster are predominately fans of technology access to pay 82% Number of American workers paid through direct deposit

FORTUNE Magazine World's Most Admired Companies® 10 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Banks should plan for a ‘real-time everything’ future – more than just a payment type, real time will underpin everything digital that a bank does.

– Celent, June 2016

FORTUNE Magazine World's Most Admired Companies® 11 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Identity Fraud Victims at Record High and Losses Continue to Rise

Fraud Losses (U.S. Billions of Dollars) Millions of U.S. Fraud Victims $22.10 16.7 15.4 $19.30

13.1 13.1 $16.40 $16.20 $16.80 12.6 12.7 $15.50

2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017

Source: Javelin Strategy & Research, “Identity Fraud Study,” 2018 FORTUNE Magazine World's Most Admired Companies® 12 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Multiple Fraud Types Target Digital Channels

Q. What are the top three types of fraud attempts you are seeing in digital 68% channels in 2017? (N=19)

47%

37% 32% 26%

16% 16%

ATO Application First-party mRDC Credential CNP fraud Business email OTP fraud / ID theft / fraud / scams validation compromise / compromise synthetics wire fraud

Source: Aite Group, “Digital Channel Fraud Mitigation: Market Trends Influencing FI Strategies,” November 2017 FORTUNE Magazine World's Most Admired Companies® 13 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Digital Channel Losses Are on the Rise Q. Are your online / mobile fraud losses trending up, down or flat over the past 2 years ? (N=19)

Down 5%

Flat Up 21% 74%

Source: Aite Group, Interviews with 19 large North American FIs, July – September 2017

FORTUNE Magazine World's Most Admired Companies® 14 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Analytics Drive Improved Detection and Frictionless Experience

• Smarter people, smarter machines

• Artificial intelligence (AI) leading to process automation – not just analytics

• Computing power is changing what is possible

Consumers don’t leave home without their mobile devices, and they want to do more and more with them: • Payments • P2P transfers • Account opening • Online shopping and so on

FIs must meet consumers’ needs via their mobile devices or risk losing them to competitors.

FORTUNE Magazine World's Most Admired Companies® 16 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 FI Fraud Prevention Moves to Mobile-First (Continued) The mobile device can serve as the foundation for authentication in ...

All channels, including: • Online • Contact centers • POS Aspects of authentication: • Device fingerprinting • Biometrics on device • Geolocation • Behavioral biometrics • Identity document verification • One-time passwords • Mobile network operator data

Leverage • Reduce abandonment frictionless tools • Scores / models, device and rules

Use analytics to • Demand for better data to drive predictive analytics drive insights • Provide behavioral, machine learning and AI

Empower your • Rules engine and validation of disconnected elements internal data • Matching, validation rules and anomalies

Integrate the power • Enables broader network view, stops repeat offenders of consortiums • Known frauds, bad devices and suspicious activity

• Nimbleness to react to future trends – fluidity of market Optimize flexibility • Monitor, tweak and confirm

Primary Components of Electronic Payments Manager

Predictive Models Fraud Scorecards Fraud Scenarios

Automated scoring models built by Scorecard’s written by you or our fraud Flash fraud rules you write to stop fraud Strategy Management Strategy FISERV Scientist consultants. immediately.

Alert Management Case Management Reporting

Automatic workflow for efficient analysis and Tools to handled confirmed cases of fraud and Management reporting to identify opportunities.

Workflow/Reporting handling. SAR reporting.

• New fraud schemes, technology, regulations and customer expectations will continue to drive change in the risk arena.

• Opportunities are available to have a bigger voice. We not only manage losses and regulatory requirements but also drive a positive impact to enhance business and customer perception.

• Meet the Risk and Fraud team in the Solution Center.

FORTUNE Magazine World's Most Admired Companies® 21 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 The Largest Data Breaches to Date Indicate a Strong Need for Data Protection and Changes to Existing Data Processing and Control

Biggest Data Breaches in the 21st Century

Equifax (2017) 143M Adult Friend Finder (2016) 412.2M Anthem (2015) 78.8M Home Depot (2014) 56M JP Morgan Chase (2014) 76M Ebay (2014) 145M Yahoo (2013) 3B Target (2013) 110M Abobe (2013) 38M U.S. Office of Personnel Management (2012) 22M RSA Security (2011) 40M Sony's PlayStation Network (2011) 77M Heartland Payment Systems (2008) 134M TJX Companies Inc. (2006) 94M

Source: Aite Group, “Data Protection in the Board Room: The Impact of the GDPR,” January 2018

FORTUNE Magazine World's Most Admired Companies® 22 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Social Security Numbers Overtake Credit Cards as Most Breached – Breach of Personally Identifiable Information (PII) Poses Lifelong Threat Exposure

Type of Information Compromised in a Data Breach, 2017

SSN 35% Credit card number 30% Debit card number 16% Online banking credentials 8% Checking account number 7% Driver's license number 6% Medical records or health insurance info 5% Debit card PIN 3% Credit card ATM PIN 3% Child's SSN 2% School records 1% Military ID 0% 0% 10% 20% 30% 40%

Source: Aite Group, “Top 10 Trends in Institutional Securities and Investments, 2018: Regulatory Roulette,“ January 2018

FORTUNE Magazine World's Most Admired Companies® 23 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 1.58% of Consumers Experienced Account Takeover Fraud in 2017

Account Takeover Fraud Incidence Rate and DOLLAR AMOUNT of losses, 2011–2017

$6 2% $5.00 $5.10 $5 1.58% $3.90 $3.90 $4 $3.10 $3 1% $2.30 $2 $1.50 0.66% 0.60% 0.63% 0.57% $1 0.36% 0.42% $0 0% 2011 2012 2013 2014 2015 2016 2017 U.S. dollars (billions) Percentage of consumers

Source: Javelin Strategy & Research, “2018 Identity Fraud: Fraud Enters a New Era of Complexity,” February 2018

FORTUNE Magazine World's Most Admired Companies® 24 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 New Account Fraud Continues to Rise as a Result of Data Breaches – 1.33% of Consumers Experienced New Account Fraud in 2017

New Account Fraud Incidence Rate and Dollar Amount of Losses, 2011–2017

$12 2% consumers of Percentage

$10 $10.40 1.33% $8 1.22%

$6 1% 0.82% 0.74% 0.62% $4 $5.50 0.50% $3.60

(In billions of of (In $US) billions 0.29% $2 $2.70 $2.90 $3.00 $2.10 $0 0% 2011 2012 2013 2014 2015 2016 2017 U.S. dollars (billions) Percentage of consumers

Source: Javelin Strategy & Research, “2018 Identity Fraud: Fraud Enters a New Era of Complexity,” February 2018

FORTUNE Magazine World's Most Admired Companies® 25 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Fraudsters Are Committing Multiple Frauds on the Same Victim Proportion of Fraud Victims Experiencing Multiple Types of Fraud (2013–2017) • Formalize information sharing: Build 36.0% formal processes to share information across fraud teams for different areas within the enterprise

23.0% • Seek out consortium intelligence: Shared 21.0% 20.0% 21.0% consortium data can help detect complex fraud schemes • Send responsive alerts through multiple channels: Mandatory email / text notifications for any user profile change

2013 2014 2015 2016 2017

Source: Javelin Strategy & Research, “2018 Identity Fraud: Fraud Enters a New Era of Complexity,” February 2018 FORTUNE Magazine World's Most Admired Companies® 26 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Impacts of Payments Fraud on the Financial Institution

FORTUNE Magazine World's Most Admired Companies® 27 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 According to a new survey of nearly 300 U.S. financial institutions (FIs), payments fraud losses remain an issue for a majority – 75% – of respondents.

FI losses on debit and Customer diligence, credit cards are common, such as reviewing transaction activity and with 96% of debit card statements online and reporting suspicious issuers activity to their FIs, is very and 77% of credit card effective across all payments types, including issuers reporting them in cards, checks and ACH and 2016. wire transfers.

Source: Federal Reserve Bank of Minneapolis, “2017 Financial Institution Payments Fraud Mitigation Survey: Report of Results,” January 2018

FORTUNE Magazine World's Most Admired Companies® 28 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Key Findings From the Federal Reserve Payments Fraud Survey1

Checks ACH Wire

• 77% of FIs that offer checks • 24% of FIs that offer ACH • 13% of FIs that offer wires experienced fraud loss experienced fraud loss experienced fraud loss • Most frequent check • 80% of FIs rank fraudulent or • Business email compromise fraud attacks: unauthorized debits against attacks and consumer-victim • Altered / forged checks presented consumer accounts as the No. 1 frauds identified as most frequent for payment most frequent attack • >80% use three of nine • Counterfeit checks presented for • Fraudulent or unauthorized authentication methods: payment debits against business accounts • Telephone callback verification • Counterfeit checks deposited ranked No. 2 • Dual control / approval for • Top screening and • 80% use manual review originating company wire initiation scoring methods: processes, nearly 50% rate as • Signature verification • Large dollar–item review effective • Manual review • Anomalous behavior screening • Duplicate check detections (used by 74% of the $1B+) rated • Value of items deposited or paid very effective by four out of 10

1. Amanda Dorphy and Heather Hultquist, (2017), 2017 Financial Institution Payments FORTUNE Magazine World's Most Admired Companies® 29 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED Fraud Mitigation Survey Report. Minneapolis, MN: Federal Reserve Bank of Minneapolis 2014 | 2015 | 2016 | 2017 | 2018 Barriers and Opportunities to Mitigate Payments Fraud

New and Improved Methods Perceived Barriers Needed to Help Mitigate Payments Fraud

From a list of six potential barriers, the top two • Improved information sharing constraints are as follows: • Identity verification • Costs to implement fraud detection tools / methods • Improved automation and analytics • Consumer data privacy regulatory restrictions / other concerns if data is • Changes in stakeholder liability shared with others to help mitigate fraud • Increased adoption of existing methods

FORTUNE Magazine World's Most Admired Companies® Source: Federal Reserve Bank of Minneapolis, “2017 Financial Institution Payments Fraud Mitigation Survey: Report of Results,” January 2018 30 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Shifting Risk Paradigm

Classical Paradigm

Isolated and independent • Function managed risk independently Ad hoc • Risk management performed whenever it becomes evident or required Focused on risk • Primarily insurable and financial risk, credit risk Emerging Paradigm

Integrated • Enterprisewide risk management with senior-level participation • Risk is a shared responsibility Continuous • Risk management is a process with ongoing monitoring and evaluation of results Focused on trade-offs • All business risks and opportunities considered

FORTUNE Magazine World's Most Admired Companies® 32 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Intelligent and Real-Time Risk Decision Architecture Is Required to Mitigate Fraud

Risk Decision Decision Configurable events areas service actions

Approve Profile Business event registration Permissibility Challenge of activity Business rules Profile based on Across transfer Hold changes current routes attributes and Fraud scoring Review and channels Account past provisioning performance Link analysis Suspend Transaction Learning models Decline execution Efficiency Decision engine

Data sources – external and internal

FORTUNE Magazine World's Most Admired Companies® 30 © 2018 Fiserv, Inc. or its affiliates. | CONFIDENTIAL – LIMITED 2014 | 2015 | 2016 | 2017 | 2018 Large, Tightly Knit Relationships Are Strong Indicators of Fraud – Fraud Models Should Continually Evaluate Connections in Real Time

Normal Transaction Pattern Anomalous Transaction Pattern

IP4 IP5 IP1 IP2 IP3 Ph 2 Ph 5

Ph Ph U1 U2 U3 U4 U5 U U 1 3 U6 U7 U8 U9 11 Ph 10 4

Ph AC AC Ph 6 4 5 5

AC AC AC AC AC AC AC 1 2 R4 R5 5 6 8 9 AC AC 7 10 11

R1 R2 R3 R6 R7 R1

• Assume that your consumer data, including login credentials, PII and payment information, is already compromised • Our consumers expect real-time everything, including payments • Real-time transaction monitoring using external and internal data in conjunction with human intelligence is the key to mitigating fraud • Single-customer view – establish device, mobile, user and account relationships • Leverage connected data to identify normal and abnormal patterns. Use consortium data that includes device reputation, transactions and user attributes • Authenticating customer and tracking profile changes through the life cycle will help detect potential threats early and neutralize them

A comprehensive, modern solution will address these challenges and ease the burden of AML and provide value In managing additional risks

• Provides Flexibility • Allows for analysis of AML, fraud, market abuse, and product suitability • Library of insurance specific detection scenarios and techniques • Effectiveness metrics – operational efficiency and effective risk management • Monitors the integrity and veracity of the data as well as its lineage

Maximize Data for Use Technology the Best Decisions Help the Good Guys

Fraud is an ever- Leverage your data Do not focus only on evolving landscape. assets to drive detection rates but Take advantage of insights so that you also manage your technology to can make the right false positives and optimize your decision at the right create frictionless operations and time. customer results. experience points.

More Security More Business Enterprise View

Emerging trends and Strong security Look across all your regulatory requirements measures in Fraud and business for insights. are making security AML are value added Do not build silo’s in your measures necessary to services that are own business. With the manage your business differentiators in this very fluid change and growth competitive landscape. occurring help yourself opportunities. Protect with a broad view of risk. your institution and your customers.