Here is an excerpt from our Decision Management Systems Platform Technologies Report on Fraud Detection.
Many organizations suffer losses from fraud and abuse. These range from fraudulent claims for services that were never performed, to applications for credit for people that don’t exist, to orders that include bribes and illegal payments. In every case an organization must decide whether to accept the transaction as valid, reject it or investigate it for fraud. These decisions are high volume as they must be made for each transaction and are ideal for automation using a Decision Management System. Fraud detection systems typically involve business rules for compliance with policies and regulations as well as predictive analytics to match the current transaction to patterns known to be fraudulent or identify that the current transaction looks very different from legitimate ones.
A wide variety of fraud detection and handling Decision Management Systems are built and fraud detection is one of the primary use cases for Decision Management. Specific examples of use cases are listed below and it should be noted that all these decisions are increasingly combined into an integrated fraud management system.
Transaction is fraudulent
The basic fraud detection use case. Organizations will withhold payment, withhold partial credit or decline a payment to prevent fraud. Suitable transactions include warranty claims, insurance claims, credit card payment, auction payment, tax returns and many more. Besides the basics of declining or only partially paying, some Decision Management Systems will identify transactions that require follow-up, such as a call from your credit card issuer, even though the transaction was accepted.
A variant on transaction fraud is application fraud. For instance when a consumer or organization is applying for service, especially one provided on credit or involving other risks to the provider, a Decision Management System can be used to determine if the application is fraudulent and how to handle it in terms of review or rejection.
When someone applies for a service or product, or makes a transaction, it is important that they are who they say they are. At other times, also, the use of a Decision Management System to identify potential identify fraud is highly valuable. Such systems can be part of preventing application or transaction fraud but can also be used independently, such as for security or access control.
Supplier or provider is fraudulent
Even when a transaction appears valid it is possible that it is associated with a provider of a service or good that has a pattern of behavior that suggests fraud. Decision Management Systems are used to identify those suppliers or providers of service, in healthcare for instance, that have a pattern of such behavior so that even apparently valid transactions can be reviewed before being paid.
The newest Decision Management Systems in fraud are focused on fraud networks. These decide if the combination of customers, suppliers, inspectors and auditors, or the combination of doctor, patient, pharmacist and claimant together represent a fraud risk. Each of the individuals may seem fine, and the transaction likewise, but the network is fraudulent.
Read more in our Decision Management Systems Platform Technologies Report.