Westpac launches first Australian real-time bank fraud algorithm to catch scams

The banking major will add ‘friction’ to its digital payment processes in an Australian banking first that seeks to protect customers and itself against fraud.

Westpac will add “friction” to its digital payment processes in an Australian banking first that seeks to protect customers and itself against the wave of fraudulent schemes and scams costing people billions of dollars.

The nation’s second-largest lender said it would be the first bank to integrate sophisticated fraud detection systems with its digital payment platforms to help customers identify potential scams before payments were made.

Westpac’s fraud systems will activate prompts with information requests for customers making payments online, when the bank detects from the customer and payment details that there is a high scam risk.

If after three to six questions are answered and Westpac’s proprietary algorithm decides the payment is highly likely to be a scam, the bank will not process the payment. Customers will then have to engage with the bank by phone.

“The prompts will inject important friction into the payments process, helping alert customers ‘in the moment’,” Westpac chief executive Peter King said.

“We’ve seen examples of this implemented in banks overseas with really successful results.”

Mr King said the questions would be “dynamic” and relevant to the payment circumstances and would add “less than a minute” to the payment process. “But it could save a customer much more than that if they are being targeted by scammers,” he said.

The prompts would only come up for about 1-2 per cent of transactions that were flagged as high risk.

“This is about helping customers spot potential red flags before any funds have actually been sent,” Mr King said. “Prompting customers in real time with a series of questions will allow us to intervene on payments that we detect are particularly higher risk.”

Australians lost more than $3bn to scammers last year, with an analysis of a sample shared by the big four banks with the corporate regulator finding that 96 per cent of scam losses were borne by customers.

The banks are investing hundreds of millions of dollars every year in technologies that help them deter scammers, but customer groups say it has not been enough and the banks should be held accountable for the losses.

The government is working on a mandatory multi-industry best practice code for banks, telecommunications and social media platforms to set high standards and obligations around scam prevention.

Once the code is in place, companies would avoid liability for reimbursing fraudulent payments if they meet those standards, in which the government will consult over the next two months.

When asked if the new security feature was designed to protect the bank from future liability, Westpac’s general manager of financial crime and fraud prevention, Chris Whittingham, said it was not.

“The overarching aim we’ve got here is to protect our customers and to minimise the scan losses absolutely as much as we can,” he said, adding that the bank had now stopped more than 60 per cent of all scam ­attempts. That is up from about 40 per cent last year.

Westpac is also updating the Verify system it launched in March in which customers were given four hours to rethink payments to new accounts if its system alerted them of a name mismatch, or when a customer transfers money to an account Westpac had not dealt with ­before.

From now on, when someone enters a new payee, the system will assess the risk of fraud in real time and show a “scam risk indicator” that will prompt customers to check payment details and decide if they would like to proceed with a transfer.

Mr Whittingham said the feature had saved customers more than $1m in fraudulent payments since its launch.

Speaking about the new prompt technology on payments, he said some banks in the UK had implemented similar ­dynamic interactions successfully, but in Australia “no one else does it”.

NAB and other banks have prompts in place that alert customers when a suspicious transaction is detected, but those systems do not interact with customers other than requiring them to allow or cancel the transaction.

Westpac will seek to share its developments with fellow banks after the ACCC allows them to communicate to develop an industry standard to combat scams.

“There will be active dialogue with … the rest of the banks on what we are doing here and how they can utilise what we’ve been designing and building so they can use the similar technologies,” Mr Whittingham said.

He urged customers to be sceptical when it came to the many ways in which fraudsters were targeting their savings.

“If it sounds good to be true, it usually is,” he said.