Smaller FIs look to FiVerity for anti-fraud data sharing

In one week in April, Metro Credit Union received more than 450 fraudulent account opening applications. 

Using manual processes, fraud and digital teams at the Boston-based, $3 billion credit union worked overtime to fend off a series of attacks that Chief Operating Officer Traci Michel believed was enabled by generative AI tools.

Photo by CanStock

“We’re getting it from all sides,” Michel told Bank Automation News. “When you see that type of volume coming into a platform, you have to imagine that there’s some type of computer-generated frequency that’s happening behind the scenes.”

Through informal conversations with colleagues at other financial institutions, Michel discovered that her peers were falling victim to the same attacks. Seventy percent of financial institutions reported losses of over $500,000 to fraud in 2022, according to Alloy’s State of Fraud Benchmark Report.

“The pattern was extremely similar,” she said. “[But] we didn’t have a tool that would help us try to interface and understand whether we were the only financial institution.”

Solutions for smaller FIs

Facing scaling fraud operations, Metro Credit Union turned to anti-fraud platform FiVerity, one of several companies using data collected from a group of member institutions to build records of blacklisted accounts and concerning patterns.

FiVerity opened its Digital Fraud Network in June to more than 100 small and medium-sized businesses for free, according to a release. Other clients include Grasshopper Bank, BHG Financial, and Digital Federal Credit Union.

“Some of the other vendors are going after the larger institutions,” FiVerity Chief Executive Greg Woolf told BAN. “Our focus has really been on the community banks and credit unions, and some of the smaller fintechs … who typically don’t get access to this level of technology.”

FiVerity also launched its Anti-Fraud Collaboration Platform in June, building on its existing network to offer new features to members, according to a release.

The Boston-based company, which raised $4 million in seed funding in April, uses machine learning and data from its members to draw insights and identify fraudulent users in real time, according to its website. Features of its Anti-Fraud Collaboration Platform include an explanation of its risk scoring system that enables customers to see why specific accounts were flagged, Woolf said.

It’s “providing a fraud score, but also providing transparency,” he said. It could be that “the Social [Security number] was used by somebody else, or another institution reported this address was linked to a crime rate … or other elements that could come off the dark web.” 

FiVerity has worked with federal regulators, including the Federal Reserve and the Financial Crimes Enforcement Network, that have supported collaboration and promoted equity by encouraging service offerings to smaller FIs, Woolf said. 

But bringing together FIs of a similar size and in the same region is also practical, as these institutions often face similar fraud threats, according to Woolf, who referenced an incident in which fraudsters in Maine targeted every financial institution with a branch on the main street of a single town. 

“There’s a natural clustering, and that actually helps our models be more effective,” Woolf said, noting a 45% improvement over previous models by focusing on a specific demographic of FIs. 

Metro Credit Union hopes that as more FIs join FiVerity’s consortium, the collaboration will help every member fight fraud. 

“We’re very excited about the expansion on the client side, because it’s strength in numbers for us,” Metro’s Michel said. “The more financial institutions that are participating into the network and feeding their fraudulent application information, the more we can all benefit.” 

A crowded market

Meanwhile, other fintechs have recently announced their own consortiums catering to larger clients. 

Anti-fraud fintech Sardine announced its coalition, SardineX, in June to bring together major players from multiple verticals in a similar data-sharing arrangement.

“The way we are going to solve fraud in financial services is to share it across financial services,” SardineX President Ravi Loganathan told BAN, adding that the company believes the industry should “not have the silos for fraud data sharing only for banks, and fraud data sharing only for fintechs.”

SardineX’s founding members include card issuer Visa, Williamsburg, Va.-based Chesapeake Bank and cryptocurrency platform, according to its website.

The week before the Sardine announcement, data transfer fintech Plaid announced its consortium, Plaid Beacon, which focuses on building an after-the-fact fraud database rather than providing real-time insights. Founding members include credit card payment company Tally, buy-now, pay-later provider Uplift and Veridian Credit Union. 

With more players entering the market, Metro’s Michel believes competing consortiums may need to work together to offer the best results for members. 

“Competition just bears out that there will be multiple providers in the market,” she said, adding that she hopes to see “common data frameworks” used by Fis in the future.