Blockchain Banking and Fraud Prevention

Confidence and trust in fraud prevention and security technologies is a must. Merchants are expected to have fraud-proof solutions in place. Customers are expected to protect their personal data. Issuers and acquirers are trusted with verification and authorization management.
These are a lot of layers in a secure payment processing environment. The more layers and participants, the more room for error and disruption. Paperwork gets lost, records are hacked, files are deleted, and chargeback fraud happens.
What if these layers of accountability were streamlined, removing the need for human checks and balances? Decentralizing the way all transactions are stored, tracked, and approved could be the solution.
Enter blockchain banking. Could this be the solution to preventing internal and external fraud?
Blockchain: What Is It?
Blockchain uses a shared, secure ledger to track and approve each component, or block, within a transaction. Each step in the transaction is represented by a block. The blocks are connected within a secure chain as a transactional record. And each block in the chain has a timestamp and other identifying data to prove who did what and when.
The multiple layers of approval and review are eliminated with blockchain, packaging the transaction in a single linear chain of request and approval. This process creates a complete record of any type of asset transfer.  Think of banking, payment processing, contracts management, wills and real estate, money transfers, and medical records—all can be better protected with blockchain.
Using Blockchain for Chargeback and Fraud Prevention
Protection from identity theft and fraud is a constant challenge for everyone involved in buying and selling. Merchants, consumers, issuers, and acquirers know there are vulnerabilities in how payments and data are secured. With each innovation in security technology, hackers and fraudsters learn how to outsmart the technology and breach these networks.
According to 2017 Identity Fraud Study by Javelin Strategy & Research, 15.4 million consumers were victims of fraud or identify theft in 2016. This is an increase in 16% from 2015. According to this report, CNP fraud numbers for 2016 increased 40% from 2015, account takeover fraud increased 31%, and new account fraud was up 20%. These increases in fraud numbers accounted for theft of $16 billion in 2016.
The question that lingers is how to stop this rising tide in fraud. Blockchain banking, while not a panacea, could be a marked improvement in how data is created, approved, transferred, and stored.
With its single ledger system, blockchain banking can work to eliminate the layers of multiplicity and data transfer that happens within one single transaction. The more layers, the more room for error; the more time delays, the more risk and vulnerability. When done right, blockchain can eliminate these vulnerabilities:

  • Real-time monitoring. Timestamps fix a traceable timeline, featuring the how, who, when, and where of accountability.
  • Real identities. Each block (account, credit card, transaction) is linked to a real person or company. Identities cannot be hidden or buried in paperwork.
  • Eliminate third-party approval. Blockchain relies on 51% approval of those involved in the transaction. Third-party approval is not required or permitted. Only those in the chain can access and approve.
  • Paper is replaced with digital data. Proof of purchase, approval records, receipt of items, and other payment data is stored in the blockchain. The merchant, issuer, acquirer, and customer all have access to the same secure data—saving time and money in the event of a chargeback representment
  • Error and complexity are thwarted. Fake data, errors in approval, double purchases, etc. are prevented within the linked blockchain process. Fraudulent data cannot be inserted into the blockchain.

This secure chain of data approval and transfer can change the way information is exchanged. The pressures and insecurities of customers, merchants, issuers, and acquirers can be alleviated within this new level of communication and data storage. By removing the expectations on each participant in a purchase, risk is eliminated—providing everyone with a more secure way of doing business.
However, as we know with every innovation there is risk. While blockchain banking has decentralized data storage and requires the majority approval of each block, breaches can still happen. In August 2016, Bitfinex was hacked resulting in a theft of $60 million in Bitcoin. This stolen Bitcoin has not been recovered. This hack occurred within the blockchain when savvy hackers gained control of the keys and signatures that are used to secure the chain.
Learning More About Blockchain and Fraud Prevention
Blockchain holds a great deal of promise for improving security and reducing fraud. But like the Internet of the early 1990’s, this technology is very much in a growth and learning phase. Resisting the enthusiasm over the improvements that blockchain can provide, we must remember that m-commerce, Tap & Go, smartwatches, Apply Pay, and other innovative payment methods didn’t happen overnight.
Experts at Verifi are committed and probing in their learning of how blockchain can provide merchants and issuers a secure and protected payments environment. We welcome you to contact us with any questions you have about blockchain or other fraud prevention solutions.