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Payments


HOW CAPITAL ONE IS USING STRIPE, ADYEN DATA TO FIGHT FRAUD

By   John Adams
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July 08, 2024, 9:52 a.m. EDT 3 Min Read
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Capital One is hoping a new collaboration with payment firms Stripe and Adyen
will improve transaction security.
Jeenah Moon/Bloomberg

As payments become more digital and settle faster, fraud is becoming more
dangerous and complicated. Capital One is betting that a new collaboration with
large and well-established payment firms Stripe and Adyen will improve
transaction security.



The payment fintechs join the bank's free artificial intelligence-driven fraud
protection service, adding more detailed information to help spot bad
transactions without creating extra hassle for consumers.  



"If we can get better data, we can deliver better outcomes," said Jon Borman,
head of fraud strategy at Capital One. "Adyen and Stripe are [merchant
acquirers] and payment processors in the U.S. and globally. They can provide
more data for the transactions that occur through their platforms." 

Capital One is among the financial institutions that are applying AI to fraud
protection. Mastercard, for example, is using AI to add missing card numbers for
stolen accounts on the dark web. And JPMorgan Chase and Australia's Commonwealth
Bank are using AI and distributed ledgers to combat fraud and processing
errors. 



The fraud threat is growing, necessitating the need for new technology. Eighty
percent of companies were targets of payment fraud or attacks in 2023 — a 15%
jump from 2022, according to the 2024 AFP Payments Fraud and Control Survey,
which was sponsored by Truist. The survey found that 30% of victims were unable
to recover their losses, while 41% recovered at least 75% of their losses. 

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"Collaboration has become essential to fight fraud," said Zil Bareisis, a
director at Celent. "No single company is large enough to see all the traffic
that is relevant to making a precise decision in real time."

Capital One has been enhancing the machine learning and artificial intelligence
that it uses for a variety of purposes, including security. Capital One's AI
projects include Direct Data Share, which uses an application programming
interface to transmit payment data to verify transactions. Stripe and Adyen
contribute transaction data through the partnership. 

"There is still not enough data transferring between issuers and acquirers,"
said Don Apgar, director of the merchant payments practice at Javelin Strategy &
Research. Since merchants have more data about payments than issuers, Capital
One is looking for as many data sources as possible, Apgar said. 

JPMorgan, Commonwealth Bank combine AI tools to improve payments


While AI is designed to quickly analyze data for clues to potential financial
crime such as payments fraud, the amount of information that can be gleaned from
a payment is still limited, particularly for e-commerce transactions, Borman
said. "You get the name of a merchant, a dollar amount and a category, something
like sporting goods of women's fashion," Borman said.  

Since Stripe and Adyen sell e-commerce and online storefront technology to
thousands of merchants, they can get more granular information about payments
faster. With this data, Capital One can spot fraud earlier and reduce extra
verification steps or false declines.

"There is still significant room to improve payment performance, particularly in
combating fraud and reducing false declines," said Trevor Nies, senior vice
president and global head of digital for Adyen, adding that the payment company
relies on collaboration with card networks and issuers to expand security risk
management. Adyen also uses what it calls "smart messaging," which adapts
consumer preference and AI to improve approval rates.

There may be even better fraud-fighting tools on the horizon. The growth of
generative AI can create original content out of existing data and is a
potential tool to fight fraud by producing scenarios based on incomplete data.
But that technology is not yet advanced enough to use for real-time, real-world
payment fraud detection, according to Borman. 

"By partnering and sharing risk signals, each company can strengthen and improve
their own models," Bareisis said. "While firms are typically reluctant to share
anything that offers them a competitive advantage, reducing fraud across the
ecosystem delivers better outcomes for all."

Capital One may also add more users through its planned acquisition of Discover
Financial Services. The $35 billion acquisition would combine two of the U.S.
market's six largest card issuers, and would also give Capital One a major card
network. Capital One did not comment on the potential Discover acquisition for
this story. 

Capital One plans to add other merchant acquirers to build a network for Direct
Data Share.

The bank has saved about $1 billion by avoiding false declines through its
anti-fraud platform since the platform's launch in 2020, Borman said, but he
noted that "most of that" has come in the past few months during testing with
Stripe and Adyen.

"We know this works, so our goal is to scale this," Borman said. 

John Adams
, American Banker
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Payments Technology Capital One Stripe Artificial intelligence
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