How telcos can secure their device sales from fraud

In 2014, an employee at an overnight shipping service somewhere in the US became suspicious about numerous incoming parcels periodically dispatched to two shipping store locations in New York. 

By 2019, law enforcement stepped in. On opening a box, they found hundreds of mobile phones and several fake IDs. They had unearthed a surreptitious but extremely well-organized mobile phone racket operating across 34 states. 

The thieves’ modus operandi was to pose as genuine customers (using synthetic IDs) asking to buy or upgrade their phones (with fake credit cards). Upon making a small one-time deposit, they would agree to pay for the purchase in installments. Of course, no payments were ever made. 

The total loss was a staggering US $19 million – and telecom operators were the most affected as they had to foot the bill.  (Source 1 , 2)

For many years, telecom operators have been selling mobile phones and other devices to attract subscribers and provide a holistic service experience to their users. Reportedly, this is a rewarding business for telcos, contributing 12-25% to overall revenues.

But incidents, like the one above, gives a cause for pause. Although device sales are undeniably a revenue opportunity, they come with significant risks.

Telcos remain optimistic about the profitability of device sales

Operators are keen to concentrate on this market for many reasons. Firstly, Covid-19 accelerated the sale of smartphones globally as businesses shifted online. Exchanging cash was risky, too, and people preferred to use mobile wallets and touchless payments. Smartphones have become more of a necessity than ever.

Another strategic industry shift will kindle greater device sales for telecom providers – the era of 5G and IoT. 5G is an enabler of several technology concepts, including Industry 4.0, artificial intelligence, augmented reality (AR), and virtual reality (VR). There is a renewed interest in the devices market owing to the range of devices CSPs can offer to users and enterprises as they launch 5G services. Certainly, smartphone users will be keen to purchase 5G-compatible devices to leverage the value of 5G services, thus increasing device sales for telcos. 5G will also propel innovation in the device market, such as wearables, home accessories and devices, and VR goggles, among others. This expanding range of devices presents telcos with a tremendous revenue opportunity of selling multiple devices to their users.

But fraudsters also want a share of the pie

Alongside the promise of this booming growth in the handset market lurks the danger of fraud. The CFCA Fraud Loss Survey Report 2021 lists subscription fraud and account takeover as two of the leading fraud types for telco, both of which are intricately related to device fraud.

In 2021, telcos lost US $2.03 billion to subscription fraud (where criminals fabricate details to purchase or access goods and services with no intention to pay) and an additional US $1.62 billion from account takeover fraud (where hackers manipulate user accounts to gain access to devices). The Risk & Assurance Group on Risk Assurance and Fraud Management for Communication Service Providers (RAFMCS) capped the losses from handset crime at US $1.87 billion in the same year.

But what most surveys do not track (for it is extremely difficult to measure) are the indirect losses, i.e., reputational damage, loss of customer trust, and the costs incurred to fight legal battles against fraudsters.

(To know more about other handset fraud methods, read our paper on ‘Combating Handset Fraud’)

Unsecure processes have a role to play

Taking an introspective view, it isn’t hard to see what makes telcos a target. ID verification is traditionally tedious and time-consuming and is sometimes sacrificed in the interest of faster sales cycles and a good customer experience. Sales reps are usually motivated by the commissions they earn on device sales, which could result in poor scrutiny of buyer credentials. What’s more, it is easy to exploit the loopholes in digital sales processes and defraud telcos into unknowingly selling their devices to bad actors. And finally, most telcos are still figuring out what kinds of threats to expect with 5G rollouts, as the risk surface across new-age devices is yet unknown.

Anti-fraud solutions help balance sales, scrutiny, and satisfaction.

Clearly, telcos ought to employ better scrutiny without compromising the customer experience. Unfortunately, existing fraud solutions lag at providing the needed agility, accuracy, and speed. But this is precisely what AI/ML solutions can augment the solution. Here’s how:

Embed AI/ML capabilities. Supplement rule-based engines with AI/ML-based capabilities. The AI/ML-based solution should automatically detect patterns and anomalies that cannot be identified manually. These AI/ML-based solutions could have one or multiple models to detect various types of fraud methods/types, thereby providing quicker results for verification at higher accuracy levels without slowing down the customer journey.

Use automation to deepen scrutiny on online channels. Automatically tap into a wealth of information like personal, biometric, and transaction data to evaluate buyer authenticity. Solutions that encompass AI/ML and deep learning algorithms can correlate such data with finer attributes like email validity to create risk scores, so sales reps can make better decisions on whom they sell to.

Enable orchestration capabilities for faster responses. To improve efficiency and success rate, the anti-fraud system should have the capability to seamlessly integrate with pointed solutions either by ingesting the dataset into the system or integrating via Rest APIs without any core changes to the fraud management system.

Indeed, device sales are poised for rapid growth, and telcos that equip their teams with AI/ML solutions can maximize this opportunity, minimize the risk, and win big.

Subex’s Fraud Management Solution is powered by AI/ML with a hybrid rule engine and includes enhanced data management capabilities, orchestration capabilities, automation, self-serve capabilities and explainable AI. It assists telcos in making the right decisions about legitimate sales and flags suspicious users with unparalleled accuracy.

Take advantage of new opportunities with confidence

Reach out to us to know more

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