How to choose the best fraud detection software (7 steps)

With fraud on the rise, associated losses are estimated to reach over $41 billion by 2027, representing a 25 percent increase since 2020. Our 2023 tech and talent survey echoed this trend, with 62 percent of respondents saying they had seen an increase in payment fraud-related alerts over the last 12 months.

To combat this threat, the fraud detection and prevention market is growing and is projected to be worth almost $183 billion by 2030, representing a compound annual growth rate of almost 23 percent. Fraud detection software is a vital component of a firm’s fraud prevention strategy, and when evaluating vendors, there are seven key steps to consider. 

7 steps to choose the best fraud detection software

1. Analyze your business requirements

While it may be obvious, analyzing business requirements before selecting fraud is a key foundational step to document. First, it allows firms to customize their fraud prevention approach to their unique needs and risks. Not all businesses face the same fraud challenges, and a one-size-fits-all solution may not be effective. By carefully assessing their requirements, firms can choose software adapted to address their particular vulnerabilities, whether related to online transactions, customer data protection, or insider threats.

Secondly, considering business needs helps firms manage costs effectively. It can be easy to overspend on software features that may not be necessary for the specific fraud risks a business faces. Equally, underinvestment can seem tempting in the short term but can limit growth potential and create headaches down the road. By aligning the software with their requirements, companies can invest in a solution that provides the essential functionality without incurring unnecessary expenses, ultimately optimizing their budget allocation. 

The right vendor can help with this step by examining a firm’s current needs, future needs, and risk appetite. 

2. Establish the key features of the software

As a second step, firms should look for key features in the prospective fraud detection solution, such as:

• Real-time monitoring that detects and stops suspicious transactions immediately.
• Explainability capabilities that explain the reason why each alert was created.
• Behavioral analytics so any unusual behavior is flagged and can be investigated.
• Integration capabilities so the tool can be merged with existing tech. In our 2023 survey, 48 percent of respondents said that “integration with the wider compliance tech stack” was a significant limitation of their existing approach.
• Aggregated data options because siloed data is a key driver of deficient fraud detection solutions.
• Customization capabilities so tools can be configured to a firm’s specific fraud and anti-money laundering (AML) needs and risk appetite.
• AI-driven: There are many tangible benefits to using artificial intelligence, such as improved operational efficiency and reduced false positives. AI algorithms can also adapt and evolve to keep up with fraud typologies and identify fraudulent activity on a large scale.

3. Evaluate the scalability and performance

Detecting fraud in close to real-time is a challenge that requires sophisticated software. It is, however, something that customers increasingly look for. Global consulting firm McKinsey found that “customers value the speed when organizations react to fraud events in seconds and protect their accounts against future fraud.”

The right tool must also be able to cope with large volumes of transaction data as well as complex scenarios, particularly if a firm operates across jurisdictions or with high-net-worth individuals. It should be able to scale at speed if required, without compromising accuracy. 

4. Make sure the fraud detection solution has a friendly UI

Firms should ensure their fraud detection solution has a user-friendly user interface (UI) for several reasons:

• Ease of use: A friendly UI makes it easier for analysts to interact with the solution. This can include setting up rules, monitoring alerts, and investigating suspicious activities. A system that is difficult to navigate or understand can lead to errors and inefficiencies. 
• Increased efficiency: When the UI is intuitive and easy to use, analysts can quickly access the information they need, make decisions more rapidly, and respond to potential threats in a timely manner, This can be critical in preventing or mitigating financial losses.
• Adaptability: As fraud detection needs evolve and new threats emerge, a user-friendly UI can be more easily adapted to incorporate new features, data sources, and analytical tools. 
• Enhanced collaboration: Effective fraud detection efforts involve collaboration among different departments within a firm. A friendly UI promotes effective communication and collaboration, reducing the risk of siloed teams by providing a common platform that is accessible to all relevant parties.

Ideally, the right tool should include an integrated case management system, so a case can be opened directly from an alert. This can help reduce human error. Fraud detection software with an intuitive UI can also safeguard employee morale by reducing repetitive tasks.

5. Prioritize data security and compliance

It is essential that a fraud detection solution is compliant with fraud and anti-money laundering and counter-terrorist financing (AML/CTF) regulations and has a strong level of data security. If a firm is found to be breaching data security laws or non-compliant with AML regulations, this can result in reputational damage, financial penalties, and potentially imprisonment. 

6. Research the vendor’s reputation and seek recommendations

When researching vendors that provide the best fraud detection software, it’s a good idea to request relevant case studies and testimonials from other clients in the same sector with similar challenges. This is why step one, analyzing your business requirements, is so important. 

Other questions to ask a potential vendor include:

• Will the system provide automated reports for your auditing trail? 
• Are ‘plug-and-play’ capabilities offered, such as a pre-built library of rules and typologies to help make the set-up process more efficient?
• Is a sandbox environment available to test new rules?
• Does the package offered include regular software updates, repairs, and ongoing customer support?

7. Request demos

When selecting the best fraud detection software, it is important to request demos from suppliers. Firms can use this opportunity to explore how the solution will work with their current systems. 

Keeping pace with the fraud detection landscape

Since fraud is not going away, companies need to be able to partner with expert vendors that can support their needs as they scale. Not all firms have the necessary experience, or the human resource bandwidth, to maintain transaction monitoring in-house or commit to the continuous learning required to track fraud trends and typologies. By implementing fraud prevention services, FIs can access the expertise of specialists in fraud detection in a customized and adaptable manner that can be sustained over time. This ensures their fraud detection methods remain innovative and their business is safeguarded against evolving threats as it expands.

To learn more, click here to see how Fraud Detection by ComplyAdvantage compares to other solutions in the market.