Fed launches model on how to classify payments fraud with consistency

New tools and materials to help payments system participants be consistent in how they classify fraudulent activity – in turn promoting consistency across the payments industry – were launched Thursday by the central bank.

The tools are encompassed in what is dubbed the FraudClassifier model. It was developed by the Fraud Definitions Work Group that the Fed established in March 2019. The work group includes Federal Reserve and payments industry fraud experts.

A snapshot of the Fed working group’s depiction of how its new tool uses questions to identify and classify fraudulent payments activity.

“The FraudClassifier model can help address the industrywide challenge of inconsistent classifications for fraud involving ACH, wire, or check payments,” said Jim Cunha, secure payments strategy leader and senior vice president at the Federal Reserve Bank of Boston, in a statement included with Thursday’s announcement.

The Fed says the FraudClassifier model allows organizations to classify fraud independently of payment type, payment channel, or other payment characteristics. It presents a series of questions, beginning with who initiated the payment in order to differentiate payments initiated by authorized or unauthorized parties. Each of the classifications is supported by definitions that allow for consistent application of the FraudClassifier model across the industry, it said.

The model is accessible online, along with an industry “roadmap” for advancing implementation that suggests widespread adoption of the model within organizations and integration in industry fraud studies by 2024.

Fraud Classifier Model

Federal Reserve announces FraudClassifier Model to help organizations classify fraud involving payments

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