Navy FCU adds Cube AI to battle payment crime

• Key insight: Navy Federal Credit Union has added AI tools to battle payment fraud and scams linked to real-time processing. 
• What’s at stake: The credit union is attempting to manage risk for members who frequently have emergency payment needs. 
• Forward look: The entire financial industry faces challenges in updating risk management to accommodate faster payments, according to Datos Insights. 

Life in the military can create sudden and unusual financial needs that can benefit from fast payment processing while also providing a target for criminals, according to Navy Federal Credit Union’s Kimberly Middleton. 
“As real-time payments come on board, we have been trying to keep pace with our fraud tools,” Middleton, AVP, fraud operations at Navy Federal Credit Union, told American Banker. The credit union is using artificial intelligence in an effort to thwart payment fraud and scams in a short time window as it processes payments in real time. This poses a distinct threat since traditional “behavior based” scam monitoring tactics don’t work as well for military consumers, according to Middleton. 

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How Navy Federal is doing this

Navy Federal is the world’s largest credit union, with more than $203 billion in assets, 390 branches and 15 million members across the Navy, Army, Marine Corps, Air Force, Coast Guard, Space Force and Department of Defense personnel and their families. 

The credit union, which supports both FedNow and the RTP Network, recently deployed a platform that uses fake bots as proactive scam detectors in an effort to stop a scam before the transaction. 

These bots engage with accounts Navy Federal’s IT team has flagged as potential scam accounts to catch these accounts “in the act.” Payments to that account are proactively cut off. 

“So we get a list of essentially bad accounts, we know they’re being used by scammers,” she said. “It’s all just AI bots who are pretending to fall for scams. They were getting told where to send the money, so we’re very confident in that account” being a scammer’s, she said.

Navy Federal then flags the accounts before a legitimate consumer can transfer funds. The underlying technology is from Cube, a business analytics firm that uses “plain English” to converse with humans and AI agents. In the case of Navy Federal Credit Union, the AI bots are seeking deeper context around transactions that can link the payments to legitimate changes in the members’ lives. 

For many consumers, a sudden, large cross-border payment would be out of character. But for a military person, it’s not as unusual, and the credit union’s real-time payment risk system is designed to manage security risk while enabling a broader set of typical behavior, according to Middleton, who added that since a real-time payment settles in a few seconds instead of a day or more, spotting potential crime has to happen faster.

“A spouse may need a down payment for a rental, for example, that may be in another country without a lot of notice,” Middleton said. “Or they may need funds sent to them quickly due to a deployment.” 

In addition to real-time payments, Navy Federal has added other products in the past year to enhance its appeal to younger military members. It partnered with Bloom Credit to enable members to report up to five recurring checking payments — such as rent, phone bills, and utilities — to TransUnion to build a credit profile. In another recent security move, the credit union began automatically declining transactions if it deems the payment risky enough, rather than allowing its members to sign off on what appears to be a suspect transaction. The upgrades to Navy Federal’s security risk that accompany these new payment and financial services products are designed to thwart attacks that trick real users into sending money to a fake account, in addition to mitigating the risks of hacks and data breaches. 

“It all starts with ‘knowing’ our members, and using real-time monitoring to help transactions move quickly while still watching for things that don’t look right,” she said. 

Navy Federal’s use of AI as a security tool also comes amid signs that credit unions in general are lagging in adopting AI. Only 18% of surveyed credit union executives say AI model risk is a critical or high threat, compared to 62% at national banks, 54% of midsize banks and 50% of community banks, according to American Banker research. Seventy-one percent of credit unions say they aren’t prepared for the threat, compared to 73% of national banks, 62% of midsize banks and 61% of community banks.  

“The biggest AI risk for credit unions isn’t moving too fast. It’s failing to prepare,” Brad Calhoun, president and CEO of Teachers Federal Credit Union, told American Banker in an earlier interview. 

The real-time risk

The gap in addressing security risks for real-time payments exists across all financial services, according to Trace Fooshee, a strategic advisor at Datos Insights. 

“The challenge for many financial institutions is that the bulk of their fraud control frameworks are based on legacy technologies that were designed around batch-based payments systems which are often incompatible with providing an automated evaluation of fraud risks in real-time,” Fooshee told American Banker. 

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The net result of this is that many are left with having to find increasingly costly capital and expense budgets to upgrade their fraud control technologies, according to Fooshee, adding that many financial institutions have not yet found the budgets to invest in the kinds of sophisticated technologies that enable them to orchestrate the capabilities that you outline above. 

“Real-time fraud detection capabilities are the core investment and are the ones that most financial institutions have prioritized,” Fooshee said, adding that banks with deeper pockets and the resources to support the engineering and data science necessary to support real-time capable fraud detection platforms also need to find the budget to invest in behavioral analytics and orchestration. “It’s more of a journey than a destination,” Fooshee said.