Behind Western Union's billion dollar war on fraud

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The mobile revolution is turning Western Union into a very different company, one that must adjust to new ways to pay while pouring substantial resources into fending off the threat of e-commerce.

Jacqueline Molnar’s the general in Western Union's war on financial crime. As Western Union’s chief compliance officer, Molnar is in charge of 2,000 compliance workers—or almost 10 percent of Western Union’s total headcount—and a 200 percent increase in funding to her department over the past five years.

The company has spent more than a billion dollars in that time, using the same mix of machine learning and digital tools that are driving its diversification beyond its brick-and-mortar agent network.
“It’s a big investment and we view it as a competitive advantage,” said Molnar, who became CCO in 2016 and joined the Englewood, Colo.-based Western Union in 2013 as senior vice president and deputy chief compliance officer. She has also held senior roles at TD bank and Wells Fargo; and practiced law at Gibson Dunn and Latham & Watkins in Silicon Valley; and at Herbert Smith Freehills in Sydney, Australia.

“A lot of our focus [is] related to the risks of money laundering and terrorist financing,” Molnar said. “While the subject matter remains the same, the patterns of transactions change over time and we strive to keep up with the changing typologies.”

Digital payments crime is expanding to more use cases such as drug sales, terrorist financing and other activities. And it’s also getting more sophisticated as fraudsters add innovations such as new types of malware.

Fraud rings are expanding and targeting vulnerable population segments, believing these segments are more prone to scams, Molnar said, adding that includes older consumers and younger consumers who use social media more than other segments. “The fraudsters take advantage of people that they met online and draw them out through a process of social engineering,” Molnar said.

Western Union uses a rules-based system to vet fraud, with machine learning tools that continually improve and evolve. That helps the company identify payment patterns to spot potential fraud. It also has a mechanism to stop transactions in flight, as well as phone access to report possible fraud and to make courtesy callbacks to the sender for transactions suspected of being scam-related.

Western Union has been able to prevent hundreds of millions of dollars in fraudulent transactions that would have otherwise been paid out, Molnar said. Western Union also reports it has stopped more than 400,000 fraudulent transactions since 2016.

The news hasn’t always been good. In 2017 Western Union settled an AML case with the U.S. government. In an email, Western Union shared its response to the settlement that it released in 2017: “We share the government’s goal of protecting consumers and the integrity of our global money transfer network, and we worked hard to resolve these matters with the government. “We are committed to enhancing our compliance programs to prevent illicit activity on our network and protect customers who transfer money to friends, family and businesses.”

As passwords give way to digital forms of authentication, Western Union has also made moves into digital ID.

The company has developed processes and works with vendors that are applying forms of digital identification to better support investigations. An example would be the Indian government, which is creating a biometric-based identification system, Molnar said, adding the government’s work is independent of Western Union but could help the company’s Know Your Customer work. Western Union also has patented technology related to categorizing and identifying data patterns and uses an IBM based system that is tailored to Western Union’s needs to help identify customers.

Additionally, Western Union goes through up to 50 regulatory examinations each year across its international network. “Many regulators across the globe are taking a more aggressive stance,” Molnar said.

Part of Western Union's digital strategy has been collaboration. The company in the past few months has entered into deals with Amazon to support payments at Western Union agent locations or online; and with Safaricom to provide money transfer services for up to 28 million M-Pesa users. Another collaboration with TerraPay provided transfer technology in India.

These partnerships give Western Union an aggressive posture toward modernizing and adding scale to fraud prevention.

Western Union's partnerships are part of a general embrace of new payments technology at Western Union. This strategy means more focus on mobile and the divestiture of non-core units such as Speedpay.

As younger digital challengers such as PayPal’s Xoom, TransferWise, Ria, Remitly and P2P apps such as Venmo offer streamlined digital transfers, Western Union and its traditional rival MoneyGram have pursued many of the same innovations.

“The strength of our program is attractive to third parties,” Molnar said.

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AML Digital payments P-to-P payments Remittances Cross border payments Western Union