In the ongoing and ever-evolving battle against fraud, payment processors have turned to cutting-edge technology, such as machine learning algorithms and artificial intelligence (AI), as indispensable tools to fight fraud in payment transactions. This overview explores the interplay between technology, litigation challenges, and the critical role of qualified software expert witnesses in payment processing and fraud litigation.
There are three primary players that drive transactions in the complex payment processing ecosystem. At the core of electronic transactions, payment processors facilitate secure fund transfers between payers and payees, ensuring the seamless flow of financial information. Acquiring banks collaborate with payment processors by authorizing and settling transactions and securely transferring funds from the payer's account to the payee's account. Finally, major credit card companies (e.g., Visa and Mastercard) set transaction standards, oversee compliance, and collaborate with payment processors and acquiring banks to maintain the integrity of electronic payments.
The fraud prevention strategies used by the most innovative payment processors include dynamic risk assessment, analyzing behavioral biometrics, and detecting anomalies. Payment processors use machine learning for real-time dynamic risk assessments, considering transaction history, device fingerprints, geolocation, and behavioral patterns to promptly flag deviations. Machine learning excels at identifying anomalies, detecting unusual spending patterns, atypical transaction times or locations, and suspicious account access, providing a formidable defense against emerging fraud trends.
Despite their critical role in fraud prevention, AI and machine learning algorithms and technology are subject to failures that lead to potential risks for consumers and merchants, including legitimate transactions mistakenly flagged as fraudulent (i.e., false positives) and undetected fraud (false negatives), including misclassification that results from adversarial manipulation of data inputs to deceive the machine learning.
Payment processing and fraud litigation spans a spectrum of issues, including unauthorized transactions, identity theft, and transaction disputes. Cases involving unauthorized transactions often revolve around the question of liability. The rise of digital transactions has also resulted in a surge in identity theft cases. In addition, disputes over the accuracy or legitimacy of transactions often demand a comprehensive analysis of transaction records and communication channels between the payer, payee, and intermediary entities.
Experts for Payment Processing Litigation
Given the complexities inherent in payment processing and fraud litigation, the involvement of a qualified expert witness may be necessary. Testifying software expert witnesses provide important insights and opinions on the technological infrastructure of payment processing platforms and their processes. Experts analyze the integrity and functionality of payment processors' software infrastructure, determining if system failures contributed to fraudulent activities. Experts may also delve into the system architecture if required to look for lapses in resilience and reliability that could result in unauthorized transactions.
Forensic analysis of the transaction logs and/or software source code review of the transaction logging and monitoring mechanisms is often paramount. Deficiencies in these areas may hinder the ability to trace and investigate fraudulent activities.
A critical aspect of system analysis involves evaluating the effectiveness of incident response protocols. Failures in incident response may expose consumers and merchants to prolonged vulnerabilities. Security breaches often hinge on compromised user credentials, any of which must be detected quickly so that damage can be limited.
Other areas where technology expert witnesses may be helpful in litigation about payment processing systems and fraud include:
- Algorithmic Evaluation: Specialists in algorithms evaluate accuracy and effectiveness, providing insights into whether algorithmic shortcomings may have played a role in contested transactions. For example, by evaluating an anti-fraud algorithm's ability to strike a balance between minimizing false positives (erroneously flagged legitimate transactions) and false negatives (undetected actual fraud instances). Allegations of algorithmic biases, including racial bias, pose legal challenges that may require experts to prove or disprove.
- Compliance Assessment: Specialists in the myriad of industry standards and regulations, including PCI DSS (Payment Card Industry Data Security Standard) and GDPR (General Data Protection Regulation) as well as SLAs (Service Level Agreements), may be called upon to assess compliance. Payment processors for high-risk (of fraud) industries, such as travel, gambling, and adult entertainment, are subject to additional regulation.
- Privacy Safeguards: Experts in cybersecurity and data privacy evaluate the measures used by payment processors, determining whether they adequately safeguard sensitive consumer information. Expert witnesses specializing in privacy safeguards can assist by evaluating the strength of data encryption protocols employed by payment processors and the efficacy of data breach response plans.
Software expert witnesses for payment processing fraud litigation help untangle technical and legal complexities surrounding payment software systems, platforms, and algorithms.
Hire the Right Experts
The expertise and guidance of an expert witness is invaluable when dealing with a case involving electronic payments and fraud or other failures of the system. Barr Group's experienced testifying experts offer a robust set of services to assist attorneys in preparing for complex technology cases, including:
- Source Code Reviews: Software source code reviews for programming languages such as Python, Java, C, C++, C#, Objective-C, Perl, PHP, Ruby, JavaScript, SQL, VHDL, Verilog, and assembly.
- Reverse Engineering: Forensic analysis and/or reverse engineering of computing systems, including e-payment systems, NFC wallets, and financial transaction networks.
- Expert Testimony: Supporting plaintiffs and defendants in litigation in U.S. District Courts, at the International Trade Commission (ITC), before the Patent Trial and Appeal Board (PTAB), and in arbitration, as well as in other state, local, and international venues.
