Telecoms Fraud: Market Insights ReportHow Corda is tackling international fraud

Market Insights

Contents

The Future of Fraud Management Systems Using Blockchain . . . . . . . . . . . . . . . 1Turning the Tide Against Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1The Corda Ecosystem Combating Telecoms Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Infosys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3How Wangiri Fraud works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3The Infosys solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Subex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Challenges involving traditional partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Challenges involving digital partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Subex blockchain solution supported use cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Market Insights

1© 2021 R3. All Rights Reserved

The Future of Fraud Management Systems Using BlockchainThe COVID-19 pandemic has dramatically accelerated the migration to a digital-first world, resulting in an increase in international telecoms fraud. According to Cyber-Telecom Crime Report 2019, it’s estimated that the global telecoms industry’s losses due to fraud are now running at US$32.7 billion a year, equivalent to between 2% and 3% of total annual service revenue. The impact is compounded by other industry challenges including declining revenues, downward pressure on margins and high costs associated with the 5G investment cycle. The message is clear: in an increasingly competitive market, telecoms operators must tackle fraud with innovative solutions before it begins to seriously impede their revenue growth.

In response, software vendors and carriers are working together to address fraud with new collaborative approaches using enterprise blockchain technology. This report examines two specific instances where operators are using Corda –a leading enterprise blockchain platform–to improve data-sharing and deliver market-leading

$32.7 Billion Lost in Telecoms Fraud AnnuallyCyber-Telecom Crime Report 2019

fraud management for Wangiri and International Revenue Share Frauds. While this report zeroes in on just two use cases, they are only the tip of the iceberg. R3 is currently working with an expanding ecosystem of telecoms service providers and software vendors on utilizing Corda to tackle various types of telecoms fraud. To learn more about how Corda is being used to detect fraud of other kinds, visit here.

In general, the biggest challenge in combating international telecoms fraud is incentivizing competing operators to participate in a network. Enterprise blockchain technology overcomes this issue by enabling operators to share data securely, without losing control or ownership of that data, and with rigorous oversight of what data can be seen by whom–meaning they’re sharing it on a strictly need-to-know basis. Such granular control over data has not previously been available to carriers at a network level. It makes it possible to introduce new incentive structures that align carriers’ interests, behavior and enforcement of agreements when tackling fraud.

In the following pages, we explore the blockchain applications that are being built on Corda today to enable new fraud detection and management solutions for telecoms companies. Our report also highlights the new incentive structures that align carriers in their fight against fraud while supporting collaborative efforts to improve revenue assurance, customer experience and top-line revenue growth.

Turning the Tide Against FraudFraudsters exploit the difficulty of sharing data between carriers to attack networks and extract large sums of money. In an International Revenue Share Fraud, the criminals insert themselves into the opaque supply chain of transit carriers along high-risk routes and collect charges fraudulently.

This type of fraud is exacerbated by the fact that originating networks cannot validate the route used by transit carriers to the destination network or audit the end-to-end chain. Destination

2© 2021 R3. All Rights Reserved

networks also suffer loss of revenue as they cannot share data effectively with the originating networks to reconcile calls originated and received. This common lack of visibility leaves networks vulnerable to attacks that can result in severe financial losses and reputational damage for the telcos involved.

In an effort to combat International Revenue Share Fraud, the industry has looked to introduce a standard suite of protocols and procedures such as STIR/SHAKEN. However, these standards have been implemented only at a national level to date. And even with standards in place, underlying technical challenges remain around how carriers can share and validate data flows securely between them and leverage a network to encourage large-scale adoption. These challenges become more acute at an international level, where traditional centralized architectures are not suited to the implementation of fraud management protocols shared with other organizations. Corda can help to break this logjam by acting as a digital driver supporting carriers’ adoption of new fraud management protocols and solutions with international peers, without having to rely on an overarching centralized entity or architecture.

Carriers have also struggled to share the aggregated and call-level data needed to manage

fraud risks effectively because they lacked the tools to do this in a secure, scalable, trustworthy and confidential way. Again, Corda offers the solution by providing a robust transaction layer across which carriers can share data peer-to-peer while retaining complete control over the ownership and access to that data. This means that–for the first time–carriers can have immediate access to the data they need to identify and manage fraud, while also ensuring the privacy of sensitive information and the validity of the data.

A further benefit of Corda is that it removes the reliance on a centralized entity controlling the network or service. As we noted earlier, Corda’s decentralized architecture and governance model remove the risks associated with centralization by sharing information on a need-to-know basis, allowing each party to retain control of their data. This opens the way to the creation of incentives that align carriers’ interests and encourage them to collaborate and promote industry adoption across peers and even competitors.

Having the right network governance and operating model is a vital enabler for achieving wide market adoption and the long-term success of fraud detection tools. In the following section, we explore how Corda provides the tooling needed to facilitate incentive models that align carriers to contribute and share data in a decentralized way.

Figure 1: International Revenue Share Fraud

Originating Network

Intended Route of Call

Transit Carrier(s) IPRN Provider Destination Network

Transit Carrier | ShortStopping Carrier

Short Stopped Route to Call

20 20 4040

FraudulentActor£1.20

80

$2.00 $1.80 $1.60 $1.20 $0.80

3© 2021 R3. All Rights Reserved

The Corda Ecosystem Combating Telecoms Fraud

InfosysArka Roychowdhury, Principal Consultant, Blockchain Practice

According to a 2019 survey by the Communications Fraud Control Association, Wangiri Fraud is among the top five fraud methods reported by carriers. Although this type of fraud does not exploit vulnerabilities in critical network infrastructure, it remains difficult to eradicate.

How Wangiri Fraud works

In a Wangiri Fraud, a fraudster calls a set of target numbers and disconnects before the calls are picked up, thereby generating a missed call. The unsuspecting victim then calls back thinking it was a legitimate missed call. But, unbeknown to the victim,

the number is typically registered to an international premium-rate service. The victim is typically kept on hold or made to listen to a pre-recorded message or ringback tone to inflate the call charges.

When the victim is subsequently charged by their service provider for calling them a premium-rate number, they will usually contact it to report an error on their bill. The service provider is required to refund the customer and manage their negative experience of its service, but is usually unable to recoup any of the resulting costs from the fraudulent operator.

Problem

The challenge with sharing Wangiri “hotlist” numbers

While there are industry efforts that aim to help carriers share “hotlists” of numbers identified as being used fraudulently, Wangiri fraud remains prevalent. Often, traditional centralized architecture struggles to provide carriers with the trust and accountability they require when sharing this type of data between themselves. For example, a centralized architecture will maintain a single repository of numbers, which is challenging to scale across the industry. Blockchain solutions can address this issue by enabling carriers to independently maintain their Wangiri hotlists, sharing numbers securely and decentralizedand on a need-to-know basis.

Figure 2: Possible Network Models for Blockchain Fraud Management Solutions

Consuming Network

Example 1: Tokenised Participation Incentive Model

Example 2: Industry Consortium Model

Example 3: Tiered Access to Data and Insights

Consuming Network

Industry Utility Consortium

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The Infosys solution

To help telcos tackle Wangiri Fraud, Infosys has developed a solution powered by Corda that enables them to maintain a decentralized repository of hotlists, and which also controls the sharing of Wangiri numbers and other fraud-related information on a need-to-know basis between carriers. The solution comes complete with built-in analytics and supports incentive models to encourage collaborative participation among telcos. It can be integrated with an operator’s internal fraud management system (FMS) or can also work as a stand-alone solution.

Fraudster

High Cost Destination

Subscribers

Carrier Network

Missed Calls

Missed Calls

Carrier Network

Shares Revenue

Transit Network

Calls back the missed call

number3 2

1

Carrier Carrier

Carrier Identifiesa Wangiri #

Regulator

ConsumesData

Distributed Ledger

2

Updates Hotlist 1

Figure 3: Illustration of a Wangiri Fraud interaction

Figure 4: Infosys’ Wangiri Fraud solution powered by Corda

5© 2021 R3. All Rights Reserved

SubexShubham Saraswat, Product Director – Partner Ecosystem Management

The telecoms industry thrives on partnerships, ranging from those between the traditional interconnect, wholesale and roaming providers to telcos’ relationships with new digital partners like Over-the-Top (OTT), Internet of Things (IoT) and Machine to Machine (M2M) operators. As the telecoms ecosystem continues to evolve, it is essential to upgrade wholesale practices such as intercarrier settlement and fraud mitigation to make them more proactive and effective by realizing operational efficiencies and performance improvements.

For example, when disputes and frauds occur, Digital Service Providers (DSPs) should be able to resolve issues quickly and gain rapid access to blocked revenue while collectively trusting the digital process. A blockchain-based settlement system creates the necessary trust by enforcing agreed-upon processes, thereby increasing transparency and confidence in the rapidly-evolving partnerships across the telecoms ecosystem.

Problem

Challenges from an increasingly competitive telecoms landscape

Telecoms technologies and networks have undergone a massive transformation over the past decade. Today, in the face of intensifying competition from OTT players, telcos are actively developing innovative strategies and exploring new business models to address challenges involving both traditional and digital partners.

Challenges involving traditional partners

Relationships with traditional partners are particularly impacted by disputes due to data mismatches and long settlement processes, often resulting in revenues being blocked for both parties. Resolving these situations is a lengthy process where dispute identification can take more than 120 days and resolution may take anywhere from months to years.

Challenges involving digital partners

To gain access to digital content, operators need to bring in mediators who aggregate content for telcos and content generators. These intermediaries capture a significant chunk of the revenue, leaving only a minimal share for content creators and telcos. Blockchain can help to reduce the number of intermediaries – resulting in fewer disputes and faster revenue realization.

Figure 5: Traditional Billing, Settlements & Disputes in Numbers

Process Flow Time DurationBilling Cycle Monthly

Billing Generation & Distribution 5th / 6th of Every Month

Bill Reconciliation 2-5 Days

Dispute Identification & Confirma-tion 15-45 Days

Dispute Claim Form

• Destinations• Volume• Rate• Amount• Reason• Police Report for Fraudulent Calls

CDR Reconciliation Process 60-90 Days

Dispute Analysis and Resolution by Partner Months to Years

Result Blocked Receivables and Write-offs in Some Cases

Overheads Fraud Analysis, Police Reports not Accepted by Partners

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Subex blockchain solution supported use cases

Subex’s blockchain solution speeds up the settlement process and reduces costly errors, while remaining agnostic of the billing, fraud management and legacy systems. The solution enables DSPs to create a faster and more transparent process that leads to earlier revenue realization due to zero or fewer disputes and incidences of fraud, while simultaneously enabling trust in digital partnerships.

The solution ensures transparency and trust through near real-time reconciliation reports. It posts fraud information from external systems onto the Corda ledger in a manner that maintains bi-lateral privacy between carriers who have identified a fraud event and want further validation from peers along a chain of transit carriers. In this way, the solution provides a consolidated view of discrepancies due to fraud, rate and volume. It also enables the generation of clean invoices by promoting proactive corrective measures, and works seamlessly with legacy billing systems on the basis of coexistence rather than existing defined processes. The solution helps in mitigating Wangiri, Smart False Answer Supervision, Shortstop and other wholesale fraud scenarios.

Key features:

• Billing / FMS system-agnostic solution • Enabled on enterprise blockchain • Open APIs and collection services • Partner portal • Extract transform and load layer • Supports Communications Business Automation

Network (CBAN) standards • Risk and Assurance Group (RAG) Wangiri API

The following use cases are part of the Subex solution:

• Reconciliation summary and detail • Wangiri, Shortstop and Smart False Answer

Supervision Fraud mitigation • Wholesale fraud interface for partners from

billing/FMS

Wholesale Interconnect Reconciliation

Partner App

Subex Blockchain Solution

Interconnect Data

Interconnect Data

Summary & CDR Level Recon

Originating Carrier

InterconnectCarrier

Ingestion

ThresholdManagement

Any Other CDR

Format

CBAN

Fraud Posting

Partner App

Subex Blockchain Solution

Evaluation of Fraudulent

Data

Fraud Data

Fraud Posting API

Originating Carrier

TerminatingCarrier

Ingestion

Any Other CDR

Format

CBAN

Originating Carrier

Interconnect Partner

OP1 OP2

Fraud Mitigation

Partner App

Subex Blockchain Solution

Interconnect Data

Fraud Data

Summary & CDR Publication

Originating Carrier

TerminatingCarrier

Ingestion

Any Other CDR

Format

CBAN

Originating Carrier Fraudster Terminating Carrier

OP1 OP2 OP3 OP4

Figure 6: Reconciliation Summary and Detail

Figure 7: Wangiri, Shortstop & Smart False Answer Supervision Mitigation

Figure 8: Wholesale Fraud Interface for Partners from Billing/FMS

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ConclusionAs with many other industries, the year 2020 has seen the telecoms sector experience rapid changes in customer behavior and an accelerated push to embrace digital initiatives. Yet throughout this period, innovation in tackling telecoms fraud has remained stagnated due to misaligned incentives and the difficulty of cooperating across the industry ecosystem.

These hurdles can now be overcome, as enterprise blockchain offers the industry a speedy, confidential and secure way to utilize siloed data to enable fraud detection and management at a collective level. Through the software solutions developed by vendors such as Infosys and Subex, operators can reduce the burden of fraud-related costs and keep their customers safe in our digital-first world. For fraudsters targeting the telecoms sector, life is about to get much more difficult.

Telecommunications

About this publicationThis publication is intended for informational and educational purposes only and does not replace independent professional judgment or advice. No information contained in this publication is to be construed as legal advice. R3 does not assume any responsibility for the content, accuracy or completeness of the information presented or for any loss resulting from any action taken or reliance made on any information included in this publication.

About R3R3 is an enterprise software firm that is pioneering digital industry transformation. We deliver purpose-built blockchain technology for all types of businesses in all industries.

Developed in collaboration with our ecosystem, our enterprise blockchain platform Corda is transforming entire industries by digitalizing the processes and systems that firms rely on to connect and transact with each other. Our blockchain ecosystem is the largest in the world with more than 350 institutions deploying and building on Corda and Corda Enterprise. Our customers and partners have access to a network of leading systems integrators, cloud providers, technology firms, software vendors, corporates and banks.

To ensure our customers derive the greatest value from their investment, we provide services and support to shorten time-to-market, as well as guidance on implementation, integration and building ecosystems based on a blockchain platform. Learn more at www.r3.com and www.corda.net.

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