When data and technology come together in the fight against fraud and financial crime
Through Chris Lewis, Head of Solutions, Synectic Solutions
There are many elements of life that have been deeply affected by the coronavirus pandemic. Some with whom we will learn to live, others will return to the way they were and still others, we will accept them for the better.
What is certain is that we have to adapt our position in a constantly changing world. Fraud – and its perpetrators – are adapting to make the most of the terms available, and the banking industry has worked hard over the past 18 months to protect customers from fraudsters who have tried to exploit fears related to the fraud. pandemic. The extent of the problem is clear: more than £ 1.6bn of fraud stopped in 2020 by banks and financial providers.
A three-pronged approach
Compromise of personal and financial data remains a major driver of fraud losses, whether it is consumer information captured due to data breaches at third-party sites or sophisticated “digital skimming” attacks. “.
Fraud cuts across many industries. As such, the need for a collaborative approach is essential. This is why the three-pronged defense of data sharing, improved technology and greater collaboration between private sector companies and public sector organizations is proving effective.
The role of data in the fight against financial crime is essential. Serious and organized crime, much of which is caused by economic crime, is estimated to cost the UK up to 10% of GDP per year, according to the Annual Fraud Index. We all know that number is set to rise in the wake of the COVID-19 pandemic. But, quite simply, data is one of the few effective weapons we all have in our arsenal, and real value is unleashed when we put resources together.
The power of shared data is indisputable. It is crucial for the identification and interruption of fraudulent activity. So how can you use it successfully in the fight against fraud?
Data allows banks and financial service providers to gain a more complete view of a customer and the potential risk they may present. It also has the power to shine the spotlight on potentially fraudulent people, that is, customers who are at greater risk, or “bad actors”.
Using real-time checks, data can speed up the time it takes to onboard customers, filtering out potentially bad customers who are blocked and flagged for further investigation, while speeding up 99% of good ones, by introducing just the right amount of risk-based friction into the customer lifecycle.
The power of data can also be harnessed throughout a customer’s lifecycle to prevent fraud at every stage, from helping sort payments for suspected fraud to using fraud information to improve “resistance” against the misuse of accounts receivable. .
Partnerships and collaboration are also essential. By syndicating data and sharing information across industries, businesses collectively are much more powerful than the sum of their individual parts.
At Synectics, we work with over 140 private sector companies and 1,300 public sector organizations, who actively collaborate to prevent fraud in their own organizations, while simultaneously alerting all other companies in the ecosystem to potential risks. Companies which, under normal circumstances, would be considered as competitors, show solidarity in the fight against financial crime and fraud. If a criminal intends to commit fraud, collaboration on this scale will make his “job” incredibly difficult to accomplish.
The power of technology
The last piece of the puzzle is technology. Over the past 18 months, government restrictions have disrupted people’s daily lives, preventing them from going to a branch to work from home. As a result, this has accelerated the digital transformation in the banking industry.
Changing consumer habits, accelerated by the pandemic, have provided a perfect opportunity for the industry to take the lead in technology. For those who made early investments in emerging technologies, replacing existing systems and ensuring that the IT infrastructure is fit for purpose, the transition has been much easier in the face of COVID-19. However, introducing fraud-resistant technology in the midst of significant change has been more difficult for organizations that have failed to deliver an appropriate digital offering. The key is early adoption.
What is clear is that the landscape is constantly evolving with significant technological advancements, such as facial and behavioral biometrics, designed to tackle potential fraud while enabling digital customer journeys.
The topic of digital identity has been in the spotlight again in recent months as the financial industry tries to manage the growing risk of online adoption.
In February, the government released draft rules governing the future use of digital identities – the UK Digital Identity and Attributes Trust Framework. It includes principles, policies, procedures and standards governing the use of digital identity and is part of the plans to enable people to verify themselves faster and easier using modern technology, creating a more reliable process – confidentiality by design, rather than modernization of controls. in existing documentation.
Last month, the European Commission also announced plans for a framework for a European digital identity that will be available to all EU citizens, residents and businesses. It will allow people to prove their identity and share electronic documents from their European digital identity wallets at the click of a button on their phone. The key will be to ensure that robust controls are adopted across multiple platforms to protect against fake / synthetic identities.
The growing importance of digital identity and the move towards widespread adoption has put more emphasis on the role that technology must play and this will only gain momentum as part of a larger debate. within the banking sector on the need for continued and sustained investment in digital transformation.
As consumer habits change and fraudsters adapt to preventative measures, the need to innovate, change business models and take advantage of emerging technologies has never been greater.
The focus should be on building a robust IT infrastructure and digital expertise. For this to work, banks and financial institutions must have a basic IT platform in place that enables integration with data services, AML filtering, fraud checks, or digital identity. There is also the handling of personal customer information to consider, not to mention the customer journey, which needs to be mapped and understood. This will differ widely between business and consumer markets to account for nuances in relationships and touch points.
To ensure that guidelines are followed and that fraud prevention is strong and responsive, banks should ensure that their customer engagement methods – for example, the use of text messages as a means of authentication that are open to interception and vulnerable to security attacks – are aligned with the latest available technologies, such as behavioral biometrics and mobile risk controls. Obsolete IT infrastructure, modernized solutions and legacy systems can increase a bank’s exposure to risk.
Talent and resilience
In some ways, the technology is the easy part – it’s the people who aren’t. Digital transformation requires talent. Combining technology, data, processes and the capacity for organizational change is essential to avoid derailing an otherwise well-designed transformation plan.
With the Bank of England declaring in its Financial Stability Report this week that banks are emerging from the pandemic ‘resilient’, the industry is clearly well positioned to support businesses and consumers and continue to fight fraud, crime. financial and associated risks resulting from an unprecedented pandemic.
However, while the adoption of new and emerging technologies in areas such as digital customer integration has benefited some market sectors, it has undoubtedly crippled historical players. As such, the coronavirus should serve as a wake-up call to large financial institutions so that they are well prepared for the onset of the next crisis.