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Three Ways To Fight Bank Fraud

Three Ways To Fight Bank Fraud

The rise in daily fraud attacks on banks and financial institutions has led to some organizations adding additional resources to their financial crime teams, but if they are still using old tools, is throwing more people at the problem the answer?

There is no doubt that Know Your Customer (KYC) compliance and anti-money laundering (AML) strategies are helping, however, banks need to take a more holistic approach to stay ahead of fraudsters, especially during the pandemic. A reactive approach to remediation remains too common. Financial institutions need the power of actionable insights that not only monitor but predict outcomes and trigger alerts when issues arise. The urgency couldn’t be greater, as COVID is actually fueling the increase in fraud as organizations try to make online banking easier and more seamless for remote customers.

The way banks assess and manage risk needs to be reimagined in 2021 – starting with taking a 360, AI-powered approach to operations and incorporating technology, people, processes, and content to achieve a more transparent view of the threat landscape. With banking now ranking first among industries in the annual cost of cyberattacks – more than $18.3 million per year per company – it’s imperative that financial institutions successfully counteract the constant flow of attacks and shift from a narrow focus on false positives and loss prevention to a cultural change, dedicated to gaining actionable insights that enable tangible business value.

Read More:  GlobalFintechSeries Interview with John Dangoia, VP and Head of Product Management at Infosys Finacle

There are several things financial institutions and businesses can do to mitigate threats and keep your business information secure:

    1. Defeat the silo mentality to reduce delays and incorrect decisions

Silos create significant limitations for the effective management of financial crime risks and financial institutions need to explore methods to integrate their financial crime intelligence. For example, in systems infrastructure, large-scale organizations are often subject to multiple legacy systems and different data sets that are incompatible with one another. Without a system-agnostic common platform, financial crime intelligence sharing across the organization is difficult.

This impacts customers significantly. Trend research from FICO reveals that 44% of consumers in the U.S. say they are most afraid of identity theft and banking fraud – with good reason. According to the FTC, consumers issued more than 2.1 million fraud reports and lost more than $3.3 billion to fraud in 2020. Financial crime not only puts financial institutions at risk for monetary loss but, perhaps more importantly, impacts reputation and customers’ fear about security.

In the financial services industry, solid client relationships translate into customer satisfaction, improved customer value, and customer loyalty. Since client acquisition costs are so high, financial crime prevention and reputational protection have a significant impact on a financial institution’s bottom line.

With the significant similarities of the data collected across AML, fraud, and cyber teams, breaking down these silos can provide a more transparent view of the threat landscape, better detect suspicious transactions, and streamline investigations. Regulators in some countries expect firms to have a holistic view of risk across functions and to report cyber events as part of their normal AML and fraud Suspicious Activity Report (SAR) reporting obligations. With this model, financial institutions will also reap the benefit of reducing operational costs and enhancing efficiency while developing a cross-functional view.

    2. Identify problems before they occur

Financial institutions need a holistic strategy that is risk-based and looks at all the access points — hardware, software, people, processes, and content. With a holistic approach that uses past events and creative thinking to identify problems before they occur, financial institutions can collaboratively collect and analyze intelligence from across the organization. This model improves intelligence sharing across the industry and allows financial institutions to participate in exercises or drills that would enable testing and improvement to security playbooks.

The most effective place to begin is the onboarding process, the gateway of money laundering. No matter how diligent onboarding efforts may be, there will likely always be a percentage of current customers engaged in financial crime. Streamlining onboarding by leveraging modern technologies enables banks to filter out suspicious and fraudulent actors and deliver a more frictionless experience.

Using a combination of technologies like artificial intelligence (AI), robotic process automation (RPA), and natural language processing (NLP), financial institutions can ingest and process both structured and unstructured documents, minimize manual steps, and reduce the need for making redundant requests of the client. Additionally, they have the potential to improve AML efforts greatly by increasing bandwidth and accuracy and by flagging areas for closer inspection.

A holistic strategy also provides the visibility necessary to better prepare for auditing and compliance requirements. It improves efficiency, protects the brand and reputation, and protects against sanctions or fines. There is greater protection against identity theft and fraud from a customer perspective, and fewer security incidents increase uptime, allowing customers seamless access to their financial lives.

    3. Leverage modern technology to augment human intelligence

Improving organizational visibility and reducing manual effort aided by AI, RPA, and NLP can free up compliance and security practitioners to focus on higher-value tasks like protection and mitigation, rather than compiling data from multiple sources and creating roll-up reports. There are even AI-based techniques such as behavioral biometrics that are being used widely for profiling user behavior online and identifying anomalies. Technology-driven solutions like this provide companies with the level of protection their customers need and the service they expect.

However, reimaging risk through this lens requires more than innovative technology investment; as stated before, people, processes and content all play a part in the successful implementation of a holistic approach. At the board level, there must be a priority on financial crime operations, with a dedication to providing sufficient human and technological resources.

Leaders in financial services will soon realize that this approach not only ensures a robust defense against the most difficult attacks financial institutions encounter, but that enhancing customer experience, generating revenue, and mitigating financial crime risk are complementary endeavors, and each strengthens the other.

Read More: GlobalFintechSeries Interview with Joe Ehrhardt, CEO & Founder at Teslar Software


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