In the age of digital banking and financial services, as well as the rise of FinTech and RegTech, banks around the world are focusing on modernizing and digitizing their operations in order to stay competitive and improve customer experience. Customers’ adoption of a digital lifestyle, as well as the availability of high-speed internet via mobile service providers and free Wi-Fi in most public places, has made digital banking and online transactions on the go more convenient. Furthermore, the push for digitalization has accelerated during the COVID-19 pandemic. Innovative solutions to overcome the outbreak’s disruptions through digital transactions have become the financial systems’ saviors. Furthermore, the digitization of financial systems improves service efficiency in many areas, including onboarding a customer, protecting from fraud, regulatory monitoring, servicing and offboarding.
Financial crime compliance, on the other hand, has become easier because identifying the source of digitally originated transactions is easier to track than cash or cash equivalent transactions. The Financial Crime Compliance (FCC) unit’s reporting to regulators in the event of any transactions exceeding the mandated threshold has become faster and easier, ensuring the detection and prevention of fraudulent transactions through online channels in real time. Furthermore, digital transactions have simplified the screening of the device fingerprint, geolocation coordinates of the device used, browser data, and other behavior details and contextual data for the customer that can be stored in the bank’s system.
Criminals in the BFS industry, on the other hand, are catching up with the evolution of technology, looking for loopholes in the system and ways to exploit them. Identity theft and account takeovers have emerged as major concerns for financial institutions, with incidents on the rise in the current non-face-to-face banking environment. When lost or hacked, handheld devices, which are thought to be the most convenient banking channel, may become an open book of financial secrets. On handheld mobile devices, the browser stores personally identifiable information (PII) such as full name and aliases used, address, email address, passwords, card numbers, national identifiers such as SSN, browser history, cookies, and cache. Downloaded bank statements, contacts, device location history (GPS), SMS, emails, and recently deleted files may also be stored on the device.
When a person falls victim to a scam, the scammers or hackers can swindle the victims’ accounts without their knowledge in order to circumvent the fraud detection parameter deployed by their FI. Scammers use victim’s own device connected to victim’s own network to siphon money from their accounts, fooling fraud monitoring systems’ device fingerprinting and network IP tracking.
Countering the Risk
First and foremost, it is the customer’s responsibility to prevent fraud, which can be ensured by implementing some best practices to seal data leakage and raising awareness about how to avoid scams. They should be advised to protect their digital banking device from hacking via phishing or SMS-shing, to validate the authenticity of links received in SMS or emails before opening, to avoid using non-secure internet connectivity for banking transactions, and to use multifactor authentication for mobile banking apps such as a password, biometric, or PIN to access and install only genuine banking apps from trusted sources and authenticated banking websites. FIs, on the other hand, must improve their digital security and fraud prevention strategies to keep up with the ever-changing fraud trends in the digital environment.
The first step in controlling fraud attempts by FIs should be to educate their customers on market scams and fraud trends on a regular basis. Furthermore, FIs must implement machine learning-driven analytical solutions to reduce false alerts, which may negatively impact customer experience through multiple customer-connects and a decline in genuine transactions, among other things.
The Road Ahead
In the future, FIs can use linkage analysis in conjunction with social media activity analysis to identify fraud trends. This will reduce friction in the customer experience by removing the unnecessary connection for transaction authenticity. Cognitive solutions, such as automated communication with customers via auto dialer, push message, or SMS, could be an alternative option for customer connection.
While this is not an exhaustive list of counter-financial-crime actions, it is an evolving space in which FIs must track developments in order to update customers’ knowledge, processes, and controls accordingly.
