It has been a tough year for most of us, and it could be argued that those working against financial crime have had just as hard. They had to adapt, to ramp up their skills, and to try new approaches to triumph against fraudsters and those maleficent enough to profit from this pandemic. Our Financial Crime and Fraud Report 2021 reflects just that: the fight against a problem that has perpetuated for ages, but now coming with the challenges of the COVID-19.

This article presents some of the most important ideas that experts in fighting fraud showcased in our Financial Crime and Fraud Report 2021. To get a holistic understanding of the picture, make sure to read the report.

The pandemic problem we face

The COVID-19 pandemic impacted almost every industry through the course of 2020, with the finance industry facing new challenges and demands from consumers as a result. The global move to remote work and mandated lockdowns led to a rise in the adoption of digital solutions and online activity, with financial services organisations scrambling to implement digital solutions to stay afloat and meet increasing customer demands.

This changed the way that many financial services organisations operate online and created more opportunities for scammers to increase their fraudulent activities in a more sophisticated fashion.

Scams tailor-made for the pandemic have been sharp reminders of how quickly fraudsters adapt and exploit new vulnerabilities. In the same idea, the increasing integration and acceleration of the European payments ecosystem through SEPA and the ramp-up of instant payments have opened new doors for fraudsters.

Payment service providers (PSPs) across Europe have started to increasingly recognise that their fraud prevention and detection tools not only have to be fast, but they should also be able to follow fraud across borders and allow relevant parties to join forces in fighting it.

Meeting compliance requirements could be perceived by many banks as an expensive burden. However, if it is done intelligently by using tech, being part of a KYC/AML utility, or sharing data with peers to fight fraud, compliance is not that costly. And when compared to the price a bank must pay to repair its brand, after it was featured on the front page of financial magazines as the main protagonist of a money scandal (not to mention the value of the penalty/fine), compliance doesn’t seem that costly.

That is why the fraud risk perspective must be a natural part of business and feature development from the start. When developing cool new products or services, a company always needs to keep in mind how they can be misused.

The consumer’s perspective

Detection is only the first line of defence – education also plays a vital role, making the customer aware of the scams and the risks that they present, as well as how and when to take action to protect themselves. Currently, education generally takes the form of warning messages that are presented to the customer. But those messages are often falling on deaf ears, for several reasons.

They usually appear at fixed points in the user journey, such as when a customer logs in, or when they initiate a transfer. Wherever the messages appear, the common ground is that these warnings are inherently passive – they seldom actually intervene in the flow. As such, they’re often easily ignored, which has a drastic negative impact on their efficacy.

It’s not that customers are unwilling to protect themselves, as the majority believe that they have a degree of responsibility to do just that. But it’s often hard to know when you’re being scammed in the heat of the moment. Adding friction to a customer journey might seem like a bad idea but it can be an innovative solution for making the customer pay attention.

An idea would be to deliver that ‘good friction’ in the form of a nudge. Giving a customer a message that gives them a good reason not to do something is an effective way to make them question the validity of completing a new or unfamiliar transaction.

Where do financial institutions fail?

As experts suggest, financial institutions (FIs) should always assume they are under attack, and proactively use technology to be prepared. A component of a businesses’ risk management strategy is optimisation around preventing fraud, automating online threat detection, and being able to continuously validate the identity of the users.

Technology could be scalable to support businesses in becoming more dynamic, as it is there to enable them to adapt to regulatory requirement and threats that consumers, banks, and fintech providers could encounter.

What’s the solution?

With many organisations around the world moving their transactions online and as digital fraud rates continue to rise, as experts suggest, it is now mission critical for businesses to ensure their customers are who they are claiming to be, making identity verification solutions even more imperative in the fight against fraud. By using the power of artificial intelligence (AI), companies can analyse thousands of technological and behavioural variables in seconds.

Advances in artificial intelligence technology are also helping fraud detection tools to become faster and smarter. Every verification that is processed helps improve analytics and detection, and AI algorithms used to scan identity data can be constantly updated to stay ahead of fraudsters. The more fraud we catch, the better we become at protecting ourselves and others.

Furthermore, having real-time identity verification capabilities can be the difference between fraud detection (or detecting fraudulent behaviour after it occurs) and fraud prevention. This enables fraud to be stopped before it begins, saving money and time. For example, real time facial biometrics adds an extra layer of security.

The consensus seems to be that the ability to digitally verify your identity should become a fundamental facility across the economy. The economic gains, both in terms of efficiency and fraud prevention, can be vast.

Is fraud ever going to stop?

Clearly, no one can deny the important role data plays in distinguishing between good guys from bad guys, however one solution/technology does not solve the challenge. Everything needs to be combined, orchestrated, and shared.

Collaboration among teams improves threat prediction and detection while eliminating duplication of effort and resources. Furthermore, by finding a common language, breaking down the silo mentality and developing cross-functional ways of working, using data and technology to support the integration of systems and operational transparency, financial institutions are better equipped to navigate the sea of financial crime.

About Alin Popa

Alin is Content Editor at The Paypers, working in the Banking & Fintech team. His curiosity and desire to always stay on top of the latest developments in the payment industry pushes him to explore the world of crypto, fintech, and fraud-fighting. With an academic background in Business and Entrepreneurship, and having experience as a creative writer, he is ready to get imaginative when covering insightful stories. Although acknowledging the power of technology, Alin believes that it is in the human mind and soul where true changes really happen. You can reach out to him on LinkedIn.