Digital banking has created a revolution in banking fraud. Until a few years ago, banking fraud was primarily the domain of small-scale criminals trying to lay their hands on relatively modest amounts of money. But today, digital banking has “helped” fraud become a major international industry in which sophisticated criminal groups use highly sophisticated tools to steal much, much larger sums. Quite obviously, this has increased up to the liabilities that banks must absorb to cover the losses their customers could suffer because of fraud.

Ironically, it’s the very new technologies incorporated by banks to appease customers that have made them more open to multiple risks like spyware, card skimming, phishing, adware, SM Sashing, identity theft, money laundering, loan loss, cyberstalking, website cloning, Trojans, viruses, social engineering, and other forms of cybercrime.

In 2009, a credit and debit processing provider – Heartland Payment Systems – suffered what until then had probably been the biggest breach. Their CEO said that the accounts breached were those that had 100 million transactions a month. Following the attack, Heartland focused big time on building stronger defenses against banking fraud. Sadly, even these were not enough because just a few years later, the company suffered yet another malicious intrusion. Existing products like money management tools have become more vulnerable to cybercrime, while more recent and innovative financial services like mobile wallets also couldn’t help but fall under the scanner of online fraudsters.

To counter and minimize the increased threat, banks and other financial institutions have been augmenting their controls, processes, systems and fraud risk management frameworks, while reducing the time taken in fraud detection. Regulators also are gearing up for the changed environment. Some regulatory bodies have introduced new frameworks to check frauds by way of early warning for banks. For instance, red flagging accounts where loan defaulters can no longer access further banking finance.

What complicates the scenario is the increased competition in digital banking and a plethora of demands by customers. To deliver high quality and memorable user experience, assuring airtight security is critical to building a strong customer relationship. This is motivating banks to serve their customers with a strong and user-friendly fraud protection system, with an additional aim to mitigate the risk of liability for losses caused by unauthorized transactions through digital channels.

Digital Transformation solutions

In this environment, a technology-based strategy is the only practical response if banks want to maintain customer trust and protect their brand reputation. Finding space between the risk and opportunity warrants a new approach to fraud detection that uses new technology like machine learning and advanced analytics. Preventing online fraud requires a layered and risk-based approach that does not place excessive reliance on a single tool to stop all threats.

Of course, most frauds have happened due to human malpractice or negligence. So, a part of the solution is to train bank employees better, tighten supervision and improve manual processes, increase audits etc. These checks though necessary, are not enough to curtail banking fraud. Technical tools such as automated checks throughout the workflow will be more effective in preventing such activities or identified and corrected in real-time.

Banks need to aggressively leverage the potential provided by Digital, Mobile and the Cloud. They should take measures like building a robust analytics layer on top of aggregated customer and industry data to aid in data-driven measures. The aim should be to reduce manual checks, thereby allowing the management to utilize their employees’ time for more strategic work; quick detection and remediation and creating an impenetrable defense mechanism against the threats posed by disruptive technologies.

Banks must adopt a portfolio of security-related tools, strategies, and tactics so that they continually test and revise their strategy based on developing threats. Note, however, that banks need to execute all this in an Agile manner with short value generation loops, based on an overarching enterprise architecture roadmap.


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About the author

Tamil Bharathi is the Client Advisor at Zuci. He specializes in advising and offering critical customer-centric solutions to new and existing customers for the best end-user experience. He is a fun person with a great sense of humor. Check him out at Tamil Bharathi.