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Barbs of Banking Fraud – CustomerXPs Insights Blog

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The barbs of banking fraud have drained the blood and soul of banks, disrupting the business process for a long time.  Banking fraud has been a menace that has evolved continuously from the inception of the concept of banks. UK is the leader of e-commerce in Europe. UK banks and merchants know how important the improvised fraud prevention strategy, and rules addressed to online and mobile fraud is as they have been handling this menace for decades. The losses due to fraud in UK cards has reached to GBP 450.4 million in 2013, a rise of 16% to what it was in 2012 but still 26%  less as fraud was at its peak in 2008. Losses are currently 7.4p for every GBP 100 spent. Card not present(CNP) based fraud in UK has topped at GBP 326.4 million in 2008, 22% fraud increase was seen in 2013, with fraudulent purchases made online reached GBP 301.1 million. This fraud in accounts rose to 67% of total banking fraud from 54% in 2008. The UK market has the highest online spenders in Europe (2466 per capita in 2012). This value is growing and the banks have been able to payback a full refund to 97% of the customers facing fraud. However, the responses by the merchants and banks have encouraged the customers to spend more but the losses are bleeding banks dry in terms of fraud compensation.

The USA is the largest economy in the world, it’s not an unknown fact that the US has fallen victim to 51% of global card fraud. The USA has lost more than 7.1 billion dollars in 2013, not only to card based fraud but also to major breaches, e.g. Target breach (retailers- online, brick mortar) has lifted the total fraud by 500 million dollars. These events will continue to have an impact on USA economy for years to come. Effective online enterprise level security measures will be required to avoid a repeat of the experience of European markets in this respect. It is evident from the merchants and banks that they are rooting for robust, real-time fraud prevention solutions to prevent cross channel fraud. As close as 60% of US consumers surveyed say that a security breach involving their personal or credit card data would make them less likely to do business at a bank or store that they commonly use(Unisys). According to the forecasts 50% of the users of mobile will be conducting financial transactions over the mobiles by 2015. In such a big market for mobile commerce that is facing overwhelming rates of fraud, application of enterprise wide fraud prevention tools is gaining a lot of attention lately. The application of such technology will require a very careful approach that has to be tailored to the channel and its problems.

The fraud has left not only USA, UK but also the MIDDLE EAST scarred. UAE has evolved as the new fraud capital in Middle East. In June 2014, the UAE led the list of the countries with the credit card frauds with 44% up from 36% in 2012. The UAE leads the Middle East nations in online payments. According to Frost and Sullivan in 2014, 83% of UAE residents made purchases online. This level of increase is contributed by increased internet penetration, a rapid increase in mobile penetration and ‘government initiatives encouraging a digital lifestyle’. Continued profitable growth of ecommerce will require consumers to be educated in fraud prevention techniques, and that merchants and banks respond quickly and effectively to secure transactions, prevent fraud and protect the customer experience.

The recent developments in technology and overall commerce scenario has opened new avenues to fraud. For example, rise of mobile banking, internet of things, m-commerce, USA moving towards EMV, the continuous breach of Android devices and the failing trust of business in banks due to breaches portrays a very vivid picture of the path in which the next evolution of fraud is moving into.

Source: – Tentacles of Fraud Report.

Essentials for Banking Fraud Management

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Banking Fraud today is a wave after wave of multi channel onslaught on banks. It can strike a bank anywhere and any time-through internet banking fraud, ATM fraud, credit card fraud, insider fraud, core banking fraud, money laundering and countless other forms of fraud.

The threat of fraud keeps on growing even as banks try to curtail it by taking silo based single channel approach. If banks try to cut off card fraud by going for EMV card, a newer threat emerges in form of CNP fraud. If banks try to combat internet banking fraud, fraudsters move to stealing from mobile wallet.

Meanwhile fraud losses keep on piling, not only denting the profitability of banks but also their reputation as trustworthy institutions among their constituent customers.

We dedicate the month of August 2015 to the discussion on the shifting challenges for the banks, the efforts to curb this menace and how cross channel is the only way to fight fraud

Join the conversation with @customerxps on twitter with #starfishbanks with your views.

Starfish Banks: – Road to nowhere

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Starfish like ideology of the banks handling risks is no longer acceptable. Starfish Banks are no longer thought as the most important and profitable economic factors: they are more seen as potential danger to stability of the organization. As banking regulation is developing and in future it will be in a manner similar to other industries such as the chemicals industry. Banks will be no longer able to do analyze their own data and submit standard periodical reports.

Starfish Banks manage risks separately in silos through various departments and operational entities across their organization called the risk functions. This silo based approach is very similar to the way a starfish behaves. A starfish lacks a centralized brain function; it has a complex nervous system with a nerve ring around the mouth and a radial nerve running along the each arm. The starfish does not have the capacity to plan its actions.  If one arm detects an attractive odour, it becomes dominant and temporarily over-rides the other arms to initiate movement towards the prey. The starfish not only loses out on potential food but also endangers its own existence. Therefore giving a central brain to the starfish will not only make it more perceptive and agile as seen in higher forms of organisms but also give a better chance of surviving.

The Enterprise wide Fraud Management solution gives decision makers the opportunity with an organization-wide view, of the information and analytics. Using an integrated approach can open a new world of relational information on functions and facilitate better analysis of the main issue in the system, avoiding resolution of the issue at the wrong position or solving of the wrong problems. All the while the improved efficiency of the organization by active measurement, monitoring, and management of the risk function exposure creates standards throughout the organization and maximizing return on the enterprise-wide risk management investments. It is less costly to recognize and solve the issue before any further damage is caused. A full organization level enterprise risk management system is adaptive with the organization, evolving along with the needs of the business.

Creating a futuristic preventive risk management culture allows Starfish Banks to get ahead of the competition, actively knowing the challenges and opportunities posed to it along the path of evolution. The focus on managing risk at organization level not only increases transparency across the organization but also increases the value and competence of external stakeholders. Pre-emptive detection of issues and enterprise-wide decision making will improve the internal efficiency and strengthen an organization’s bottom line. It will reduce the risk to reputation and promote confidence among the shareholder and strengthen relationships with regulators and external auditors. A better Enterprise-wide Fraud Management program tests how efficiently the business is managed and risk is taken care of.

#StarfishBanks

Sources: –

  • BRACE, R. (2015). TRANSACTION BANKING 2015: DISMANTLING SILOS. The Magazine.
  • Chartis. (2015). Operational Risk Management Systems for Financial Services 2015. Chartis.
  • Downey, A. (2012). Silos Belong On Farms, Not In Banks! Wolters Kluwer.
  • (2014). Managing Data Challenge inBanking. KPMG.
  • Stewart, C. (2014, November 26). The importance of data for risk management systems. Retrieved from World Finance
  • (2014). TAKING RISK MANAGEMENT FROM SILO ACROSS THE ENTERPRISE. ACI Worldwide.

CustomerXPs hosts “Secret Sauce for Fighting Financial Crime” in association with CISCO

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“How can I make my bank safe and keep those fraudsters out?”, “What are the latest approaches to enterprise fraud management in banks?”, “How can I pro-actively & quickly be compliant to ever changing regulatory norms?”, “Can compliance to regulations & enterprise fraud management go hand-in-hand?”

These are some common questions baffling bankers not just worldwide but especially in India, where the fraud scenario is pretty grim. According to the latest statistics published by Deloitte, 93% of bankers in India indicated that there has been an increase in fraud incidents in the last two years. Majority of the respondents also stated that the average time taken to uncover a fraudulent transaction was a little less than 6 months while they were only able to recover less than 25% of the lost amount.

In order to provide feasible solutions to such challenges, CustomerXPs, in association with CISCO, recently hosted an event “Secret Sauce for Fighting Financial Crime” at Hilton Mumbai on June 25, 2015. Senior bankers hailing from multinational banks as well as cooperative banks were amongst the invitees. The objective of the event was to discuss and exchange views on the recent trends and developments in Enterprise Financial Crime Management space.

Eminent speakers from the banking industry were invited to share their experiences on their fraud management journey and emphasize on the role of technology in combating enterprise financial fraud. Top-level executives from CustomerXPs and CISCO also spoke about the challenges faced by bankers in India and elaborated on building the bank of the future by implementing enterprise wide, cross-channel fraud prevention technology.

The event not only served as a great learning platform but also helped leaders from across the banking and technology industries to network and share ideas.

To know more about the event and its takeaways, email us at clari5@customerxps.com.

Understanding Financial Crime, its Implications & How to Combat it

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Financial crime is a serious criminal offense that is escalating at an alarming rate. Worldwide losses due to financial crime have been estimated to have crossed 3 Trillion USD. Banks worldwide have been struggling to identify and combat financial crime in order to minimize risks.

Let’s have a look at the most common kinds of financial crime prevalent today and their magnitude of threat:-

Account Takeover: Account takeover involves having a fraudster take over another person’s account, first by gathering personal information about the intended victim, then contacting their card issuer by impersonating the genuine cardholder, and asking for mail to be redirected to a new address. As per a study conducted by Phishlabs in 2013, account takeover fraud grew annually by 69% worldwide.

Application Fraud: Application fraud takes place when a fraudster uses stolen or fake documents to open an account in another person’s name.

Check Fraud: Check fraud involves making use of checks unlawfully in order to acquire or borrow funds that do not exist within the account balance. As per a report released in 2014 by JPMC, 82% of bankers surveyed reported that checks were the primary target for fraud attacks at their companies.

Internal Fraud: Internal fraud is broadly defined as an employee’s misuse or misappropriation of an employer’s resources or assets for personal gain. 72% of organizations worldwide are said to have been plagued with insider fraud sometime or the other.

Money Laundering: Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity have originated from a legitimate source. According to a recent report released by KPMG, 88% of bankers globally see AML as a priority.

Phishing: Phishing is the attempt to acquire sensitive information such as usernames, passwords, and credit card details (and sometimes, indirectly, money) by masquerading as a trustworthy entity in an electronic communication. Reports suggest that an estimated 5.9 Billion USD was lost to phishing in 2013 alone with North America being the most targeted geography.

Skimming:  The theft of payment card information is called skimming. The thief can procure a victim’s card number using basic methods or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ card numbers. In Europe alone, cash losses owing to skimming incidents exceeded 248 Million EUR in 2014.

Implications of financial crime are extensive. High-profile frauds & money laundering not only cause massive monetary losses but often lead to litigation costs due to non-compliance of various regulations. Apart from financial damages, organizations face irreparable blow to their reputation and hence end up losing potential customers. The only viable solution lies in implementing a strong combat mechanism that protects organizations against multi-channel fraud in real-time.

Combating Financial Crime

Initially, fraud was mostly an opportunistic crime committed by small-time fraudsters. But today, the banks and their customers face a very different world. As the size and sophistication of products, channels and services have grown, so have the types of fraud. Money laundering is also proving to be one of the most prevalent kinds of financial crime today. Therefore coming up with a robust combat strategy is essential for the management of financial crime. It involves the following:-

Alignment of Anti-money laundering & Anti-fraud efforts: Both fraud risk and money laundering are key containment areas within an organization with respect to operational risk management. It makes sense for the banks to implement a unified platform for both anti-fraud & AML that will facilitate optimization of the efforts of investigation teams.

Enabling customer state view: The new age fraud monitoring systems go way beyond fraud detection, they essentially provide fraud prevention and transaction decline solutions. For this to happen, the solution should be able to view the customer state view within the duration of the customer action completion.

Influencing outcome in real-time: Financial Crime has traditionally been detected through an array of post facto analysis software. While these systems are immensely effective in all the regulatory reporting, the one thing they fundamentally lack is to influence an outcome at point of interaction. Though most of the current generation fraud detection systems work in near real-time for processing transactions, banks need real-time fraud detection systems which can process banking events from core banking systems within milliseconds.

There is more to the ideal combat strategy. To know further, download our e-book ‘Guide to Managing Financial Crime in 2015’ here.

AML as a Service

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AML as a Service

Past few months have seen a lot of activity from regulators, bankers and industry bodies alike towards curbing money laundering. Rules are becoming stringent and reporting more accurate. Then there were hefty fines levied on certain banks for non compliance with AML guidelines.

During our conversation with bankers, it consistently emerged that bankers have AML compliance as one of their top priorities. This is a clear outcome of lot of banks having plugged their technology for AML, leaving the banks which have not yet taken solid steps towards AML exposed to becoming a conduit for money laundering leading to take evasions, balck money and terror financing.

However, a major barrier these banks face is that technology investments are CAPEX which means budgeting for these investments at the beginning of financial year. It also necessitates a longer procurement cycle and boardroom discussions with other departments on redirecting budgets towards AML.

Second barrier is diversion of resources from revenue generation towards maintenance of AML technology, annual licenses,a project management team to monitor the technology and additional costs to incorporate the changing regulatory requirements.

Third barrier is upfront purchase of such technology entrenches the bank with the software vendor, making switching costs very high.

Understanding these concerns of our customers, CustomerXPs has launched Clari5 AML-as-a-Service to help them overcome the above mentioned barriers and provide a safe banking environment.

The first barrier of CAPEX is overcome by changing it to OPEX. This means that banks no longer have to make upfront investment in software, but use the ‘pay as you go’ model of monthly payments. This model of payments is more comfortable to the CIO, CRO and CFO.

Second barrier is taken care by the fact that there is no annual license, no maintenance required by the bank and incorporation of all the additional requirements come as part of the subscription.

Third barrier of entrenching with the software vendor is overcome by the fact that the subscription is monthly which means that banks can switch to other models with all risks covered.

Cybercrime increased by 300% compared to last year

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Cybercrime in India has increased by 300% since 2013 as the research by thepaypers.com indicates. Cybercrime in India has been on rise for last couple of years.

According to Mumbai police hacking, phishing and Nigerian fraud have risen to 36 in 2014 until October since 2014 from 9 registered in October 2013. 136 cases of cyber offences were registered in 2013 October compared to 418 in 2014 October.

The e-commerce in India has grown by leaps and bounds until recently. This has not only made online shopping a pleasurable experience but also made e-portals vulnerable to various cyber threats. Storage of various customer information have painted them as the next high priority target. Recent incidents of Cybercrime in United States are the clear indication of incoming danger.

 

 

In cases of Nigerian fraud, the victim receives an e-mail or SMS stating the mobile number or e-mail of the selected lucky draw in millions of United States dollars or British pounds. These e-mails or SMSs contain the contact number for claiming the money. The fraudsters also ask for meagre amount of money for clearing customs and for domestic money conversions. The fraudsters provide the account number where the specific amount has to be deposited.

In cases of phishing where the fraudsters sends an e-mail to a user falsely claiming to be an established legitimate enterprise. This fraudulent enterprise in attempts to scam the user into surrendering private information that will be used for identity theft. The e-mail directs the user to visit a website where they are asked to update personal information, such as passwords, and credit card, and bank account numbers, Cybercrime is truly a menace.

Customer Experience in Banks in Nigeria

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Customer Experience in Banks in Nigeria

Customer experience in banks has seen a downward trend in Nigeria since 2012. The study says, Nigerian Banks are going through turmoil. The reason is increasing fraud prevailing in the industry.The loss caused by fraudulent activities has mounted up to 19.06 billion Naira in 2012 from 1.65 billion Naira in 2000. . The fraudsters hit the bank hardest in year 2008 with whooping loss valuing around 34.8 billion Naira. With the increasing fraudulent activities via ATMs and Emails, banks are considering precautionary steps to combat the malpractices. While stringent actions are being taken to prevent fraud, the customer experience is also taking a hit. More and more customers are moving out of banks.

Therefore, to revive the banking industry from frauds & provide their customers’ a superior experience, banks are suggested to follow these aspects:

  • Better interaction with Customers
  • Better accessibility to services
  • Secure and promote the preferred channel of payment and interaction
  • Gain trust of the customer with:

o Better quality of Advice
o Enhanced Security
o Better Problem Resolution

According to globally set standards Nigerian banks are below par by standard. All the above parameters are highly crucial for better customer experience. So, the following info-graphics is an excerpt from Ernest & Young Banking Customer Satisfaction Survey 2013 which not only emulates the key concern areas but also throws light on how to overcome the obstacles. These actions will drastically improve customer experience and bring Nigerian banks at par with global standards.

 

Sources: Ernest & Young Banking Customer Satisfaction Survey 2013.

Financial Crime in South Africa!

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Financial Crime in South Africa is overwhelmingly omnipresent. According to Christopher Malan, Head of Financial Intelligence Center, South African banks have to work towards being more compliant in combating financial crime i.e. Terrorism Financing and Money Laundering.

Four big banks of South Africa were fined for R125 million by the Reserve Bank for failing being compliant to the regulations. Banks are highly criticized for forming cartels, and behaving monopolistically in the African region. This is one of the various reasons for high financial crime rate in South Africa.

According to PWC report, the biggest thieves are not the lowest paid or least educated but was quite opposite. The senior management are the main perpetrators in South Africa. The fraudsters are mainly in their thirties with University degrees.

The most common scams prevailing in South Africa are internal fraud, money laundering, e-mail scams, identity theft, remittance scams, bribing and corruption, and misappropriation of assets. The leading scam among all the above list is the internal fraud. This revelations by PWC has built a cloud of uncertainty and mistrust inside the organisation. This has  shattered the trust of customers on the financial organization.

Financial crime in South Africa has taken its toll on the lives of people. It has directly or indirectly affected the livelihood of people. Frauds and Scams have robbed people of their resources. It has drained the funds available for country’s development. By knowing what to look out for, one can avoid falling victim to common fraud and scams. Hence, the following infographics will give an overview of different prevailing scams in South Africa. I hope you find it useful.