Banks and financial institutions around the globe are looking for ways to fight financial crime and carry a huge burden due to the volumes and variety of products. As per various reports, every year more than $5.5-6 trillion of frauds are taking place globally. Even though the internet and technological advancements have made financial transactions convenient and processes seamless, it has opened new doors of vulnerabilities enabling fraudsters to commit financial frauds. From accounts being hacked, accounts opened on stolen identities, cards being skimmed, and amounts being stolen, there is so much happening, and the call of the moment is to strike a balanced ease of enabling transactions while simultaneously securing them against financial crime.


There is a need for solutions that can frequently assess fraud risks and implement procedures to stop it before it causes any major damage in real-time while scaling up to meet high volumes of transactions. To curb the rising issue of these banking frauds it is imperative to build a robust security mechanism with the relevant fraud risk solutions.


Frauds to Keep an Eye on!


It is important to understand fraudster personas as it helps one become aware of the common methods used by fraudsters. Here are the most common types of frauds.


Phishing and Spear Phishing


There are multiple types of financial fraud like phishing, which happens when a hacker obtains personal banking information by sending out fake emails or texts that look legitimate. These are targeted to extract important details such as PINs. As per the various industry reports, phishing attacks rose from 8.5 per cent in quarter four of 2021 to 12.5 per cent in quarter one of 2022 and more than 65 per cent of fraudsters take up spear phishing emails as their primary attack vector. Crimes like spear phishing are just another personalized form of phishing. This fraudster sends tailored emails to target individuals within a company or organization and impersonates known or trusted entities to fool its targets into asking for money or providing sensitive information.


Card Payment Fraud, ATM Fraud/Skimming


As per various industry reports, the global ATM market is projected to reach $21.2 billion by 2028 and so is the risk of potential fraud. Card payment fraud is done alarmingly at higher rates and involves hackers stealing credit and debit card details to make transactions. ATM fraud or skimming is where hackers use devices in the card slot of merchant payment terminals and ATMs that copies information from the card. The practice doesn't end here, cybercriminals carry out the method of spoofing to fool people through fake websites that look legitimate to steal banking information.


The AI/ML Approach and What Solutions to Go For?


The application of an AI/ML-based approach is quite popular in enterprise fraud management solutions (EFRM) because of its ability to quickly detect and prevent fraudulent activities. The algorithms that are used by AI and ML identify the patterns and help with detecting unusual user behavior while at the same time also studying past data to further predict future fraudulent activities. From network analysis to ML's image recognition algorithms, the use of AI and ML can potentially prove to significantly improve fraud detection and reduce false positives and false negatives while ensuring effective safety.


What is it that you can do to increase your security and help protect yourself against fraud? There are multiple full-stacked FRMS solutions with capabilities to detect fake accounts, account takeovers, scams, and more. With cross-pollinated intelligence in extreme real-time and out-of-the-box integration, these solutions are of great help to organisations and are implemented successfully in large global banks.


Fraud Risk Management Solution


Typical FRM solution helps in combating fraud with real-time, actionable insights while monitoring suspicious activities in real-time. It offers detection, investigation, and prevention, along with monitoring compliance needs to help detect fraud under multiple channels and products like core banking, ATMs, PoS, online banking, cards, remittances, etc. A typical FRM solution is capable of real-time monitoring with real-time response time. The solution leads to reduced financial loss along with lower operational costs clubbed with meeting regulatory compliances.


The Dilemma Surrounding the Use of Fraud and Risk Management Solution


The dilemma surrounding the implementation of the fraud management solution is real and we get it. There are various factors which have proven to make this a complex decision, the first being its cost. The implementation of a fraud management solution can be an expensive affair while also having the risk of false positives where legitimate transactions are flagged as fraudulent which might annoy the customers. From privacy concerns that come with implementing a fraud management solution to its integration with the existing systems which leads to a heavy time-consuming process, organizations have their own set of dilemmas when it comes to implementing fraud management solutions. Let’s just cut to the chase. We all know that banking frauds can take several forms, from payment fraud and fake accounts to money laundering, and - fraudsters have become so sophisticated that it is difficult to predict and protect in-absence of any full-fledged fraud risk management solutions. The number of banking fraud activities in India is growing over time and more than ever bow is time to stay protected, remain compliant with the law, and invest in the right fully staked fraud detection solution as the right tools will impact growth, profitability, and security.


Let's take a moment to not only recognize the significant advancements and benefits it has added to our lives but also new risks and threats. While becoming more reliant and empowered, we have also become more vulnerable to fraud and the risks that come with it. 


The writer, Dhiren V Dedhia, is the head of enterprise solutions, CrossFraud.


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