We have entered a perfect storm of financial crime where fraud is flourishing. This maelstrom has been created by the combined effects of geopolitical events and the ongoing global pandemic, which has led to the digitization of society accelerating, out of necessity, even faster than before.
While all sectors are suffering, fintech has been hit particularly hard, making striking the right balance between preventing financial crime and maintaining high levels of customer service and satisfaction even more difficult, and critical. for business. As the situation continues to evolve and worsen, it has become a high priority for fintechs to learn how to combat and defeat fraudsters effectively, while continuing to grow their profits.
As companies address this challenge, they should consider:
- What key areas should fintechs focus on? Where does fraud abound?
- How can fintechs minimize the negative impact of fraud on operations and finances?
- Can technology fend off scammers?
‘Fraud as a service’ takes center stage
It sounds like a clever play on words based on the software-as-a-service (SaaS) model, but fraud-as-a-service (FaaS) is a real phenomenon. Mirroring the cloud model through which fintechs implement many of their capabilities through services, bad actors with the worst intentions are leveraging similar technology to commit service-based crimes on an unprecedented scale. FaaS occurs when an individual or group of fraudsters facilitate fraudulent activity online by providing tools and services to others.
This devious method allows fraudsters to buy and exploit data and tools by taking advantage of theft or synthetic identities, which they then use for fraudulent purposes. FaaS also enables large-scale attacks against fintechs in which fraudsters overwhelm financial systems with bad traffic and complete illegal transactions in high volume. With this approach, fraudsters mimic fintech’s use of fast, easy and profitable online processes, as well as the best analytics and data, only to defraud rather than enrich themselves. The result: software fights software on an unmanageable scale.
trouble spots
One area where fraud is particularly pernicious in the industry is onboarding, where it is vital for fintechs to keep crime at bay while ensuring a high level of customer service. Identity fraud and fraudulent documentation issues often arise during new customer onboarding, which can hurt a company’s growth goals and hinder your customer service goals.
Identity theft and document fraud are on the rise and already costing the global economy billions of dollars a year, with no end in sight. Beyond onboarding, institutions require more documents to verify clients’ identities, requiring proof of residence and age, as well as evidence of income, in addition to standard IDs. Whether it is the alteration of bank or government documents or the creation of fake documents, the fact is that it only takes one valid forgery for a bad actor to wreak havoc.
If that same fraudster has access to multiple stolen identities, then the fintech will face escalating attacks through serial fraud attempts. A successful fraud case is often the precursor to other crimes such as money laundering, human trafficking, and even terrorism.
Using AI to examine identity
You may feel useless when you hear about large-scale attacks executed at high speed, but it is possible to resist and eradicate fraud with AI. New fraud patterns are typically difficult to detect until they have been observed for a period, at which point fintechs can react and deploy defenses against the attack. Usually the time lapse is too long and the damage is already done. But AI can subject every customer interaction, from documentation to behaviors, to a level of forensic analysis that would be impossible for humans to achieve at the same speed. The technique can filter out everything from fake documents and stolen data to serial fraud efforts run by bots.
Incorporating AI ensures fintechs allow fewer high-risk identities and document transactions into their processes, helping them outwit fraudsters and beat them at their own game.
However, it is not enough to simply invest in AI technologies; human capabilities are equally important to achieving financial crime prevention at scale within an AI-centric model. Fintechs must not only understand the data they are working with and have AI expertise at the ready, but also ensure alignment with business goals and establish a proper operational workflow. By combining these critical elements, fintech they can successfully combat financial crime.