Home Slider Innovative Solutions Can Help Banks Counter Fraud in Real-Time

Innovative Solutions Can Help Banks Counter Fraud in Real-Time

by internationalbanker

By Harry Holdstock, Partner, PwC

 

 

 

 

It won’t have escaped anyone’s notice that fraud is a real and increasingly prevalent problem in society. Fraud is so ubiquitous that it represents more than 40 percent of reported crimes in the United Kingdom1. Fraud comes in various shapes and sizes, but by way of illustration: We all continue to receive unsolicited messages or emails almost daily, and we all know at least one person who has fallen victim to a scam.

Most fraud victims probably do not stop to think about their banks’ efforts to prevent their customers from being defrauded. In fact, a good proportion of them often—and unfairly, in some cases—hold their banks somewhat responsible for failing to prevent them from being defrauded. Consumers are right to insist that their banks invest in protecting their hard-earned funds. It is also true that banks take this responsibility seriously and are perpetually investing in customer-education campaigns and exploring new means and methods of preventing and detecting fraud—from better understanding who each customer is to identifying suspicious transactional activities.

My team and I have the privilege of working with such institutions to help them in this quest for continuous improvement of their counter-fraud capabilities. My colleagues and I must stay abreast of all new thinking on this subject, from emerging risks to new techniques and technologies. I firmly believe that having excellent counter-fraud capabilities makes good business sense; it can generate a real competitive advantage in the market.

The counter-fraud world rarely sits still for long, but the last few years have seen major transformations, like all other aspects of our lives. Within this scenario, there has been a real focus on balancing between enhancing fraud-detection capabilities and facilitating better and more streamlined customer experiences. Although customers demand their banks do more to protect them against fraud, they also insist on easier and quicker access to services. As such, measuring the impacts on the customer experience is a key criterion for firms when evaluating new counter-fraud approaches or techniques.

Building on this, another aspect of the recent counter-fraud transformation has occurred recently. For many years, the focus has been on how new approaches and solutions can generate evidentiary output in respect of actual cases. Whilst this is clearly important and always will be, it ignores another key aspect that firms must consider: their internal operations and how technology can help speed up processes and free up resources to focus on the most value-adding activities—in other words, how new approaches and tools can help firms deliver counter-fraud capabilities efficiently within practical resource constraints.

Counter-fraud leaders concern themselves with two key issues: first, how to detect and prevent as much fraud as possible, and second, where to deploy their available resources to give them the best chance of succeeding with the first objective. On this latter point, two words spring to mind: judgement and speed. Judgement, which derives from experience, logic and intuition, is required when determining where fraud can be perpetrated and when assessing a new case. Speed is critical, not only when there is concern that fraud is playing out in real-time but also when deciding where to allocate resources—that is, which cases are the right ones to pursue and when. As I have reflected on these two things, it has become increasingly clear that this is an area in which technology can play an even bigger role and facilitate better outcomes.

At this juncture, it is important to mention that there are—and probably always will be—concerns about relying on artificial intelligence (AI) to determine when a transaction or an account is fraudulent. There are questions around explainability and evidentiary quality, as well as on how to ensure vulnerable customers are treated fairly. As we all know, technology enables data analyses at speeds and volumes almost inconceivable to the human brain. For this reason, one of the main appeals of technology for counter-fraud practitioners is its ability to provide an efficient and effective “triage” service. Such a triage service enables the optimal deployment of human resources throughout the process, from picking up the best leads and cases and progressing them through to determination.

My team recently started to work with a new technology vendor called Clearspeed, offering a product that takes an innovative and exciting approach to delivering such a triage service. Clearspeed specialises in voice analytics, and its solution identifies risk through voice. “Users” are sent a digital link and then listen and respond to two to four automated questions. The solution analyses these responses in near real-time and generates risk signals (think red, amber, green) directly to the organisation. Questions are easily adapted for different systems and are language-agnostic (the solution has been deployed in more than 45 languages to date), and multiple question libraries can be deployed to cater to different scenarios in parallel.

The solution acts like a metal detector in an airport. As most readers know, a metal detector will flag anyone who passes through it carrying a metallic object. No beep means the individual can proceed with no further intervention. Conversely, a beep results in a pat-down search, engaging a human expert to evaluate the actual risk the metal object on the individual’s person poses. The metal detector was implemented to enhance security without causing huge disruptions or customers missing their flights. The alternative would have been to require every passenger to undergo the human pat-down, which was, for obvious reasons, considered impractical and ineffective. Again, we return to the key concepts of risk judgement and speed powered by technological innovation. The addition of Clearspeed’s technology enables an objective and unbiased approach to risk triage, quickly clearing low-risk items and alerting when additional examination is needed.

Returning to the counter-fraud world in banking, I am excited at the possibilities this new type of innovative solution could enable. The topic of scams is currently hot in the UK as banks grapple with how to help protect customers while also managing the increased burdens resulting from obligations to remunerate customers who are scam victims. Customer-claims volumes have increased significantly, some caused by opportunists and organised fraud gangs sensing opportunities to extricate money from banks. Banks need to review and investigate these claims within tight timeframes (from April 2024, this will be five days, albeit with “stop the clock” provisions). However, the manual nature of these investigations typically means banks have to pay out and suffer customer complaints because of delays.

Technologies such as Clearspeed’s could be transformative in this scenario. Imagine a lightweight risk triage solution that enables a bank to fast-track “green” cases while focussing its limited resources on the cases genuinely presenting as higher risk. Banks would benefit from fewer fraud losses, suffer fewer customer complaints and profit from significant operational efficiencies thanks to the significant reduction in manual workloads.

When you grasp the concept, more exciting opportunities present themselves. “Money mules”—individuals who open accounts in their own names but have been co-opted to launder money on behalf of criminal gangs—are another big problem area. Detecting a money mule at onboarding is very difficult, and by the time suspicion is raised by transactions, the moment to act has passed. However, this new technology could enable a quick and effective assessment of risk during the customer-onboarding process, preventing these accounts from being opened in the first place.

The loan-application process is yet another area in which this solution could have an impact. Wouldn’t it be transformative to receive an immediate, accurate risk assessment regarding an applicant’s details and intent to repay at the point of application? Looking internally, this technology could be instrumental in identifying insider threats if used as a real-time screening mechanism. The possibilities go on.

While some use cases require more thought to work through the practicalities of integrating solutions within operating models and corresponding governance arrangements, immediate opportunities to deploy solutions and quickly generate value exist. Such solutions represent new and exciting innovations that can both meet the needs of counter-fraud leaders and facilitate the optimal experiences of legitimate customers.

 

Reference

1 Office for National Statistics (ONS): People, Population and Community, All data related to crime and justice.

 

 

ABOUT THE AUTHOR
Harry Holdstock is a Partner in PwC UK’s Forensic Services practice, focussed on helping clients better prepare and protect themselves and their customers from fraud and other wrongdoing. Harry has been with PwC for almost two decades and has deep expertise in assessing, navigating and resolving the most complex financial crime, conduct and operational challenges.

 

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