When Data and Technology Combine in the Fight Against Fraud and Financial Crime

By Chris Lewis, Head of Solutions, Synectics Solutions

There are many elements of life that have been profoundly affected by the coronavirus pandemic. Some we will learn to live with, others will revert to how they were, and some we will embrace for the better.

What’s certain is that we must adapt our stance in a world that is constantly changing. Fraud – and its perpetrators – adapts to make the most of available conditions, and the banking industry has worked hard in the last 18 months to protect customers against fraudsters who have attempted to exploit pandemic-related fears. The scale of the problem is clear: over £1.6 billion of fraud was stopped in 2020 by banks and financial providers.

A three-pronged approach

The compromise of personal and financial data remains a significant driver behind fraud losses – whether that’s through consumer details being taken due to data breaches on third party sites, or sophisticated ‘digital skimming’ attacks. 

Fraud transcends many sectors. As such, the need for a collaborative approach is essential. That’s why the three-pronged defence of data sharing, enhanced technology, and greater collaboration between private sector companies and public sector organisations, is proving to be effective.

The role data plays in fighting financial crime is critical. Serious and organised crime, much of which is driven by economic crime, is estimated to cost the UK up to 10% of GDP a year, according to the Annual Fraud Indicator.We all know that this figure is set to rise in the wake of the COVID-19 pandemic. But, quite simply, data is one of the few effective weapons we all have in our arsenal, and the real value is unleashed when we bring resources together.  

The power of shared data is unquestionable. It is crucial to the identification and disruption of fraudulent activity. So how can it be utilised successfully in the battle against fraud?

Data enables banks and finance providers to gain a more rounded view of a customer, and the potential risk they may present. It also has the power to shine a spotlight on potentially fraudulent people – those customers who carry a greater risk, or ‘bad actors’.

Using real-time checks, data can speed up the time it takes to onboard customers, filtering out potentially bad ones who are blocked and marked for further investigation, while fast-tracking 99% of those who are good, introducing just the right amount of risk-based friction into the customer lifecycle.

The power of data can also be harnessed throughout the lifecycle of a customer to prevent fraud from occurring at every stage – whether that’s to help triage payments when suspected fraud is taking place, or using fraud insight to improve ‘resistance’ against misuse of customer accounts.

Collaboration

Partnerships and collaboration are also key. By syndicating data and sharing insight across industries, businesses are collectively much more powerful than the sum of their individual parts.

At Synectics, we work with over 140 companies in the private sector, and 1,300 public sector organisations, which are actively collaborating to prevent fraud in their own organisations, while at the same time alerting all other businesses in the eco-system of potential risk. Companies who, under normal circumstances, would be seen as competitors, stand side by side united in the fight against financial crime and fraud. If a criminal is intent on committing fraud, collaboration on this scale will make their ‘job’ incredibly difficult to accomplish.

The power of technology

The final piece in the puzzle is technology. In the last 18 months, Government-imposed restrictions have disrupted people’s everyday lives – whether that’s preventing them from going into branch to working from home. As a result, this has accelerated digital transformation in the banking sector.

Changing consumer habits, accelerated by the pandemic, have provided a perfect opportunity for the industry to seize the initiative when it comes to technology. For those that have invested early in emerging technology, replacing legacy systems and ensuring IT infrastructure is fit-for-purpose, the transition has been far easier in the face of COVID-19. However, introducing fraud resistant technology in the midst of significant change has been more challenging for those organisations that have failed to make suitable digital provision. The key is early adoption.

What is clear is that the landscape is constantly evolving with significant advancements in technology, such facial and behavioural biometrics, designed to combat potential fraud whilst enabling digital customer journeys.

The subject of digital identity has once again been thrust into the limelight in recent months, as the financial sector attempts to manage the increasing risk that online adoption brings.

In February, the Government published draft rules for governing the future use of digital identities – the UK Digital Identity and Attributes Trust Framework. It includes principles, policies, procedures, and standards governing the use of digital identity and is part of plans to make it quicker and easier for people to verify themselves using modern technology, creating a more trusted process – privacy by design, rather than retrofitting controls into existing documentation.

Last month, the European Commission also announced plans for a framework for a European Digital Identity which will be available to all EU citizens, residents, and businesses in the EU. It will enable people to prove their identity and share electronic documents from their European Digital Identity wallets with the click of a button on their phone. The key will be to ensure that robust controls are adopted across multiple platforms to protect against the likes of false/synthetic identities.

The growing prominence of digital identity and a move towards widespread adoption, has placed a firmer emphasis on the role technology has to play and this will only gain momentum as part of a wider debate amongst the banking industry around the need for continued and sustained investment in digital transformation.

As the habits of consumers change, and fraudsters adapt to preventative measures, the need to innovate, change operating models and leverage emerging technologies, has never been greater.

Focus must be on creating robust IT infrastructure and digital expertise. To make it work, banks and financial institutions must have in place a basic IT platform which makes integration possible with the likes of data services, AML screening, fraud checks or digital identity. Consideration must also be given to handling customers’ personal information, not to mention the customer journey, which needs to be mapped out and understood. This will differ widely between the corporate and consumer markets to account for the nuances in relationships and touchpoints.

To ensure directives are met, and fraud prevention is robust and fit-for-purpose, banks need to ensure that their methods of customer engagement – for example, the use of text messages as a means of authentication which are open to interception and exposed to security attacks – are aligned with the latest technology available, such as behavioural biometrics and mobile risk checks. Outdated IT infrastructure, retrofitted solutions and legacy systems, can increase a bank’s exposure to risk.

Talent and resilience

In some respects, the technology is the straightforward part – it’s the people who are not. Digital transformation requires talent. It’s essential to marry together technology, data, process, and organisational change capability to avoid derailing an otherwise well-conceived transformation plan. 

With the Bank of England stating this week in its Financial Stability Report that banks are emerging from the pandemic ‘resilient’, the sector is clearly well placed to support businesses and consumers and continue in the fight against fraud, financial crime and the associated risks that have come from an unprecedented pandemic.

However, while the adoption of new and emerging technology in areas such as digital customer onboarding has benefited certain areas of the market, it has undoubtedly hamstrung legacy players. As such, the coronavirus should serve as a warning shot to large financial institutions to be well prepared for the arrival of the next crisis.