In Credit Risk Management, Fraud, Risk Management

While things are heating up on the college basketball scene, banks and other financial institutions are struggling with another kind of madness. The kind of madness that keeps people up at night, and sends companies scrambling for solutions.

That madness is financial fraud. And unfortunately, it’s not set up as a single elimination tournament.

Criminals Shift to Cyberspace

Ages ago, financial fraud was conducted by desperados armed with pistols. They would walk into a bank and rob tellers, or hold up stagecoaches and trains. Today, that dynamic has radically changed, with most fraud happening through the digital channels that banks use to conduct business and communicate with customers.

Those digital channels have made it easy for financial institutions (FIs) to capture and service customers, but they have also made it easy for criminals to perpetrate fraud from afar. And those criminals are industrious, persistent and relentless.

I read a recent study from Carbon Black and Optiv that stated: “67% of surveyed financial institutions reported an increase in cyberattacks over the past 12 months.”[1] What’s more, those same survey respondents said that the attackers were using more sophisticated techniques, from embedding malware into new file types like images to changing the duration and times that they attack companies.

Even more worrying, respondents reported that “destructive attacks…[saw a]…160% increase over 2018”.[2] Destructive attacks are those that “are launched to be punitive by destroying data”[3] rather than stealing specific information for personal gain. And when the fraudsters are caught out, they are fighting back – “32%…reported counter incident response…to thwart responders and maintain their presence throughout the network.”[4]

That is madness indeed. Madness that directly and negatively impacts the FIs and their ability to conduct business. But what about consumers?

Criminals Attack the Consumer

Banks and other companies are not the only ones feeling the heat. Consumers are subject to the madness as well, and while some areas of consumer fraud are slowing, others are seeing a full-court press from malicious actors intent on wiping out bank accounts, opening fraudulent ones and taking over the rest.

A recent Forbes article notes that in the consumer space, there are both positives and negatives. The positive? Credit card fraud has declined $1.7 billion from 2017 to 2018. The negative? Both account takeover fraud (ATO) and new account fraud are on the upswing, which can have a direct financial impact on individual consumers.

Fraud is also moving into “new areas such as merchant debit cards and prepaid cards, reward programs and takeover of mobile phone accounts”[5] which generally not as sophisticated in their fraud prevention measures as traditional DDA and credit card account issuers are.

Time to Get in the Game

For banks and other FIs, the fraud offensive can seem overwhelming. The threats are all around, they are not slowing down and they are appearing in new and disconcerting ways. Those companies need to get their defenses lined out – quickly – to protect their business, their reputations and their customers.

How can they do that? Well, much like on the basketball court, the best approach is a strong, coordinated defensive game. When an institution has all the right pieces in all the right places, they can shut down the fraud and turn the tide in their favor.

I’ve discussed a multi-layered approach to fraud management in a recent whitepaper and webinar, but it bears repeating.  As fraudsters focus their efforts on new account fraud and ATO, it pays to layer authentication and verification capabilities to effectively detect and prevent fraud.

In the recent Forbes piece, Al Pascual from Javelin Research notes: “As financial institutions and other organizations modernize their account opening processes, it is paramount that they incorporate tools like document scanning, behavioral risk assessments, and digital identity.”[6]

Some of the specific solutions that companies can put into an application process include biometric identifiers, behavioral biometric identifiers, scoring models and prescriptive analytics to block fraudsters from opening accounts in the first place. (For a more thorough review of these approaches, check out our whitepaper on fraud.)

It All Comes Down to Fundamentals

Despite the changing tactics that fraudsters are using, banks and other FIs can box them out of the game. Using a suite of tools and best-of-breed solutions within the application process, companies can identify likely fraudsters and prevent them from obtaining a new account.

Implementing those tools and solutions can seem like a challenge, but with the right partner and platform, FIs can get their defensive solutions in play quickly and easily. A data agnostic platform like the one Zoot provides can offer the best balance between cost and efficiency, while providing the banks complete control over implementation and game-time changes.

Now that’s something to cheer about.

Wondering how to put fraud detection and prevention solutions to work in your company?

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