Eric Tran-Le

By Eric Tran-Le, VP & Head of Premier, NICE Actimize

As global financial institutions continue to armor themselves again increased fraud, fraudsters and their associated emerging fraud types continue to move from financial institution to financial institution, with mid-sized FIs on the receiving end of an onslaught of new scams and other fraudulent attacks – with the fraudster often hoping that these FIs may be less resistant to fighting off the assaults.

Digital fraud losses are anticipated to surpass $343 billion globally between 2023 and 2027, according to a Juniper Research study of online payment fraud. With a fresh crop of fraud trends gaining momentum—including synthetic fraud, insider recruitment, lending fraud, and social media scams—mid-sized financial institutions (FIs) must rethink their approach to fraud prevention.

Why is it essential for mid-sized Fis to stay alert? The stakes couldn’t be higher in a diversifying competitive and digital landscape, and customer loyalty and brand reputation are on the line. Community banks, credit unions, and regional banks can’t afford risk management to be hindered by fragmented point solutions, lack of contextual insight, and data silos.

Key Fraud Trends Hitting Mid-Sized FIs

2023 is likely to be another definitive year in fraud, but many areas should be more prevalent than others as fraudsters launch their assaults and the first wave of what’s expected this year.

First, there is the “Just Your Friendly Neighborhood” Scammer. The rule of thumb for scams is that if it’s easy to make a payment, then it’s easy for scammers to make money. Phishing, spear phishing, baiting, scareware, whaling attacks, and pretexting are a few standard social engineering techniques used to prey on a victim’s vulnerabilities. Social engineering is especially effective because it relies on psychological tactics—scammers know how to use a victim’s fear, greed, or respect for authority against them.

Social media scams will continue to be prevalent. The Federal Trade Commission (FTC) says 2021 was a banner year for social media scammers, with $770 million in social-media–originated fraud losses reported, and there is no question that this trend will continue through 2023.

Though not an exhaustive list, fake merchandise scams, charity scams, fake job scams, romance scams, and investment scams regularly start on social media. These scams result in authorized push payment (APP) fraud, account takeover (ATO), money mule activity, identity theft, and credit card fraud. NICE Actimize’s own research, derived from its annual Fraud Insights Report, has also seen year-over-year increases in authorized fraud, money mule activity, and more that are certain to impact mid-sized institutions.

Google voice scams are another unique scam threat assaulting mid-sized financial institutions. Over 37% of the scam reports received by the Identity Theft Resource Center in the first half of 2022 were connected to Google Voice scams. A Google Voice account isn’t even necessary for a scammer to victimize someone and perpetrate Account Takeover (ATO) or identity theft.

Remember that any scam loss statistic that you read about is likely to be much higher than the actual numbers indicate. The shame and stigma frequently associated with scams can prevent victims from sharing their experiences with the proper authorities. As it stands, industry estimates state that $3.6 billion is lost globally by businesses alone in 2022 to scams and fraud, averaging $1.78 million in losses per case.

Another type of prevalent fraud, Synthetic Identity Fraud, is just a swipe away. Artificial intelligence (AI), machine learning, and deep learning technologies give even more legitimacy to sophisticated fraudster behaviors and tactics. Synthetic media capabilities, offering the means to modify or construct video, images, and audio, are readily accessible to the public through a number of different products. Mainstream text-to-image synthesis and generator tools, auto-generated and downloadable synthetic faces, smartphone native AI-powered image eraser tools, and synthetic voice generator tools are available for free or as little as a few dollars. Fraudsters have been adept at adopting these tools against their victims. These tools blur the interpretation of reality, and they’re anticipated to influence the trajectory of SIF in 2023.

Industry sources estimate that there has been a 9% increase in small and midsize business (SMB) lending fraud since 2020 and that trend will hold throughout 2023. Synthetic business credentials, created from stolen business and consumer data, make it challenging for FIs to distinguish authentic loan requests from fraudulent ones. Fraudsters use synthetic media to impersonate business profiles and resources on social media to misrepresent employees, execute scams against the company or other victims, or create replica websites to obtain sensitive data.

AI and Machine Learning Closes Gaps in Risk Exposures

Mid-market financial institutions, regional and community banks, and credit unions are recognized for their member-centric banking model but often face specific fraud prevention challenges and risks.

Fortunately, as fraudsters continue to up the ante with dynamic new trends, game-changing technology, and analytics, innovations are available to mid-sized Fis that help address these scams and frauds.

Advanced AI and machine learning-powered solutions are helping mid-market financial institutions, including regional banks and credit unions, address specific fraud prevention challenges and risks. For example, credit unions have risk exposures that include manual reviewing processes, insecure email networks, leaked personnel data, and outdated fraud prevention systems.

To protect their customers, assets, and organization, mid-market FIs must adopt a holistic fraud strategy that incorporates fraud and AML solutions in a single platform – this approach is often nicknamed FRAML in the industry. With AI, data intelligence, and behavioral analytics, mid-sized organizations can detect attacks at early stages and intervene before any money movement occurs. Connected fraud and AML solutions can also respond to new threats without alienating customers, often relying on behavioral biometrics that can automatically discover unusual patterns across channels.

Most importantly, these new FRAML-based technologies expedite accurate risk scoring and leverage actionable insights based on contextually enriched customer profiles. Other benefits of these emerging technologies, including the ability to streamline alert and case investigation and provide automatically discovered relationships and linkages. To benefit AML capabilities, the FRAML approach improves investigation efficiency with real-time KYC and CDD entity-link analysis and pre-populated case details for regulatory reports.

Fraud is a living, breathing threat that shape-shifts in many new forms. For mid-sized financial institutions to protect themselves, a holistic, intuitive fraud prevention program that interconnects with the institution’s anti-money laundering efforts should be at the heart of any financial crime program, able to respond to fraud and other threats in whatever iteration they happen to materialize. “FRAML” may sound unusual, but the results that a linked Fraud and AML-focused approach can bring to mid-sized financial institutions is not.