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In the face of burgeoning fraud, how can banks protect their customers?

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In the face of burgeoning fraud, how can banks protect their customers

Zia Hayat, CEO Callsign

Earlier this year, the Financial Ombudsman proclaimed that “it’s not fair” to automatically blame customers who find themselves as a casualty of banking fraud. The organisation came out with this statement as reports of scammers were soaring through the roof, as fraudulent techniques and tactics become ever more complex. If fact, scammers have reportedly been able to side-step standard security measures and use a victim’s money as they please on multiple occasions. So, how can banks respond to the Financial Ombudsman with new strategies and technology to keep their customers safe?

Fortunately, there have been efforts made to improve services and increase the range of deals available to banking customers in the form of regulation like Open Banking and PSD2. A subsection of the legislation requires banks to offer a new, stronger authentication process when their customers initiate a payment or request remote account access. Strong customer authentication, or SCA as it has come to be known, is designed to diminish online payment fraud as well as encourage banks to share their learnings and technology regarding fraud controls and authentication methods.

Unfortunately, SCA has fallen into a similar trap to that witnessed whenever a new piece of financial regulation is introduced – organisations are pushing back on the regulator because they are under too much press to comply and don’t have the capability and/or resources to do so in the given timeframe. The outcome of this is that exceptions are often made for organisations who can illustrate how they are handling the risks within certain guidelines. Consequently, these companies have the ability to bypass the early risks associated with non-compliance, without having to invest a considerable amount of time and money or affecting the service being delivered to their customer base. The knock-on effect of this is banks will always be on the backfoot in terms of regulatory changes because for each incremental change to regulations going forward will require a corresponding internal reaction.

Taking a reactive methodology can also be costly. There have been multiple cases when banks have chosen this approach only to find that when the time comes to comply, they do not have sufficient resources or technological capabilities to meet the new conditions. These organisations also put themselves at huge risk of fines and reduced customer confidence in the face of a non-compliance issue. In these scenarios, the company in question will need to then fulfill the required standards regardless.

It’s common for businesses to end up going down the costlier route by taking a short-term view and not accepting that a reasonable investment at the outset would be more fruitful over time. Customer experience can also suffer a detrimental impact through this approach because companies are forced to take a standardised catch-all approach to security which, in turn, increases friction during the transaction process. Yes, it important to keep the compliance team content, however, this shouldn’t be at the detriment to operations teams and CISO, who are left picking up the pieces of ongoing fraud cases and customer complaints.

Are we seeing banks caught in a Catch-22? On one hand, they must comply with the latest legislation without leaving their customers vulnerable to new types of fraud, while on the other, prove that they can maintain a positive customer experience. Furthermore, consumers prerogatives are also at loggerheads – they want to continue their digital lives by having a streamlined, user friendly banking experience without multiple security questions every time they want to conduct a transaction. Yet, at the same time they want to be rest assured that their money is protected and are keen to take the necessary steps to guarantee this is case. With a reported £731.8m lost in unauthorised financial fraud last year, it is clear that existing layers of security are not enough to protect consumers in this day and age.

So, what other layers need to be incorporated into the identification process? By uniting the benefits of both hard and soft biometrics with machine learning, banks are empowered to decide what methods are most suitable on a case-by-case basis. There is technology at hand which can analyse data about people’s behaviour, including facial recognition, typing or swiping techniques, and online habits, which when combined, has the ability to determine if someone’s behaviour is normal. If irregularities in the data are identified, then the bank is alerted so they can implement additional security measures. This form of identification has the added benefit that consumers can pick their preferred method of identification, removing the possibility of excluding a whole demographic as a result of restrictions on ability or technology. As a result, the static rules-based method that is regularly exploited by fraudsters can be circumvented.

Improved intelligence must also be utilised by financial services firms because banks will have a greater ability to protect their customers while concurrently offering the frictionless service they expect from a digital experience. As developments in Artificial Intelligence and Machine Learning technologies skyrocket, there a more tools than ever which can eliminate the requirement for additional means of authentication by utilising Secure User Authentication. Normally, users are asked to enter their personal details when conducting a transaction, but with this system, customer’s patterns and behaviour, such as their device (is the access request being made from an authorised device?), their location (where is the access request being made?), and behaviour (evaluating the user’s interaction via the log-in process, from the ‘style’ of their swipe to key strokes) is relied upon instead.

Banks have one thing on their side which offers a second-layer of unbreakable authentication – every individual interacts with their mobile device completely differently. That’s not to say that passwords are completely redundant, they will always have a place in the authentication process, however, we are now able to draw on more reliable and intelligent data points in order to identify people. Overall, we are making great steps towards a solution that decreases the amount of fraud, but it is the responsibility of banks to invest time and money to make sure they can break their Catch-22, leaving them more compliant without negatively impacting the overall user experience.

Banking

European shares end higher on strong earnings, positive data

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European shares end higher on strong earnings, positive data 1

By Sagarika Jaisinghani and Ambar Warrick

(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.

The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.

The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.

Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.

Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.

But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.

“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.

“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”

Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.

The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.

The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.

London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]

French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)

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Banking

ECB plans closer scrutiny of bank boards

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ECB plans closer scrutiny of bank boards 2

FRANKFURT (Reuters) – The European Central Bank plans to increase scrutiny of bank board directors and will take look more closely at diversity within management bodies, ECB supervisor Edouard Fernandez-Bollo said on Friday.

The ECB already examines the suitability of board candidates in a so-called fit and proper assessment, but rules across the 19 euro zone members vary, so the quality of these checks can be inconsistent.

The ECB plans to ask banks to undertake a suitability assessment before making appointments, and they will put greater emphasis on the candidates’ previous positions and the bank’s specific needs, Fernandez-Bollo said in a speech.

The supervisor also plans more detailed rules on how it will reassess board members once new information emerges, particularly in case of breaches related to anti-money laundering and financing of terrorism, Fernandez-Bollo added.

Fernandez-Bollo did not talk about enforcing diversity quotas, but he argued that diversity, including diversity in gender, backgrounds and experiences, improves efficiency and was thus crucial.

“Supervisors will consider furthermore all of the diversity-related aspects that are most relevant to enhancing the individual and collective leadership of boards,” he said.

“Diversity within a management body is therefore crucial … there is a lot of room for improvement in this area in European banks,” he said.

(Reporting by Balazs Koranyi, editing by Larry King)

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Banking

Where are we with Open Banking, and should we be going further?

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Where are we with Open Banking, and should we be going further? 3

By Mitchel Lenson, Non-Executive Chairman, Exizent

Open Banking has the power to revolutionise the way we manage our money, but most (65%) consumers are still not aware of it, while many financial institutions continue to treat it as an obligation rather than an opportunity.

For Open Banking to truly reach its potential, consumers need to have more trust in its benefits. However, this will only happen if banks and other financial institutions start to embrace it, rather than simply accept it.

Covid-19 has proven to banks that digital banking and open finance innovation is not simply a ‘nice to have’. It is vital for their own survival. With so many challenger banks now coming into the market, many of whom have entirely digital models and therefore invest heavily in technology, banks are starting to become aware that if they don’t embrace it, they’ll get left behind.

So, fuelled by a mixture of competition and Covid-19, banks are starting to realise that Open Banking is not about giving away valuable data, but it is about collaborating with third party fintechs to explore the endless opportunities data sharing can bring – to all sides.

By making open finance easier for developers, banks can not only save time and money by improving their own services but help create useful solutions that add real value for their customers.

Open Banking for all?

There is one, yet untapped area of consumer finance that could be immeasurably improved by Open Banking, and that is estate administration.

Mitchel Lenson

Mitchel Lenson

Recent research from Which? found that many executors contend with delays, errors and poor knowledge from their banks during the probate process. Our own research shows that most legal professionals admit the process does not work as it should, and the time it takes to complete probate is unacceptable.

Like the Which? survey, we found that the main issue is the administration involved, with most legal professionals saying that the time it takes for financial institutions to get back to them with the information they need is the main cause of delays.

Given that the system is not working for consumers, something clearly needs to be done. The good news is that the technology and data is already available – we just need to harness it to create a better system.

That is why we are developing the first ever platform to connect executors, legal professionals, and financial institutions to create a better, quicker, and more secure probate experience for everyone.

Our first release of the platform – a bespoke cloud-based solution to enable legal services firms to integrate directly with financial institutions making information gathering and processing more straightforward – was released in 2020. We are now building on that foundation to accelerate our development work with financial institutions to deliver additional value for all sides.

We also see huge potential in working with banks to utilise the digital financial infrastructure, powered by Open Banking, to improve things even further. But there is one, fairly sizeable issue – currently, Open Banking consent ceases at the point of death.

Is it time for legislative change?

Open Banking is not as open as is should be for those who can give consent, so we are certainly some way off from Open Banking for the deceased.  However, the more that banks acknowledge Open Banking and its potential and are prepared to collaborate with third party fintechs to develop better experiences for consumers, the more likely we are to get to a point where we can tap into that potential to improve things for the bereaved.

Many of the problems – highlighted by Which? – that consumers face when managing someone’s estate could be reduced significantly if open finance continued to apply to the deceased.

Open Banking provides a huge opportunity to speed-up and reduce friction for loved ones faced at some of the hardest moments of their lives, and there is a strong argument here for the current position to be reviewed to enable better access to a deceased person’s assets.

With our current platform, we are showing how technology is playing an incredibly significant role in dealing with the complex, tangled process that is probate and the potential of open finance in radically enhancing what we are already doing cannot be understated.

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