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THE BANKS, THE CUSTOMERS AND THE FRAUDSTERS

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The BANKS, The CUSTOMERS And The FRAUDSTERS

By counter-fraud expert Paul Ewen, AGS Risk Solutions

Historically a stick-up robbery was the recognised means of stealing from a bank. Those were the days when fraud was a relatively simple affair; an amateurish attempt to forge a signature on a stolen cheque to change the payee or to add a Zero to make the amount £1000 instead of £100. But as financial institutions develop ever new means of engaging with their customers online, fraudsters are constantly discovering new avenues to easy riches.

While major corporations spend millions developing comprehensive counter fraud technology, there is one constant in the problem: the lowest common denominator which remains the customer. By encouraging the use of new technology with its self evident cost savings, banks are enticing customers to adopt new means of using their accounts by offering online banking guarantees. In doing so the banks are transferring the risk onto themselves as they rely more heavily on the security consciousness of you and I along with our varying degrees of computer literacy and antivirus solutions.

The BANKS, The CUSTOMERS And The FRAUDSTERS

The BANKS, The CUSTOMERS And The FRAUDSTERS

People are by their very nature susceptible to deception. Some are easily deceived by the fraudster who calls them pretending to be their bank’s counter fraud team while others leap into answering a range of security questions in a phishing email. Protection on home computers or mobile devices ranges from the non-existent to the very best software that money can buy in the public arena. Yet despite these security measures it only takes opening the wrong email to make someone the victim of high-tech criminals capable of utilising every variety of malware, worms, Trojans and key logging, some of which are sophisticated enough to react only to the opening of online banking portals.

Of course, sometimes the customers themselves are the perpetrators; especially when it comes to application frauds in areas as diverse as credit cards, current accounts or mortgages.

As lenders move to stricter controls in assessing the ability of applicants to manage their finances, some customers are inclined to fabricate their financial histories – creating false companies, falsifying proof of income documents and references. The availability of a wide range of false documents on the internet assists both these first-party fraudsters, and also those wishing to create entirely false identities. The latter can often be linked to a wider transnational organised crime group.

While the measure of success for counter-fraud investments  is the growing number of identified frauds, combating those attempts will continue to constitute a drain on bank resources. In the ever growing war between the fraudster and the bank, the bank will of course continue to implement and develop new technologies or processes, utilising ever more advanced card readers or biometrics, automated transaction monitoring, enhanced Know Your Client (KYC) requirements and other developments. But will this ever solve the problem? Unlikely. Instead we are lodged inside an ever growing technology spiral with the fraudsters, with cross border organised crime the likely opponent rather than the single thief who steals a purse to discover the card and pin number written down by an elderly customer.

One means of countering the false identity and fraud problem is by utilising comprehensive, real-time risk screening software which can be integrated into the financial institutions’ own systems. Typically such software consists of a database to record previously identified fraudsters or risk addresses, computer IP addresses, phone numbers and similar. These can be provided from either from the company’s own databases or cross industry datasets, such as CIFAS.

By setting up a series of bespoke rules, datasets and algorithms agreed by the bank with their own information and other commercially available data from the wider credit referencing, occupier and electoral rolls, we can seek to create an ever evolving barrier to the fraudster.

In addition to live screening such software can perform post event data washing against matrix rules to enable us to map key patterns of risk, frequency, geographical location and such to provide invaluable information to feed back into the rule development thereby making the screening smarter and seeking to plug any gaps that might have existed or been created by the fraudsters adopting new tactics.

One key to maximising this potential though rests in making core data available not only cross-industry, but also cross-border and cross-sector.

For example, both the insurance and retail sectors keep large fraud databases but this data does not move around as freely around the global village as transnational organised crime groups. And fraudsters will not only ignore national barriers, but will also cross sectors with ease – having created a false persona, why restrict oneself to defrauding a bank when at the same time you can use that self same persona to make false insurance claims, to steal from retail businesses or from government.

We must ensure therefore that we are not above engaging with colleagues in other sectors, and that we are actively seeking to create frameworks for the exchange of data in an appropriate and compliant manner.  The Insurance sector already operates a number of internal systems, based around the Insurance Fraud Bureau (IFB), The Insurance Fraud Register (IFR) and Insurance Fraud Investigators Group (IFIG). Both the IFB and IFIG are recognised by Government in the Serious Crime Act 2007 as SAFO (Specified Anti Fraud Organisations) for the purpose of data sharing with public bodies, and this can surely be used to create a framework of trust with the banking sector to open the doors for the creation of a suitable exchange protocol.

Banking

Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild

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Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild 1
  • 23% of UK’s top performing businesses have been supported by local enterprise partnerships and growth hubs
  • Similarly, 30% of Britain’s strongest businesses have obtained external finance in the last 3 years
  • New findings come as part of an independent, holistic study into small business success, commissioned by Allica Bank to support British businesses

A new study, commissioned by business bank, Allica Bank, shows that a high level of engagement and interaction with external institutions and resources, is central to SMEs’ prospects of success.

The study analysed data from over 1,000 companies and ranked their success on a scale that evaluated factors including productivity, growth, consistency and outlook. To measure SMEs’ external engagement, survey respondents were asked whether or not they had engaged with local enterprise partnerships, growth hubs, or external financial advisers, as well as whether they had obtained credit or sought re-financing advice, in the last three years.

The benefit to small businesses in making the most of external resources are clear to see, with a quarter (23%) of the UK’s top performing SMEs – those in the top tenth percentile – actively engaging their local enterprise partnership or growth hub in the last three years. This compares to just 16% of all other small businesses. With such a clear benefit to businesses, these external networks must not only be protected but prioritised by any Government plans to rebuild the economy post-COVID.

Similarly, of the top performing SMEs in the country, 30% have obtained external credit in the past three years, compared to less than a quarter (24%) of all other businesses. This figure drops even further for the weakest performing businesses – those in the ninetieth percentile – where just 12% of businesses have obtained external financial support in recent years.

Chris Weller, Chief Commercial Officer, Allica Bank, said:

“At Allica Bank we understand that no two businesses are the same. We also know that no-one knows a business as well as its owners and managers. But they can’t be expected to be experts on everything.

“In the UK there is a wealth of external advice and support for small businesses and we urge each and every business out there to tap in to the external resources around them. Third-parties, such as business clubs, chambers of commerce, local enterprise partnerships and trade bodies, can be invaluable sources of advice and further resources. And although they have excelled in their given field, business owners may still lack knowledge in many other areas of running and growing a business. Therefore, engaging with third parties can give business owners the kinds of insight – and fresh perspectives – they need to succeed.

“As the economy and the country comes to terms with the impact of the COVID-19 pandemic, it is important these vital SME resources are protected and given the funding they need to continue providing invaluable insight and support to small businesses up and down the country.”

Allica Bank’s SME Guide to Success identified six ‘rules to success’ that were more likely to be displayed by top-performing SMEs compared to their counterparts. The full report contains a wealth of additional data and insight into each of these topics.

As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.

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Banking

Do we really need banks? Yes, but digital transformation industry-wide is vital

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Do we really need banks? Yes, but digital transformation industry-wide is vital 2

By Charley Cooper is Managing Director at enterprise blockchain firm, R3

The Coronavirus crisis has taught us that we are capable of going digital quickly when we need to. As the banking sector faces a second wave, the ability for individual firms to grow and succeed will be reliant on better connectivity and efficiency at the industry-level, writes R3’s Charley Cooper.

The sudden and dramatic pace of change has been seen globally over the last six months. Decades of paper-based practices are being updated, digitised and overhauled as the whole word adapts to working online. As of today, countries are accepting “alternative arrangements” for original paper export certificates, New York is allowing notary services by video, and global banks are accepting “original” documents and acceptances by email.

Over the coming months, we will see this digital transformation extend from individual use cases and firm-level deployment to entire industries. And perhaps in no other industry is this more critical than in financial services, where the role of banks continues to be challenged because of the inefficiencies they face as a result of decades of siloed technology deployment.

While unquestionably an improvement over reliance on manual processes, regular “digital transformation” as implemented by a single bank has limited benefits. These typically include greater automation of business processes, acceleration in adoption of electronic channels, elimination of manual processes, standardisation of non-value-adding business practices and a focus on driving up data quality and speed of information flows.

Now consider achieving digital transformation at the level of the entire market, rather than on a bank-by-bank basis. Whilst a digital transformation project for a single bank might automate a business process between a front and back office, a digital industry transformation project might optimise the trading and settlement of the asset between buyer and seller and their custodians too.

Of course, such things have been attempted before. But there have been many failures and the successes are notable by how they have resulted in new dominant centralised providers – for example for market data, messaging or settlement. The advent of blockchain architectures showed us there was a new way to tackle the problem, one that worked with the grain of existing markets.

Done right, the prize is a huge “productivity dividend” as entire markets are unshackled from their analogue histories.

Tackling interbank reconciliation at the industry level

The Italian financial services industry provides a pertinent use case of digital industry transformation. 32 banks in Italy went live in March with one of the first real-world deployments of enterprise blockchain technology in interbank financial markets. 23 more banks went live in May, with further institutions scheduled to go live this autumn. Built by the Italian Banking Association, ABI, the Spunta Banca DLT app on R3’s Corda Enterprise platform tackles the market-wide issue of interbank reconciliation.

The traditional reconciliation process for interbank transactions in Italy—formerly governed by the “spunta” process— is notoriously complex. Resolving mismatches in transactions is a labour-intensive process, hampered by a lack of standardisation, fragmented communication and no “single version of the truth.” The Spunta Banca DLT app automates the reconciliation process and enables banks to pinpoint mismatches in interbank transactions quickly by sharing common data in a secure way.

Connecting such a large and diverse group of banks in a live environment to tackle a shared problem is a major milestone for digital transformation in the Italian banking sector, providing a glimpse into a brighter, more efficient and interconnected future for all financial markets.

Changing mindset

The current crisis has accelerated the launch of digital technology for many use cases across a diverse range of sectors, but those that stand the test of time will be developed with an industry-level mindset, not firm-level.

It is now clear that the age of inter-bank optimisation is over – the path forward from this crisis will be paved by software that focuses on adding real value for entire markets, connecting banks to overcome the biggest challenges they share as an industry.

Banks must adapt and start thinking about technology in new and innovative ways if they are to retain their critical role in the global economy.

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Banking

How open banking can drive innovation and growth in a post-COVID world

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How open banking can drive innovation and growth in a post-COVID world 3

By Billel Ridelle, CEO at Sweep

Times are pretty tough for businesses right now. For SMEs in particular, a global financial and health crisis of the sort we’re currently witnessing represents a truly existential risk. Yet there is hope of a brighter future. Digital transformation is already helping organisations in countless sectors, with everything from building supply chain resilience to rolling out potentially life-saving contact-tracing schemes. Yet it’s not just delivering transformative benefits in grand projects like this.

Thanks to open banking rules, a new wave of fintech innovation is sweeping the globe, offering business leaders a new launchpad for success. Even something as simple as corporate expenses can be transformed by the power of open data — to help firms cut costs, reduce fraud risk and become more productive.

Opening up data to innovation

It’s easy to get bogged down in the technical details of open banking, and the slew of new acronyms it has ushered in: Third Party Providers (TPPs), Account Information Service Providers (AISPs), Payment Initiation Service Providers (PISPs), and Application Programming Interfaces (APIs). Yet at the heart of the open banking revolution is a simple concept: the idea that forcing banks to open up their customers’ financial data will create more competition, and fresh opportunities for market entrants to create innovative new services.

This was at the heart of the UK government’s world-leading strategy when it was introduced back in 2016. A revised EU payment services directive (PSD2) gave it legal teeth, mandating that all payment account providers in the region provide third-party access for customers that want it. The push is also about reducing banking fees and enhancing financial inclusion, of course, but it’s in competition and innovation that the benefits really shine for businesses.

Access to real-time financial data via open APIs has already resulted in a range of new services which are helping businesses ride out the current economic storm. Whether it’s capabilities that can help freelancers prove loss of income to receive targeted loans, or services designed to streamline business processes to reduce costs and fraud — examples of innovation are endless.

What’s more, it’s already global. Aside from the PSD2, open banking rules are taking shape in Australia, New Zealand, Japan, Singapore, Hong Kong, Mexico and elsewhere. According to frequently cited Gartner predictions, regulators in around half of the G20 countries will create an open banking API regime over the coming year.

In the UK alone this is set to create a £7.2 billion revenue opportunity by 2022, with 71% of SMBs and 64% of adults expected to adopt it by then, according to PwC.

Making expenses pay

Corporate expenses and travel management might not be an area one immediately associates with high levels of innovation. But here too, open banking is having a profound impact. By combining automation, in-app approvals, integration with corporate policy and secure open banking APIs, companies like Sweep are offering new ways to solve old problems.

Part of the legacy challenge relates to productivity. Managing corporate travel costs and expenses was cited last year as the biggest concern of the UK’s small and mid-sized firms. Separate research claimed that SMBs are estimated to lose over £8.7 billion annually due to the time it takes employees and managers to complete these menial tasks. By automatically integrating real-time corporate bank account information into an easy-to-use app, we can save up to 15 hours a month on data input and travel administration per employee. That’s all time they could be spending on growing the business.

Another key area of concern is fraud. According to some estimates, fraudulent expenses claims could be costing UK firms £1.9 billion each year. In the US, the figure could be approaching $3 billion annually. Whether it’s the result of submitting expense claims for personal purchases, claiming for additional mileage on work trips, or over-claiming for other items, it all adds up. What’s more, fraud tends to spike particularly during times of recession, when normally diligent employees look for ways to supplement their income.

In this use case too, there are benefits to be had from open banking-powered solutions. Traditional manual processes offer too many gaps that can be exploited by fraudsters. Submitting paper receipts to finance departments — which must then input the information into spreadsheets or accounting software — is slow, error-prone and lacks accountability. However, with modern digital systems, transactions are automatically fed through from bank account to expense management platform. Here they are seamlessly checked according to policy and automatically approved, rejected or flagged for further investigation.

The future’s open

Thanks to the power of open banking, innovative fintech use cases like this are transforming operational challenges into opportunities to cut costs and fraud risks, improve employee productivity and become more strategic. With real-time data fed through from corporate bank accounts, finance directors can better understand spending patterns, react with greater agility and gain the insight they need to run their businesses more efficiently.

So what of the future? The good news is that open banking is only just getting started. As more sophisticated machine learning algorithms are developed, it has the potential for even greater disruption by empowering SMEs with predictive analytics and forecasting tools, or more accurate fraud checks, for example. Those in Europe may benefit most as PSD2 allows businesses to use tools that work seamlessly and securely across markets, without requiring any duplication of work.

In fact, open banking is not just good for individual SMEs, it’s important for Europe as a whole if we are ever to nurture successful digital unicorns to compete with those coming out of the US and China.

Open banking been described in the past as a quiet revolution. With the right buy-in from business and the continued innovation of digital platforms, it may soon become a full-throated roar.

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