By Yuval Marco, General Manager, Enterprise Fraud Management, NICE Actimize

Innovation is inextricably linked to financial services and payments, with most financial institutions focusing on payments and streamlined customer experience as the primary focus of their strategic direction. However, innovation doesn’t come without risk, and financial institutions require financial crime technologies utilizing artificial intelligence (AI) and machine learning (ML) to realize the optimal customer experience.

Supporting best-in-class customer experience (safely) and maintaining competitive advantages requires strategic investment and monumental change across your financial crime and compliance programs.

While payments innovation has increased access to banking and facilitated instant payments, which are highly beneficial to the customer, they have also drawn interest from fraudsters looking to exploit the instant movement of money. As a result, customers are being targeted for various scams, and financial institutions are in the middle of balancing risk and customer experience in an instant payment environment and undergoing a liability shift. This shift in liability for fraud loss associated with scams from the consumer to the bank are due to the prevalence and sophistication of such complex scams as social engineering, Authorized Push Payment fraud, and romance scams.

Digital Innovation Speeds Fraud Detection

Fraud loss associated with these scams continues to grow significantly in 2022, supported by fraudsters’ ability to access personally identifiable information on the deep and dark web and weaponize it against their victims. Technology will advance and focus on these themes, particularly on the influence of the compromised PII. The increased speed of fraud detection is at the nexus of supporting payments innovation and customer experience. Led by the digital acceleration and infrastructure changes over the past two years, the new ISO 20022 standardization will enable safer and faster payments with compliance being adopted by new real-time payment entrants such as FedNow, RTR, SWIFTNet Instant, P27 as well as current real-time payment rails.

In addition, AI and ML will be necessary for an intelligent fraud prevention strategy that utilizes automation and decreases friction across the payment lifecycle. The industry will also see fraud strategy and prevention teams shift from simple risk mitigation to forceful business enablers as a smoother frictionless Customer Experience (CX) becomes increasingly improved. CX is no longer a “nice to have” but a key focus for fraud teams at financial institutions and within contact centers — the by-product of digital banking and faster payment.

These interactions must be seamless and secure. As a result, we now see fraud and risk mitigation teams placed more directly in the middle of CX conversations. In other key impact points, identity fraud continues to accelerate and expand to become a core component of payments fraud, money mules, and account takeover. Specific to the US, the Federal Reserve has created a new definition and classifier for Synthetic Identity Fraud (SIF) as they have acknowledged the significant risk these manipulated and fake identities pose as well as the need to fully track fraud losses associated with SIF and build strategies to deter them from being created.

Frictionless Customer Experience Key to Retention

Within the past few years, many financial institutions grappled with the impact of the pandemic. Concerning fraud, payments related to reimbursements afforded consumers and businesses

during this timeframe were the perfect target for fraudsters. Post pandemic, as financial services institutions pivot from storefronts to a dominant online, digital environment, customer

satisfaction and frictionless customer experiences has become even more critical to retaining customers and competing in a  digital world.

Fraudsters will continue to refocus their efforts in 2022 by attacking a bank’s – or other corporates’ – assets by  perpetrating fraud schemes and flooding traditional payment channels. Increasingly, the industry is seeing well-trained, funded, and equipped fraudsters able to commit fraud at scale using advanced tools and technology, creating a trend of “Industrialized Fraud.” This was manifested throughout 2021 in the form of business email compromise along with the uptick of ransomware that continues to become more pronounced throughout 2022.

Payments innovation, such as next-generation payment products that include QR, BNPL, Crypto, and Biometric, will also be focused on improving the customer experience led  by advancements in digital acceleration and newly adopted infrastructure put in place over the past two years. As a result, faster payments will become more prevalent – and even faster.

For example, the new ISO 20022 standardization will offer a universal messaging language that will allow machines to read messages with better automation and faster resolution. According to a 2022 Frost & Sullivan “The North American Enterprise Fraud Management Industry Excellence in Best- Practices” report, “The need for machine learning and advanced analytics to counter sophisticated attacks is paramount; fraud solutions must maintain a “friction right” customer experience and manage immense volumes of data. FIs must support increased customer interactions across newer digital channels; they must implement appropriate fraud prevention without compromising on customer experience.”

Regardless of the trend, artificial intelligence is at the core of advancements that will drive process improvements that ultimately lead to exceptional customer experiences – and a more competitive position in the market for the financial institution that implements them in their technology and  infrastructure strategy moving forward.