Unveiling The Pattern Of Fraud In Banking
“Dear Customer, your ABC Bank’s Savings Account and online banking will be blocked today. Please update your Social Security Number now to prevent this. Click – http:not-a-phishing-scam/trustus.com”
The number of such phishing messages reaching every bank account holder a day is countless. With a 39% increase in cases in 2022, fraud in banking refers to every illegal practice committed to deceive a bank or its depositors. To prevent this, authorities have laid out regulatory compliance for banks to onboard new customers. But with technology aiding both the scammer and the bank equally, customers need to stay cautious while handling banking-related actions.
Understanding Types Of Frauds In Banking
With scammers inventing new tactics every day to commit financial crimes, it is easier to classify common frauds under four broad categories – New Account Fraud, Account Takeover Fraud, Fund Transfer Fraud, and Money Laundering.
New Account Fraud
New Account Fraud refers to fraudsters breaking the strict compliance and know your customer (KYC) processes to get onboarded and commit financial crimes. After committing identity thefts, criminals open accounts using the stolen information and become eligible for credit cards and loans. The banks become aware of these malpractices only when the credit card bills, and loan repayment letters reach the actual owner.
New Account Fraud can also be committed when crooks use their original information to get onboarded. The culprit here will apply for and acquire loans and credit cards, only to vanish on receiving the first letter for repayment.
Account Takeover Fraud
With one in every four American adults as a victim, Account Takeover Fraud is the most common of its kind. Here, fraudsters purchase personal information from the dark web or steal them through data breaches (Credential Stuffing). They’re master conman who shares malicious links inside spam messages which, when clicked, can steal all the user’s information.
Once this information is acquired, criminals can wreak havoc starting from placing unauthorized orders using the user’s bank account to instantly draining them off their savings. Avoiding information sharing and clicking unknown links can prevent falling prey to these criminal tactics.
Fund Transfer Fraud
Although rare, fund transfer fraud is the most dangerous in the market. With small enterprises and businesses targeted, the criminals enter the email system of a company and study its transaction pattern to commit fraud. Once accessed, criminals can fake an invoice or respond to a pending transaction by attaching their temporary account details to transfer the funds. These crimes are the worst hit since it is almost impossible to retrieve the money lost this way.
Money Laundering
As the term implies, Money Laundering is the ‘washing’ and ‘ironing’ of unaccounted money and converting them into clean, legal sums. Here, bills acquired through illegal means are introduced into the system using three steps: Placement, Layering, and Integration.
Through Placement, the money is placed in the system by breaking into small amounts and depositing them in various bank accounts. In Layering, the money is moved across multiple bank accounts stating plausible reasons to prevent tracing the source. Finally, all the sums are integrated and introduced in to the economy by purchasing goods and services.
By the time a discrepancy is detected by the authorities, the money would have journeyed multiple accounts making it untraceable.
How To Prevent Banking Frauds?
Every time a customer is scammed of private information or savings, banks end up with both reputational and financial damage. Banks must pay huge sums like non-compliance fines and compensations to the client along with a damaged brand name.
Installing biometrics as a necessary step in verification processes for account openings or applying for loans and credit cards can ensure the authority of the customer. With rising identity thefts, strong social security numbers and personal identification numbers are insufficient to prevent fraud in banking. This way, instead of creating long-drawn, complicated steps in banking, banks can continue to provide the intended seamless experience of banking.
Introducing AI can solve most cases of fraud in banking by placing it to supervise the onboarding of customers, transactions, and risk management. With real-time data detection, AI can easily detect anomalies in apps and transactions with higher efficiency. Leveraging machine learning tools to trace customer behavior offers banks a fraud score between 1-100 instead of a yes or no answer to possible fraudulent cases. This decreases the number of false positive cases and saves the bank money and customers time.
It is also observed that with anti-money laundering (AML) daily limit set as high as $10,000, a criminal could easily move his money around undetected. But with the help of AI, transactions under the daily limit are always under supervision.
Apart from these techniques, banks can also create an open blacklist of accounts that frequently conduct fraudulent transactions.
The most basic preventive measure against fraud in banking starts with customers. The chances of getting information leaks have skyrocketed with the onset of the cloud. Therefore, keeping browsers and firewalls up to date, conducting regular security checks, and keeping a close eye on all personal devices can prevent fraud. Banks can also conduct short awareness sessions and send out regular reminders of the latest scamming tricks to keep the customers alert. This way customers can directly experience the bank’s attempts to keep them safe and will automatically build a solid trust in the bank.
Today, with fraudsters and scammers getting smoked out only during financial meltdowns, banks are now burdened with only supervision instead of rigorous reviewing of data.
The introduction of advanced technologies like AI can save banks millions of money in the future. Integration of banking platforms like Appzillon Artificial Intelligence (AI) Banking Platform offers more than Chatbots and voice assistants. With Appzillon’s AI module, the bank’s IT teams can smoothly integrate it into their process flows. This way along with guiding smooth customer identification and authentication, AIs guarantee flawless fraud detection against fraud in banking.
