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AI-Powered Fraud Prevention for Digital Transactions

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By Martin Rehak, CEO of Resistant AI

Fraud is on the rise, thanks to the rapid escalation of digital channels in response to the unprecedented challenges created by COVID-19. However, this rapid shift to digital-first operations and transactions has come at a price for banks and financial services organisations.  Which is why financial services organisations are increasingly turning to AI to intelligently address an ever-evolving and ever-smarter attack landscape.

If nothing else, COVID-19 helped shine a spotlight on the vulnerabilities of today’s digital and mobile customer platforms that are capable of executing rapid and instant payment transactions, leaving little time to undertake customer authentication or transaction verification. Similarly, the difficulties of Know Your Customer (KYC) and customer onboarding in the digital era is exposing financial services organisations – and the customers they serve – to a significantly increased risk of cyber-crime and financial fraud.

According to a recent UK Finance report, £754 million was stolen from bank customers in 2021 as scammers industrialised the use of authorised push payment fraud to trick individuals and businesses into sending money to bank accounts operated by criminals posing as genuine customers.

The challenge created by automation

The rapid expansion and automation of financial services to minimise friction for customers has created new challenges with regard to verification and risk management policies and practices. Evaluating if a digital interaction is authentic now depends on referencing a huge amount of data from multiple sources – everything from geolocation and session behaviours to data from merchants, bureaus, and customer profiles.

Added to which, today’s financial fraudsters are becoming expert at targeting these complex digital environments and are using innovations such as block chain and instant payments against banks and their customers.

Staying ahead of criminals is an imperative. Especially as directives like Open Banking open up third party access to customer data that further heightens the vulnerability of finance firms to fraudulent activities if this process is not appropriately monitored and managed.

Financial organisations spend vast amounts of money protecting their information and IT, yet the automated processes that deliver access to money are often the least protected. Traditional approaches to fraud prevention that rely primarily on human intervention have proved inadequate for preventing the activities of today’s sophisticated digital criminals, who are capable of exploiting vulnerable automated systems at scale.

In response, the finance sector needs to enable real-time identity forensics that brings together state-of-the-art document and customer behaviour evaluation to uncover synthetic identities, account takeover attempts, money laundering and other emerging types of fraud plaguing financial services.

Strengthening onboarding and KYC processes

Attaining a deep understanding of the end-to-end customer journey is now mission critical for combating fraud and financial crime. Onboarding and KYC represent key cornerstones in the mission to prevent scams. However, the shift to digital documents for ID authentication, combined with the relaxation of onboarding verification to expedite customer conversions during the crisis, have created significant opportunities for fraud.

In the onboarding process, identify validation is the first step to affirm an applicant actually exists. Next comes verification, which links that person to the information they provided in the validation stage. In many automated workflows there are risks from forged or manipulated documents that support the customer journey in online lending, trading, insurance, financing, factoring and payments.

Typically, 17% of bank statements used for lending applications or KYC purposes have been tampered with and 11% of UK payslips submitted as part of digital loan applications have been altered or are forged. Similarly, 15% of company registration certificates submitted worldwide when opening a bank account are fakes and 9% of utility bills submitted as proof of address are forged.

By protecting automated processes that use unauthorised documents from third parties, institutions can gain certainty that all digital documents are genuine. Similarly, continually assessing transactions will instantly alert teams to potentially fraudulent activities. These anomalies encompass behavioural, device characteristics, unusual switching between accounts and more.

Providing an intelligent shield for automated financial systems, AI powered fraud prevention delivers a convenient customer onboarding experience while limiting the generation of false alarms – ensuring that fraud and cyber analysts need only investigate genuine priority alerts.

Advanced fraud insights

Today’s AI-powered real-time identity forensics are capable of detecting advanced fraud and manipulation and are adept at joining the dots to uncover previously unidentified vulnerabilities and gaps in third-party systems, so that future potential exploitations can be deterred.

With financial criminals continuing to up their game, banks and finance organisations are leveraging AI technologies to strengthen the validation, verification and transactional processes that deliver enhanced security without compromising the customer journey or experience. With the right financial automation oversight technology in place, they’re better positioned to predict, detect and deter criminal adversaries and stay one step ahead of evolving new risks on the horizon.

 

Technology

Why anti-spoofing fingerprint technology is essential for the continued growth of digital payments

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By

Anthony Eaton, CTO, IDEX Biometrics

 

The digital payments revolution is being driven by consumer demand for ever increasing convenience. This is leading the global digital payments market towards a value of US$204.1 billion by 2028. However, along with increased convenience, comes an implicit expectation to provide higher levels of security, especially when paying with contactless cards and digital wallets.

According to McKinsey, electronic payments are growing at twice the rate of GDP in North America and Europe. This expanding market has the fintech sector overstretched as they try to address operational risks without hampering customer experience and face increased fraud control expectations. If fintechs struggle to implement effective controls, they are likely to see heightened regulation in the future, which in turn can negatively impact consumer experience.

Amid this burgeoning market, fraudsters are continually looking for new vectors of attack. UK Finance’s 2021 Fraud Report showed that fraud losses on UK issued cards totalled £574.2 million in one year alone. To counteract such fraud, card issuers and digital wallet providers are deploying biometric fingerprint technology, which itself is evolving year-on-year to offer ever-increasing security levels.

The front-door attack

Fingerprint spoofing is considered a front-door attack on the biometric system.  It involves applying a fake finger, or so-called spoof, to the fingerprint sensor. When biometrics were first introduced on the iPhone in 2014 they did not deploy adequate anti-spoof technology. As a result it took just 48 hours before German hackers, the Chaos Computer Club, announced they had bypassed Apple’s new TouchID system with a fake fingerprint.

Attacks of this kind impact both consumer and industry confidence. As such, defending against this has been at the forefront of the emerging biometric payment card standards. Korean technology giant Samsung recently announced its entry into the biometric smart card space, and anti-spoof technology was at the centre of its story. This positioning reflects the need for added security and peace of mind in fraud prevention.

Anti-spoof: the heart of any biometric system

Anti-spoofing technology prevents fraudsters from defeating the fingerprint authentication process with false credentials. Today, it is used to increase security levels across a range of biometric systems, from smartphones to laptops and airport border control kiosks.

The biometric payment card has a compelling value proposition by bringing the biometric authentication process inside the secure enclave of the payment card’s Secure Element chip. The card’s off-grid nature ensures a much more limited surface of attack, compared with that of a highly connected smartphone. However, the challenges associated with implementing anti-spoof technology on this platform are not to be baulked at. The card has no battery and operates with limited on-board processing power. Without the luxury of the smartphone’s supercomputer-like processor a whole new wave of innovation has been needed.

As card issuers and digital wallet providers start to deploy fingerprint biometric payment cards to consumers, anti-spoofing technology must sit at the heart of their offering.

This can pave the way for a more secure future, from payment to digital and physical access, and to digital IDs and digital currencies.

Striking the balance between security and user experience

It’s clear that anti-spoofing technology must be included by default on biometric payment cards to reduce fraud and instil consumer confidence. But, despite the benefit of its added security it’s crucial to limit any potential impact on user experience. When paying for their shopping, consumers want to know that their card is safe, but more than that, they want to know their payment card will deliver a flawless user experience day-in, day-out.

When it comes to balancing security and user experience on a payment card, new design approaches have been required. The traditional approach to anti-spoof uses Neural Networks and Machine Learning techniques to train an image processing algorithm to detect the subtle characteristics of images captured from fake fingers. This requires an optimised processor and can quickly become impractical in a highly constrained smart card.

A second approach is to increase the security level of the traditional biometric authentication algorithm that matches a user’s fingerprint to the reference data captured during enrolment. This is very much a brute-force approach which, while helping to detect fake-finger attacks, will rapidly degrade user experience.

The optimum approach involves designing the fingerprint sensor, the biometric authentication algorithm, and the spoof detection system together – to all work in unison. Taking such a holistic, grounds-up approach opens up the design of biometric smart cards to new possibilities. Requirements can be met with margin allowing designers to achieve security targets and focus on delivering a flawless user experience.

Ready to fuel digital payment growth

To ensure the continued widespread adoption of biometric smart cards, it is important that all fingerprint biometric sensors are deployed with anti-spoofing technology while being optimised for user experience. Fingerprint biometric cards, when combined with anti-spoof technology allow for higher transaction limits and a faster, more secure transaction experience, while introducing increased obstacles to fraud.

Payment providers save money on fraud refunds whilst also increasing revenue thanks to higher limits and an enhanced customer base due to a secure and trusted reputation. The payment industry is already at a high level of security today. But with financial fraud on the rise, we must constantly improve to be ahead of cybercriminals and improve the customer experience for those using biometric payment services to enhance their lives.

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Banking

Digital Banking – a hedge against uncertainty?

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By

Ankit Shah, Head of Digital Banking, Apex Group

 

The story of the 2020’s thus far is one of crisis. First the world was plunged into a global pandemic which saw the locking down of people and economies across the world. Now we deal with the inevitable economic consequences as currencies devalue and inflation bites. This has been compounded by Russia’s invasion of Ukraine and subsequent energy politics.

And the outlook remains uncertain. Tensions continue to build between China and Taiwan and inflationary conditions are forecast to continue well into 2023. This uncertainty is impacting everyone, and every sector. And finance is no exception with effects being felt everywhere from commodity and FX markets to global supply chains.

But it’s not all doom and gloom. Rollercoaster markets and an ever-evolving geopolitical situation have made 2022 a tricky year far, but, despite the challenges, digital banking has proven resilient. In fact, the adoption of digital banking services has continued to grow over the last few years, and is predicted to continue.

So, what are the forces driving this resilience?

In an increasingly digital world and economy, digital banking comes with some advantages baked in, which have seen the sector continue to succeed despite the tumult in the wider world. In fact, the crises which have shaped the decade so far may even have been to the advantage of digital banking. Just as during the pandemic, technologies which could facilitate remote working saw a huge uptick in users, so to digital banking is well suited to a world where both people, and institutions demand the convenience that online banking services offer.

And while uptake of digital banking services is widespread amongst retail consumers, a trend likely to continue as digital first generations like Gen Z become an ever-greater proportion of the consumer market, uptake amongst corporate and institutional customers has been slower. This is largely down to a lack of fintech businesses serving the more complex needs of the institutional market, but, in a post-Covid world of hybrid working business, corporate clients are looking for the same ease of use and geographic freedom in their banking that is enjoyed by retail consumers.

This is not just a pipe dream – with the recent roll out of Apex Group’s Digital Banking services, institutions can enjoy the kind of multi-currency, cloud-based banking solutions, with 24/7 account access that many of us take for granted when it comes to our personal banking.

Staying compliant

One significant difference between retail and business accounts however, for banking service providers, is the relative levels of compliance which are needed. While compliance is crucial in the delivery of all financial services, running compliance on multi-million pound transactions between international businesses brings with it a level of complexity that an individual buying goods and services online doesn’t.

For digital banking services providers, this situation is further compounded by guidance earlier this year from HM Treasury – against the backdrop of the Russia-Ukraine conflict- requiring enhanced levels of compliance and due diligence when it comes to doing business with “a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country or with a sanctioned individual.”

So, can digital banks meet these standards while also providing institutions with the kind of easily accessible, mobile service which retail customers enjoy?

The answer is yes and again, once initial hurdles are overcome, digital banking brings with it features which give it the edge over traditional banking services. Paperless processes, for example, mean greater transparency and allow for better and more efficient use of data. This means AI can be employed to search documents, as well as provide verification. It also means compliance processes, often notoriously complicated, become easier to track. Indeed, digitising time intensive manual process means the risk of human error in the compliance process is reduced.

Digital banking can also better integrate transaction monitoring tools, helping businesses identify fraud and irregularity more quickly. This can be hugely important, especially in the times of heightened risk we find ourselves in, where falling foul of a sanctions regime could have significant legal, financial and reputational consequences.

Cross-border business

Our world is increasingly globalised, and so is business. For corporate and institutional banking customers, being able to operate seamlessly across borders is key to the operation of their business.

This brings with it challenges, which are again compounded by difficult geopolitical and economic circumstances. In recent weeks for example, we’ve seen significant flux on FX markets which can have real consequences for businesses or institutional investors who are buying and selling assets in multiple currencies and jurisdictions. The ability to move quickly then, and transact in a currency of choice, is vital. Advanced digital banking platforms can help – offering automated money market fund sweeps in multiple core currencies to help their clients optimise their investment returns and effectively manage liquidity.

Control admin uncertainty

In times of uncertainty, digital banking can provide additional comfort via customisable multi-level payment approvals to enhance control of what is being paid out of business accounts, with custom limits available for different users or members of a team. Transparency and accountability are also essential, with corporate clients requiring fully integrated digital reporting and statements and instant visibility with transaction cost and  balances updated in real-time.

Outlook

For some, the perception remains that digital banking is the upstart industry trying to offer the services that the traditional banking industry has built itself upon. Increasingly however, the reality is that the pressure is on traditional banks to try and stake a claim to some of the territory being taken by digital first financial services.

With a whole range of features built in which make them well suited to business in a digital world, digital banking is on a growth trajectory. Until now, much of the focus has been upon the roll-out of services to retail consumers, but with features such as automated compliance, effortless international transactions and powerful AI coming as standard for many digital banks, the digital offering to the corporate world looks increasingly attractive.

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