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Criminal Minds: Account Opening Fraud Tactics put to the Test

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By Raj Dasgupta, Director, Global Advisory, BioCatch

 

The last two years have created a perfect storm for account opening fraud. Many banks and organisations were unprepared to handle an increase in online transactions and the widespread usage of digital services spurred by the pandemic.  Criminals exploited the system by falsely applying online for economic relief packages and then opening bogus accounts to deposit their stolen money into. It has been revealed that account opening fraud in the UK, was at its highest level in more than three years in 2021.

The latest wave may have passed, but there are ripples in the distance. Criminals are opportunistic, and their strategies are continuously evolving.  As highlighted in our recent webinar with the Royal Bank of Canada, it is critical that financial institutions are aware of the latest account opening fraud strategies, finding a balance between decreasing risk and exposure, while providing a great customer experience.

 

New Strategies for Account Opening Fraud: Combining Human and Non-Human Activity

Account opening fraud enables criminals to carry out money laundering. As we saw with economic relief packages, criminals are targeting where the money is — claiming unemployment or stimulus benefits, for example — and opening accounts to deposit stolen funds. They then move the money out to other accounts, often many times over, or buy cryptocurrency to conceal to make it hard to trace the origin of the funds.

Financial institutions that rely on PII or device-based risk assessment to detect account opening fraud are finding that their controls are falling short. Criminals have clean sets of PII data to work with to make their way through the account opening process, and the problem is so commonplace there are even how-to videos on YouTube to walk would-be criminals through the process. Because of the flurry of activity, banks had to act and began investing in new technology, like machine learning-based models, to shut the door on criminals. However, they have continued to adapt.

Criminals have a new MO and are using bots to open accounts at scale. Criminals leverage automated scripts and large caches of stolen PII to submit new account applications in minutes. Because most banks have bot detection technology in place to detect this activity, criminals have modified their attacks to blend real human interaction or introduced time delays on purpose with the intention of mimicking a human.

It’s now an incredibly sophisticated operation, mixing human activity and non-human programs to attack and confuse financial institutions.

 

Risks for Anti-Money Laundering and Fraud Teams

Although account opening fraud is a critical component in the money laundering supply chain, there is room for AML and fraud detection teams to work together on the problem.  Mule account detection is a serious challenge for financial institutions, both at account opening and within existing accounts.

In the world of mule accounts, there are criminals that open accounts with false paperwork or with a stolen or synthetic identity. There are also individuals who will sell their genuine account or multiple accounts to a criminal to make fast money. AML teams’ step in to investigate these accounts when there is a trigger, like a large transaction, that is indicative of money laundering. AML investigations can take weeks, months, or years once suspicious activity is uncovered. However, there are opportunities to prevent money from moving out of these accounts at all, and fraud teams can collaborate with AML teams to achieve this goal.

To reduce risk, we need to blur the lines between fraud and AML teams. One way to do this is by using technology that analyses user behaviour to uncover activity that is out of the norm for a genuine user, either at account opening or later in the customer life cycle.

Someone using an account for money laundering may behave like this:

  • A customer opens an account and uses it like a regular account for awhile
  • A criminal takes over or purchases the account from a genuine user and lays low, leaving the account dormant for a period of time
  • Then, suddenly, there is a host of incoming payments followed by outgoing payments

Technology like behavioral biometrics monitors user behaviour over time to detect these patterns, and can flag the accounts for money laundering activity, preventing money transfers from going through.

 

How to Create an Uninterrupted Account Opening Experience

Despite our best efforts, fraud will never be eradicated. It will change because criminals are flexible. “You have to find a way to balance what is an acceptable level of risk versus a delightful level of experience for the user,” Dasgupta noted.

One way is to layer machine learning and other technologies to “provide that balance between a beautiful user experience with the appropriate level of friction, while at the same time reducing your fraud exposure,” Dasgupta said.

Behavioural biometrics examines user behaviour during account opening to detect signs of illegal conduct. Criminals, for example, frequently employ copy and paste or excessive deletions while filling out a web form. Genuine users know their personal information from long-term memory and thus their typing patterns appear much different than those of a criminal using stolen PII. Because behavioural biometrics also works silently in the background, it does not add friction to the user experience. Instead, the technology identifies tell-tale signs that can build a bigger picture of who’s behind it, how they are behaving, and what is really happening when someone is applying for an account.

There are additional strategies for finding the right balance. First up is choosing controls that pair well with your users and the devices they use. Mobile users are conditioned to provide a second factor, like a thumbprint, but your web banking audience may be less open to extra steps. Second is deciding what transactions are low risk for your organisation and setting priorities for higher value transactions or clients. Financial institutions also shouldn’t cut corners on the measures they have in place to meet compliance requirements.

Banks have to address reputational risk, too. If today’s discerning consumer doesn’t like what an FI does, they can switch apps and go to a competitor.

Banks are vulnerable to account opening fraud, but by stacking smart fraud controls, they may reduce fraud risk while improving customer acquisition and improving the account opening experience.

 

Business

How app usage can help brands increase their online revenues and customer retention

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Arunabh Madhur, Regional VP & Head Business EMEA at SHAREit Group

 

Brands are continuing to invest heavily in the e-commerce market despite current market and economic challenges – and they need to. Indeed, the current global e-commerce market is valued at around $5.5 trillion. Further to that, estimates show that online retail sales will reach $6.7 trillion by the end of 2023 – and e-commerce making up 22.3% of those sales.

So despite the economic and market climate, businesses must still plan for success and cater to customer demands to make the most of the global e-commerce opportunity.

 

Mobile apps are key

Mobile apps are now a fundamental component of retail, as they provide customers with a convenient and engaging way to shop from their phones. The past couple of years has been rocket fuel for digital transformation, providing an opportunity for the retail industry to innovate. Whilst global trends continue to point to the user growth of Facebook, TikTok and Instagram, the trends underneath the headlines highlight significant opportunities to drive new customer acquisition, which in turn demands a targeted customer retention strategy from companies.

According to research from Baymard Institute, 69.82% of online shopping carts are abandoned and with demand expected to continue, pressure is growing on retailers to expand current offerings and create personalised experiences to tackle this. One of the big challenges e-commerce companies face, though, is analysing and maximising the behaviour of users, and bringing down the cost of their marketing and engagement against how much is earned through a customer making a purchase.

To meet customer demand, mobile apps offer a variety of features such as push notifications, product recommendations, exclusive discounts and offers, and easy checkout processes, to make the shopping experience easier for customers. By leveraging the power of mobile technology, brands can create an immersive shopping experience tailored specifically to their customer’s needs, and this in turn helps increase customer loyalty, customer return rates, and maximise online revenue.

 

Re-targeting and re-engaging customers

Brands should focus on re-engaging with returning consumers through a personalised strategy as this can help increase the lifetime value of users, which in turn helps brands bring the cost of their marketing down knowing that brand loyalty has been achieved. According to research from Google and Storyline Strategies study, 72% of consumers are more likely to be loyal to a brand if they offer a personalised experience.

Optimising the online shopping experience is crucial in retaining customers. Today, consumers need a more ‘human’ touch, i.e., smart product suggestions based on buying history & behaviour that helps build a one-to-one relationship between brand and buyer. In particular, push notifications haven’t just enhanced personalisation but also increased app engagement by up to 88%. Push notifications have also proven to get disengaged users back, too, with 65% returning to an app within 30 days of the push notification.

Another strategy to consider is the option of adding buy now pay later (BNPL) options at checkouts for customers. Brands that add the option of financing at the checkout allow customers to spread the cost over time, which according to Klarna has resulted in a 30% increase in checkout conversation rates.

Publisher platforms allow brands to leverage their reach and sticky user base. Especially with open platforms such as SHAREit, which can help e-commerce brands create a strong revenue conversion with higher average order value with unique retargeting and user acquisition solutions. Because users are not just sharing product links, but also sharing e-commerce apps and deals among their community. Users of these publisher platforms are also encouraged to share products and apps through platform activities.

 

What the future of e-commerce holds for brands

E-commerce is positioning itself as a key facet in retail, and its future. With Advancements in technology, customers can access various products and services worldwide through their smartphones – making shopping more accessible than ever. Brands must put consumers at the heart of everything they do, like never before. Offering incentives and payment options, personalising customers’ experiences and re-engaging them, as well as targeting new customers, in an effective and un-intrusive way, are all ways in which they can influence purchasing decisions and improve retention figures.

 

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Does the middle market have a financial edge?  

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Ilija Ugrinic, Commercial Solutions Director at Proactis

 

Companies tend to look up the ladder when searching for ways to improve efficiency and business performance. What are larger competitors, or others outside their industry, doing right that they can learn from and implement?

What smart technologies or bright ideas do they have that could create efficiencies for them, too?  

As we enter yet another likely volatile year for business, punctuated by recession, should businesses continue to only look up? And could the approach of a slightly smaller business offer more of a competitive edge? 

Large corporates tend to pioneer innovation in automation by simple virtue of the resources they have. Home to transformation directors and departments, with the ability to implement large overarching software systems, they pave the way for others and are often the first to digitise their source-to-pay cycle at pace. 

Ilija Ugrinic, Commercial Solutions Director at Proactis

While growing businesses understand the merits of full automation, implementing it is often too expensive and it doesn’t bring the rapid realisation of benefits that they need. They need to consider what will bring them the biggest return on investment – and the reality is that those in the middle market don’t necessarily need all the elements of an ‘all-doing’ piece of software. What’s more, without dedicated personnel to project manage a transition, they frequently lack the currency of time to be able to comfortably transform working practices, and take staff with them on the journey, without taking resource from other areas of the business.  

For SMEs, digital transformation has never been quite as seismic a shift. Instead, they tend to take a modular approach, employing digital solutions only for particular areas of their finance department, where they need them. This has never been a particularly strategic move. Rather, for a growing business that values quick results and watches their outgoings with greater scrutiny than their larger counterparts, it’s something that suits them better. A modular approach also comes with very little disruption and can be implemented relatively seamlessly into their existing organisational setups. 

But while growing businesses are opting for a modular approach because it’s the most cost and time effective option for them, the benefits go far beyond that. The beauty of a modular approach is that it is agile. The last three years – with pandemics, an increasingly challenging climate and shifting geopolitical tensions impacting our global economy – have only served to remind us of how suddenly, and drastically, a business landscape can change. The companies that have weathered the storm are those that have reacted and adapted quickly – those that have been capable of changing the way they do things with little impact on day-to-day operations. A modular approach can offer just that.  

Businesses using modular finance technology can integrate small solutions that sync up with the rest of their processes, quickly and seamlessly – and these systems can be integrated into their existing Enterprise Resource Planning (ERP), too. There’s no restriction of a monolithic or aging piece of software either – finance teams can add and update small solutions to their daily operations without the upheaval of having to replace or update large IT infrastructures or wider working practices within the business to accommodate the new software.

Unrestricted by entrenched and hard-to-change systems, the speed with which SMEs are able to react to market changes is miles ahead. A prompt software add-on to manage risk, or create a quick fix in response to a market shift, can be virtually a knee-jerk reaction. SME’s abilities to bend and flex to today’s world efficiently is seeing them reap the benefits of a modular approach. It’s lean, it’s fast and it’s facilitating their growth with a strong competitive edge. And as some of these companies’ growth propels them into the large corporate sphere, they’re choosing to keep a modular approach to finance.  It will certainly be interesting to watch those middle-sized companies which grow to the extent that they find themselves competing in the same space. With no financial remodelling to assume a large ‘all-doing’ piece of software, they’ll be competing against their counterparts with completely different tools in their arsenal.  

With technology, working life and business needs continuing to change day to day, we have another year ahead of us that will see companies running to keep pace with each other – and fast-growing companies’ approach to finance could be the silver bullet that enables them to catch up with, and even take on, big enterprises. It might just give them a competitive edge against large corporates in these turbulent times.

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