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Forget deepfakes, shallowfakes are the real threat to the insurance industry

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By Martin Rehak, CEO & Founder at Resistant AI

 

To believe or not to believe—the dilemma facing insurers dealing with increased digital document fraud

Fraud continues to be a serious threat to the insurance industry, rising by 73% in 2021 according to Kingsley Napley. In the face of the unprecedented challenges of the pandemic, insurers have continued to try to thwart insurance fraudsters in order to protect honest customers.

Contributing to this fraudulent scenario are so-called “deepfakes”—sophisticated forgeries of still or video images or audio recordings made with the aid of artificial intelligence (AI) technology. But while these have become increasingly prevalent in fraudulent insurance claims, the insurance industry is now seeing more of what are called “shallowfakes”.

Once limited to a social media novelty, deepfake and shallowfake fraud has emerged as a formidable threat to the insurance industry, which already suffers from over US$80 billion in annual fraud in the US alone.

The difference between deepfakes and shallowfakes is that while deepfakes require AI to create them, shallowfakes can be created using basic photo editing software, such as Photoshop. The term “shallow” might imply that they are less threatening than their deepfake counterparts. But the fact that they do not require deep AI/machine learning methods to create them means that shallowfakes can be made and deployed easier and faster—for that reason, shallowfakes are presenting a more immediate fraud risk to insurers.

Insurance fraud can range from a person providing false information to an insurance company in order to get cover on more favourable terms, or faking motor vehicle, commercial, household or other personal insurance claims.

In these and other fraud scenarios, shallowfakes can include:

  • False proof of identity or address – including photo ID documents such as driving licences, passports, national insurance cards, utility bills and bank statements
  • Fake supporting evidence – any evidence required to support a claim or transaction, such as invoices for services, contracts and agreements, no claims discount certificates, or expert reports

Of course, the problem of altered digital media is not entirely new to the insurance industry. Photo editors began to proliferate many years ago and, in fact, altered photos that falsely inflate claims have been a leading concern among insurers in tackling fraud.

What is new is the scale of the problem: it’s not uncommon to find the same document being reused tens or even hundreds of times with just name, account, and address altered, effectively creating as many fake identities from a single template. This was the case of a single Canadian passport which was reused and submitted over 2,500 times in the space of 20 days — with one day clocking in over 400 submissions, each with subtle changes in name, address, and even hairstyle on the portrait to avoid detection.

 

Self-service automation

While there have been some moves to reduce shallowfake fraud, the pace of touchless automation—in the form of self-service transactions and straight-through processing (STP)—has been fast and furious. Undoubtedly, the global pandemic has aided the transition to self-service since it was a natural fit for claims reporting during lockdowns.

At the same time, this has increased dependency on customer-supplied photos for settling claims—an excellent opportunity for shallowfakes as the risk of fraud from altered, manipulated or synthetic photos significantly increases.

The past couple of years have shown that touchless claims (and underwriting) transactions are here to stay, and the way digital media can be compromised has become more elaborate. As a result, proactively taking steps to implement automated fraud prevention technology to tackle shallowfakes is quickly becoming an important consideration for protecting insurers’ business.

 

Using AI to detect shallowfakes

While shallowfakes don’t require AI to create them, AI can significantly increase the chances of detecting them. The use of AI solutions—combined with human instinct, attention to detail, and awareness and knowledge to check the validity of what is being processed—can prove a win-win for detecting fraudulent documentation.

Having AI-powered detection built into a claims process is one way of stopping fraud and increasing accurate claim handling. Without any ability to check, for example, the authenticity of photos, damages might be exaggerated, and insurers will ultimately pay for losses that are either entirely false or inflated.

The pace of claims automation is far exceeding the pace of automated fraud prevention, which is opening new risks as well as new opportunities. Some insurance companies may be willing to risk fraud vulnerabilities in return for cost savings elsewhere and an improved customer experience. That is a fine balance that they need to strike.

In the light of increased shallowfake activity, it has become increasingly necessary for the insurance companies to pay closer attention to the documentation being submitted for claims, where fraudsters may use shallowfakes to claim for large sums of money they are not entitled to.

Document scrutiny can be significantly enhanced with AI-based “document forensics” to find fraud that the human eye can’t see in insurance claims, and verify the authenticity of digital documents.

Matt Gilham, Head of Enterprise Fraud, Esure, recently quoted: “Insurance organisations are accelerating their adoption of digital technologies to better service customers and claims.  As digitalisation and speed of processing increases, vulnerabilities are created that, if left unchecked, can be exploited by tech savvy fraudsters. The problem with shallowfakes stems from the ease with which digital documents and images can be manipulated using readily available tools. The subtlety of shallowfake alterations makes them increasingly difficult, and often impossible, to track visually. As the manipulation of digital documents becomes more prominent, AI automation technology is a vital aid in the identification of, and defence against, shallowfakes.  This enables faster and more efficient insurance processing, while also stepping up defences against fraudulent abuse.”

 

A direct threat

By their very nature, shallowfakes are a direct threat to the accuracy of information relating to any individual in the existing digital environment. However, the threat that they pose will only increase as our interactions with the metaverse increase, given that there will be more opportunities for their use.

The cost of inaction to the insurance industry may be high. In all likelihood, few if any insurance firms have yet addressed the growing threat posed by shallowfakes. Yet it should be a high priority for them—without immediate action being taken to mitigate the impact of shallowfakes, they could be a threat that is hard to stop.

 

 

Banking

Digital Banking – a hedge against uncertainty?

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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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Banking

Security vs online payment convenience: which one is tipping the scales for customers?

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 Chirag Patel, President of Digital Wallets at Paysafe.

 

While keeping their payment details safe is a top priority for customers when shopping online, they’re not willing to jump through endless hoops or accept poor user experiences as the inevitable price of greater security.

Online payment security has been top of mind for merchants since the very first internet purchase: a copy of Sting’s ‘Ten Summoner’s Tales’ CD. Even though payment technology has become more sophisticated over time, the eCommerce explosion has brought about an ongoing battle between increasing security and ensuring convenience.

Chirag

Customers are ever more aware about the risks of online shopping and concerned about their financial details falling into the wrong hands. Simultaneously, demand for a good user experience has also risen steadily. But greater security typically introduces friction into the checkout process, which continues to be one of the leading causes of cart abandonment.

In our latest Lost In Transaction report, we surveyed 11,000 consumers in 10 countries across Europe and the Americas regarding the balance between security and convenience in online payments.
Here are the key take-aways for online merchants moving forward.

 

How concerned are consumers about online fraud?

According to our research, customers continue to grow increasingly worried about online fraud.
59% of respondents are more concerned about it today than they were 12 months ago. Not feeling comfortable sharing financial details online has increased from 49% in 2021, to 70% in 2022.
More to the point, our research shows that, when they have a choice, 44% of respondents will invariably pay with the method they perceive as safest while only 21% will choose the most convenient payment method, and even fewer (14%) will choose the fastest one.

These findings aren’t surprising considering that fraud has become more frequent and more serious during the COVID-19 pandemic. For example, in 2021 the average US fraud victim lost $500 and the average UK victim lost £806.

However, what merchants need to keep in mind is that, even though security typically dictates the choice of payment method, there’s a limit to how much friction customers are prepared to tolerate. And our research suggests this limit is close to being reached, with 42% of customers reporting that they would prefer more payment security but only 19% open to accepting whatever measures are necessary for increased protection against fraud. The other 23% would only accept a minimal increase in inconvenience.

 

A fine line to walk

If you’re a merchant, the situation is positive but challenging to navigate.
Fortunately, 44% of consumers think merchants are getting the balance between security and convenience right — up from 26% in 2021 – and trust is also high. 53% think online payments are more secure than they were twelve months ago. And 64% of respondents are more likely to shop from merchants who already have their payment details on file, compared to 54% in 2021.

The challenge is that security risks are ever evolving. Cybercriminals are constantly refining their techniques, which means measures that are highly effective today can become inadequate tomorrow. And regulation is constantly developing, at times at odds with consumer sentiment. The introduction of Strong

Customer Authentication rules, for instance, sparked fears that the deliberate friction they required would hurt sales, which, admittedly, has had less of a negative impact than anticipated.

Consequently, while security enhancements are inevitable if merchants are to continue meeting high standards, there’s margin for error now that more consumers are reaching the limits of their tolerance for friction.

For every new security measure they introduce, merchants must be increasingly mindful of the impact on the streamlined payment experience customers expect.

 

Finding a common ground: boosting security with trust and technology

While maintaining – or even improving – the current balance between security and convenience might seem impossibly tricky, payment technology has evolved to a point where it’s doable.

With embedded payments, for instance, the consumer pays through a user-friendly interface at the point of need. And because financial details are stored securely in tokenized format, there’s no need to share them every time you make a purchase.

eCash is another such solution that enables customers to buy online quickly, securely, and privately.
A unique barcode is generated at the checkout which customers can then get scanned at one of one million points of sale in 55+ countries to pay in cash. Which means they can buy online without having to share or even store any financial details.

This presents a great opportunity for merchants to take advantage of the high levels of trust these payment solutions enjoy. While our research shows that there’s still a significant knowledge gap, particularly in embedded payments, consumers are becoming more open to both technologies. So now is the time to explain the benefits clearly to customers and, more importantly, address concerns.

 

Online payment security is crucial, but not at all costs

Keeping their financial details safe is the most important element of the payment process for most customers. But while fraud protection may be winning the battle against convenience hands down, merchants need to carefully navigate the process of increasing security without adding too much inconvenience.

As critical as it is for merchants to protect customers’ data, a zero-fraud strategy would also likely cause way more friction than most customers are prepared to tolerate. A smooth, seamless payment experience remains as important as ever.

 

 

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