Banking

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

Published

1 year ago

August 23, 2022

editorial

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.

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Banking

Are SaaS platforms challenging banks for a piece of the payments pie?

Published

3 days ago

September 26, 2023

admin

4 common myths about the role of open source in financial services

Attributed to: Ralph Dangelmaier, Global CEO of BlueSnap

The finance industry is at a tipping point with software firms on the brink of becoming banks. This may seem like a farfetched idea, but now that software platforms come equipped with payment capabilities, their SME customers may want to receive more financial products from these platforms.

This is part of the wider trend of ‘embedded finance’ – when companies which aren’t banks incorporate financial services such as lending, insurance, and payments into their product.

Software firms are particularly leveraging ‘embedded payments’ – where the ability to accept and process payments comes with the software itself. Think of a school consolidating all the payments a parent would make for their children – tuition, books, extracurricular activities – in one software platform. This trend has exploded in popularity because there’s a desire among companies, and their customers, for everything from products to payments to happen under one roof.

With the market value of embedded payments expected to reach £2.08 trillion by 2026 and customers becoming increasingly married to their software, let’s look at how we ended up at this turning point in payments.

How chasing convenience puts money in platforms’ hands

Ralph Dangelmaier

The growth of embedded payments is propelled by the need for ease, trust, and convenience. As platforms are selling payments hand-in-hand with their software, customers don’t need to integrate with additional service providers just to accept payments. And they’re already bought into using the platform for its other functions.

Not only is this kind of back-end reconciliation easy and convenient but it helps software platforms generate revenue too. That’s because software companies that embed payments become Payment Facilitators (a.k.a PayFacs) – allowing them to monetize transactions that happen within their platform.

By selling payments, software firms can see up to a fivefold increase in value per client. Rather than depending on software subscriptions alone, these platforms now receive a cut of every transaction that’s facilitated using their software too. This provides them and the businesses they serve with a mutual incentive – shared profits.

Software platforms are passionate about helping their customers create the most easy-to-use experience to drive a higher volume of transactions. Of course, there are many ways to launch new revenue streams, but why leave money sitting on the table when all you have to do is become convenience-obsessed?

Why finance teams want software and payments in one

As a payment expert who’s worked in a bank’s back office, I know how important a financial software stack can be. In its highest form, it can steer a business’ entire financial strategy.

Often these stacks are well curated, but the biggest drawback is the manual collection of data across platforms. Trying to build a financial picture of a business using your ERP, CRM, human resource and billing system can involve hours of laborious data entry.

For everyday finance teams, this isn’t an efficient use of time. They need to be able to pull data swiftly to advise their executives on financial strategies. CFOs are also under pressure to choose the right software stack to streamline processes and ensure payments ROI.

That’s why payment technology that removes the manual work for finance teams – to get from A to B more quickly – is growing in popularity.

Software firms using embedded payments are saving them hassle and time. Not only that, it helps the key financial decision makers of SMEs stay in a constant state of financial planning, where they can change their strategy whatever the market conditions may be.

The end of traditional banking for SMEs?

Increasingly, SMEs are struggling to get the payments support they need from traditional banks. The ‘higher risk, lower return’ view of the small business market among banks leaves software platforms in a ripe position for a takeover.

There are over 90,000 software companies in the UK alone. With nearly half of software platforms (48%) turning to embedded payments to gain a source of competitive advantage, this figure could represent a threat to corporate banking as we know it.

SMEs don’t have the deep pockets that multinational businesses have. The Amazons and BMWs of the world have long reaped the benefits of a corporate account with a large bank – and the round the clock support this offers.

But SMEs face high conversion fees and often receive minimal support chasing late payments, leaving them between a rock and a hard place. If these businesses can save money by moving from banks to software platforms, then banks are at risk of losing their position over the middle market.

Looming regulation

Until now banks have been able to defend their position because safety and security is key. Once platforms become regulated, then what? It won’t be long before regulators eye up the software industry as their next big focus.

But regulatory bodies like the FCA, PRA and more favour ‘controlled innovation’, so this will take time.

Currently, to process transactions in Europe, businesses must go down the lengthy and costly process of becoming Payment Service Providers (PSPs). That’s why many software platforms are choosing to partner with a licensed payment provider which sells the payment package to them, instead.

In fact, 89% of software platforms choose to work with PSPs rather than become a PayFac themselves. It makes sense when it’s taken more than a year for some platforms to begin processing payments on their own.

Given the sizable financial risk of processing your own payments and the administrative burden this brings, it’s no wonder software firms are looking to fintech for a better way.

After all, it’s not just about processing the payments. A partnership with a payment technology partner comes complete with support in onboarding, underwriting, compliance, risk, payouts and customer support.

In short, software platforms see the benefits of selling payments and are primed to become the next big financial players.

Not only is there revenue for the taking but their customers benefit as well. With software platforms ready to offer SMEs a banking alternative and a superior customer experience, they’re offering a truly win-win solution for all involved. And it’s payment technology partners that can help them make this vision a reality.

Banking

Emerging technology will power long-term sustainability within the UK banking industry

Published

3 days ago

September 26, 2023

admin

By Peter-Jan Van De Venn, VP Global Digital Banking at Hexaware Mobiquity.

Sustainability has been a big focus for the banking industry in recent years, with the issue becoming increasingly important for consumers. It’s no wonder that sustainability has become baked into the purposes of almost every bank, from Natwest to HSBC.

However, the economic uncertainty of the last year has led to many banks putting it on the back burner. Challenging market conditions have forced financial institutions to change their priorities to concentrate on protecting the bottom line. Our research found there’s been a significant drop in the number of UK banks saying that sustainability remains a key business strategy. 12 months ago it was a major priority for 100 per cent of banks, but now that number has shrunk to 60 percent.

Whilst it’s understandable that banks are feeling the pressure at the moment, there’s a risk that they will miss out if they hit the pause button. From cost savings brought by innovative digital products and services, to improved brand reputation and increased profitability, there are a lot of longer-term benefits they could be failing to unlock. So how can they keep moving forward?

Losing momentum

Emerging technology holds the key to their success, with the power to disrupt current behaviours and promote a more sustainable culture. Banks are already aware of this, with 76 percent using digital transformation to drive sustainability, but a lack of leadership has made it difficult to build momentum in the last 12 months. Currently just over half (54 percent) of banks have tasked an executive at board level with overseeing sustainability – way down from 83% just 12 months ago.

This lack of board authority means banks are struggling to engage the entire organisation to move ahead with sustainable initiatives. As a result, almost two-thirds of banks are seeing progress slow, admitting they are not actively taking steps to foster more sustainable behaviours throughout the organisation. Those that have taken their foot off the gas need to find a way to move forward again.

No time for standing still

Banks know that technology can drive sustainable behaviour. For instance, many of them are already encouraging their workforce to work remotely, as a way of reducing travel. This has two benefits – not only does it cut the costs of running physical offices at full capacity, but also reduces the bank’s carbon footprint. There has never been a better time to invest in technology to drive more sustainable behaviours.

New digital products and services can also extend the benefits beyond employees to encompass the wider customer base. A fair number of banks are already investing to make this happen. More than a third (35 percent) of banking organisations are using Machine Learning (ML), Artificial Intelligence (AI), cloud and analytics to make digital services more easily accessible. Investment in these technologies will be critical as the number of physical bank branches continues to decrease, with figures from Which? showing this is taking place at a rate of 54 branch closures each month.

Hitting environmental and social responsibility goals

Emerging technologies can also help banks keep pace with tightening ESG rules and regulations. Banks are faced with demands for increasingly granular reporting and transparency on ESG – demanding a new approach. In line, 41% of them are developing data visualisation tools to improve stakeholder engagement and understanding of ESG risks and opportunities, while 37% are using machine learning and artificial intelligence to identify and track ESG risks and opportunities across a wide range of data sources.

More than one in three are also using the blockchain to improve transparency and traceability in supply chains, and implementing digital tools and platforms to collect, analyse, and report ESG data and metrics in a standardised and consistent manner. All these applications of emerging technology will put banks on track to address global environmental challenges and unlock a greener future.

Long-term sustainability

As the economic pressures hopefully start to subside, increasing numbers of banks will start investigating how they can use emerging technologies to provide engaging experiences and value-added services for customers, to drive greater revenue and efficiencies.

Whilst banks are right to focus on their revenue under difficult trading conditions, it’s important they don’t miss out on the long-term benefits that sustainability can bring. To capitalise on this, banks must keep pushing the boundaries and invest in emerging innovations to drive more sustainable banking behaviours, benefiting the planet and driving great digital experiences for customers.