How digital signatures and blockchain technology can help to mitigate fraud risks
Tage Borg, Chief Technology Officer of Scrive, explains the preventative measures banks should be implementing to protect their customers
In the first half of 2021, criminals stole a total of £753.9 million through fraud, which represents a 30% increase compared to H1 2020. While advanced security systems managed to prevent a further £736 million from being taken, it does raise questions about what other preventative measures banks should be putting in place to further protect their customers.
When blockchain technology is spoken about, most people tend to associate it with cryptocurrencies such as Bitcoin and Ethereum. However, we are increasingly seeing Blockchain technology rapidly disrupt other sectors including cybersecurity, politics, and data analytics.
One of the potential applications, which blockchain or “Distributed Ledger Technology” (DLT) is practically made for, is to make electronic signatures and contract management more secure. To understand how DLT can be implemented to make the signing process more secure and mitigate fraud risk, one must first understand the foundations of blockchain technology.
What is blockchain?
Blockchain is a decentralised digital database of transactions copied and distributed throughout a network which means once recorded, transactions cannot be altered, hacked, or defrauded. Fabricio Santos of CoinDesk compared it to “a series of glass boxes with content everyone can see and verify but can’t change.”
Unlike most conventional databases, composed of tables with columns and rows, a blockchain is made up of sequential blocks securely linked to each other using cryptography; meaning that if a single block in a chain is modified, it will be immediately recognised that the chain has been tampered with, prohibiting anyone from going backwards and covering their traces if they corrupt an entry.
How does it work?
Any digital file or group of files can be represented by a unique fingerprint known as a “hash” derived by a mathematical calculation based on a file’s raw digital information. The most minute change to a file will result in a different hash value. The hashes, not the files themselves, are the records that are stored in the blockchain. Therefore, it is possible to demonstrate that a file hasn’t been altered by recalculating its hash and matching the hash to its corresponding record in the blockchain.
Applying blockchain to e-signing
In the context of electronic signatures, DLT is an ideal approach to protecting document integrity after the signing process. Unlike other approaches such as certificates, which can expire, or keys, which can be decrypted with sufficient time or computing power, DLT is both time and hack-proof.
DLT and e-signature software work in unison to guarantee the integrity of your document by sealing it with a digital signature. Blockchain technology provides a method of securing the digital signature by entering it into a permanent, verifiable public record. This means that in the event of a dispute, you can prove whether your document has or hasn’t been tampered with.
The perfect partnership for security, risk and compliance
In highly regulated industries like BFSI, one of the main challenges to implementing digital services, for traditional branches as well as challenger banks, FinTech and Insurtech companies, is meeting regulatory compliance. Paper documents can be easily modified, and signatures can be forged. In addition to the complexities of compliance, documents that are stored inside filing cabinets still risk being lost or stolen.
Implementing the public-permission ledger model in the context of DLT provides a hybrid of public and private blockchains where anyone can access them if they have permission from the administrators to do so. This provides greater transparency, making the audit processes easier, quicker, and less complex to manage.
Combining DLT and electronic signatures will help to store, protect, and ensure signature authenticity of your documents, making compliance with regulations such as GDPR easier. E-signature software features such as signing party authentication protect your agreements so that they can only be accessed and signed by the intended parties. Partnering with an eIDAS Qualified Trust Service Provider will help to further ensure the integrity of your document as their Qualified Electronic Signatures are regarded at the highest level. Electronic signatures serve as an electronic timestamp, adding an extra layer of protection to your document. Digital identity checks can also be integrated enabling the signing party to authenticate at any time, or any place, signing the document within the same digital workflow, speeding up customer transaction times.
The future of DLT and electronic signatures
So, what’s next for DLT and electronic signatures? How else could we see them being used? As more companies adopt blockchain technology, the concept of DLT being adopted in our personal lives doesn’t seem too far-fetched. Digital signatures could represent you as a digital identity with the help of blockchain technology and the EU has already begun to explore this as part of the Digital Identity Wallet. Businesses that have already implemented and are familiar with DLT will have an advantage over those that are yet to integrate the technology as connecting and linking the Digital Identity Wallet with other distributed ledgers will be relatively easy.
Furthermore, using electronic signatures in combination with DLT could significantly help reduce fraud as its structural design allows permitted users to check for fraudulent activity easily. This in turn lowers banking losses and improves overall operational costs, while enabling financial institutions to leverage the digital signatures for value-added services for their customers.
How to identify the signs that your IT department need restructuring
Eric Lefebvre, Chief Technology Officer at Sovos
For firms to execute transformations and meet their overall vision, it is crucial that their CIOs are able to recognise the signs that their department is in need of some internal change. In the current economic climate, CIOs working to fulfil their organisation’s priorities and meet business goals might hesitate to acknowledge that their IT department needs restructuring, never mind be able to identify the signs.
However, these problems rarely fix themselves and organisational restructuring requires conviction and determination from leadership for it to occur successfully. So, what are some of the key signs that CIOs should look out for?
Struggling to keep up with industry demands
CIOs unsurprisingly are working in an extremely demanding environment at the moment. Meeting these evolving demands is crucial for companies. When demands are not met and not handled properly, this can have a lasting impact on organisational goals and objectives, and even impact the way in which transformations are put into effect.
Depending on the organisation’s structure, the way in which being unable to keep up with demands manifests itself can differ. Despite double digit reductions across the industry, the search for talent across the tech world continues, project costs continue to rise as the cost of labour has increased and schedules have been disrupted by significant attrition. Many companies will also find business costs, such as that of third-party software, are higher than planned and technology debt continues to pile up faster than it can be sunset.
Whilst leadership teams might dedicate their department’s attention on the factors discussed above, they may find that their team will fall short when it comes to timely deliverables and helping maintain your organisation’s tech stack and guide its business transformations. Looking beyond the immediate problems of high costs and considering an internal reshuffle may be the solution for many IT departments.
Internal conflict within the team
Organisational designs with underlying issues can cause constant friction, especially when they go unacknowledged. An IT department that lives in conflict will certainly be reflected in results and less than successful tech transformations. CIOs will find that by adopting an organisational design which works through staffing issues, will better innovate, especially if they can all work together.
Department leads should have a strong understanding of their team’s work environment and guide them through any long-term or potential problems. When an individual is working in a demanding or complex industry, working well with your team shouldn’t be the main impediment to innovation. By acting quickly to eliminate internal conflict, CIOs can better lead and ensure their team’s focus is entirely on producing more optimal outcomes.
Delays are commonplace
When a large amount of your team’s time is spent setting objectives, budgets and timelines for the projects they are working on, it is vital that they are met. When delays are coming from the IT department, they will inevitably hinder the development of any business transformation, especially if it prompts teams to spend excessive amounts of time rearranging budgets and timelines and therefore hindering innovation.
IT departments are a crucial aspect in many different parts of a company’s transformations, so remaining on track when it comes to timelines and innovation is critical to operational plans. If delays have become commonplace in an IT team, and external factors are impacting projects, CIOs should look at restructuring an IT department to solve these issues.
The strongest team relationships do not happen by accident and are the result of good planning, strong leadership and a motivated team. CIOs can ensure this by providing vision and long-term strategy with clear goals and objectives to produce high levels of quality output.
When internal issues are noticed in an IT department, and are noticeably impacting team morale or productivity, this should indicate the need for departmental restructuring. Be that due to an inability to meet market demands, issues with productivity and meeting deadlines or internal conflict, these issues all risk a department’s functionality and an organisation’s ability to achieve its goals. In short, don’t overlook the warning signs!
Top banking trends of 2023 and global outlook of banking and fintech for the year ahead
Author: Professor Marco Mongiello, Pro Vice-Chancellor, The University of Law Business School
You’d be forgiven for assuming that the global outlook for banking and fintech will be dominated by the usual suspects:
Artificial Intelligence – AI plays an increasingly prominent role in banking and fintech by enabling personalised services, fraud detection, predictive analytics, use of chatbots and robo-advisors.
Blockchain and Cryptocurrency – the secure, decentralised and swift system for financial transactions that blockchain has brought to the fore a few years ago, is now becoming ubiquitous. An increasing number of transactions are recorded through blockchains technology, primarily in the cryptocurrency market.
Digital Banking and fintech – accelerated by COVID-19 pandemic, the adoption of digital banking is a trend that will persist as customers have become accustomed to the convenience and efficiency of digital banking. Moreover, fintech enables access to financial services for previously underserved populations in developing countries or less affluent social groups in more affluent societies. This includes mobile banking services, peer-to-peer lending platforms, and microfinance solutions.
Open Banking – another global trend is the use of open APIs (Application Programming Interfaces) that allow third-party developers to build apps to facilitate customers’ access to financial data and services from banks.
Nonetheless, the challenges posed by these rapid changes are reminders that banking, an industry that by its very nature needs to be conservative, risk averse and solid, wobbles on the unchartered grounds of fast and turbulent innovation, where entrepreneurship instead thrives. The underlying rationales of banking and fast digital innovation are not incompatible but do need solid operations and thought-through decision-making to avoid causing catastrophic collapses.
The recent examples of Silicon Valley Bank, Silvergate, FTX and Wirecard are stark reminders that digital entrepreneurship applied to banking doesn’t just bring to customers the visible transformation of valuable new services, but also dents (perhaps as an unexpected consequence) the rationale itself of the role of banks in the global economy. Moreover, the central banks’ ability to contain the effects of single banks’ defaults is no longer a certainty, as experienced just over a decade ago and more recently. The markets’ sentiments are hardly reassured by the commitments of even the most coveted players, such as the European Central Bank, the Federal Reserve, and the President of the United States himself.
Regulators are lagging behind and their attempts to catch up may cause further seismic shocks to the global banking system. For example, another trend that is emerging is one of artificial intelligence decision-centres (i.e., decentralised offices of banks which take autonomous decisions on behalf of investors) outside the most stringent regulatory environments, enabling banks to operate globally more efficiently and more competitively. And we can expect that regulators will close the gap either abruptly, as it is currently happening in China, where private banks are subject to an escalation of regulatory and monitoring restrictions, or more gradually as it is happening in Europe and in the US.
The questions we face, as individual or trade customers of our high street banks, as direct investors or clients of managed funds, are whether banking will become more user-friendly yet, for our daily use but riskier, too, or is it simply becoming more efficient, transparent and also safer.
I’m afraid that the answer is by no means an obvious one. Therefore, caution, level-headed decision- making and critical thinking have never been as important as these days. Whether you are looking after your family savings or growing your pension reserve, the imperative is that you keep updated about the providers of the financial services you rely upon as well as about the general regulations that apply to your financial transactions. This is where, for example, you need to be familiar with your rights in case of cyber fraud, as well as learning how to minimise the risk of becoming a victim thereof. Also, taking additional steps to evaluate the credibility, solidity and reliability of the online provider of that app that was recommended by a trusted friend, may prove a very good move.
Similarly, whether you are the CFO of a medium or large company, or are a sole trader wrestling with your own business’s finances, you need to reflect on what you really want from your bank in the first place. That is before you started to be swayed by the whirlpool of offers of ‘opportunities’ to multiply your financial investments. Chances are that your initial approach to your bank was dictated by either a need for financing your working capital, as per your budget and strategic plans, or to find a safe place for your temporarily idle liquidity. Perhaps you were also after some basic treasury services such as swift payments and debt collection. Maybe some other financial services closely related to your business operations, e.g. factoring. The advice is to give very careful consideration to services that are more remote from your business, because the trend for the next years is that more and more of those will be offered to you. But many new services will disappoint those who, sadly, cannot afford financial mishaps as they look to run and grow their business.
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