By Mateusz Chrobok, VP of Innovation at buguroo
Every industry where business can be done online has seen the speed of digitalisation increase exponentially as Covid restrictions forced people to lead predominantly digital lives – none more so perhaps than the financial services sector. The pandemic has turned more people to online banking than ever before, and fraudsters have quickly exploited this. Indeed, just in the first half of 2020, losses from internet banking fraud were up by 32 per cent compared to the previous year. As we look at 2021, financial institutions need to draw conclusions and focus fraud prevention efforts on the three key trends that will dominate the industry this year.
- Social engineering attacks to target digital novices
The closing of physical bank branches, the limited face-to-face time and the convenience of digital channels have all led to a rapid shift to online banking services. While generally seen as a positive outcome, this can cause particular security problems for customers who have never had to use their computers or smartphones before in order to manage their money. Often these people can be older or simply not technologically savvy enough to recognise social engineering patterns, which aim to persuade a person to perform an action that they otherwise wouldn’t do. Fraudsters feed on inexperience and insecurity. As the pandemic continues to necessitate the use of digital banking services, we will likely see a rise in social engineering attacks targeting these kinds of individuals.
There is another reason why banks should pay attention to their digital novices in 2021. Those who are unsure about their abilities to avoid scams or use online banking tend to look for help from their friends and families often entrusting them with sensitive information such as passwords and logins. Not only does this automatically diminish the security of their bank accounts, but it can also result in them not being able to access their own account, as more and more banks are leveraging behavioural biometrics to detect fraud effectively. Since these systems are usually trained to recognise users based on their unique behaviour and flag anomalous sessions, only the legitimate user should be using the account. This means there is a continued need for banks to build trust, educate their customers about cybersecurity best practices and adapt to ever-changing types of attacks to avoid false positives.
- New account fraud to increase
Another change in the financial ecosystem brought on by the pandemic is around authenticating new customers. With physical branches shut, banks have had to adapt to verifying customer identities solely online. But, as it’s much harder to accurately authenticate a customer you’ve never met, fraudsters are finding a higher rate of success in submitting fake documentation or stolen personal information.
Opening seemingly legitimate bank accounts in order to commit fraud with the help of stolen or synthetic identities is called new account fraud (NAF) – a trend we can expect to hear a lot about this year, as more and more personal data is entering digital spheres. Luckily for banks, impersonating a legitimate person through stolen personal information is becoming a losing game with the proliferation of continuous authentication technologies and behavioural biometrics. As banks can reveal and block fraud attempts automatically, fraud response is gradually moving to proactive prevention.
- New tactics come to the fore to circumvent two-factor authentication
With record numbers of people shopping online, we’ve seen a development in the sophistication of fraudster techniques targeting card-not-present (CNP) e-commerce transactions. SIM swapping scams and phishing attacks are prevalent techniques that attempt to steal one-time passwords (OTP), sent to customers during two-factor authentication. For example, during SIM swapping, cybercriminals get their victim’s phone number switched onto a SIM card that they own instead, which enables them to intercept OTPs in the cardholder’s place. Modern malware such as Cerberus can also forward the OTP through SMS and obtain time-based one-time passwords (TOTP) from applications that keep them secret such as Google Authenticator.
Hijacking OTPs is dangerous, as two-factor authentication is a cornerstone of stringent regulations such as the EU’s Strong Customer Authentication rules as well as the 3D Secure payment protocol in the case of risky transactions. 3D Secure has seen growing adoption in recent times and can be a highly effective method of stopping CNP fraud. Still, as tactics aiming to bypass two-factor authentication continue to evolve and increase, card issuers will need to take extra steps to ensure the people behind the transactions are who they say they are.
As we look at the year ahead, it’s clear that the pandemic has created a plethora of new opportunities for financial fraud. Fighting these will be one of the key challenges that banks will face this year, as well as the most important. With every attack, fraudsters are not only cheating people out of their money, they are also undermining the trust in the entire system. To gain an elevated foothold against maturing fraud, banks will need to step up their authentication strategies to provide automatic fraud response – based on real-time systems – and proactively block attacks. Coupled with the ability to reveal the true identities of fraudsters and the use of relation analysis to catch them before the crime takes place, banks will avoid losses and foster customer loyalty and trust.
Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study
Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute
Corporate responsibility is more important than ever. Today, many investors expect more than just profit from their financial decisions; they want easy access to financial products and to be able to express personal values through their investments. Crucial to meeting these new investor expectations is trust in the financial services providers that enable investors to build wealth and realise personal goals. Trust is the bedrock of client relationships and investor confidence.
The 2022 CFA Institute Investor Trust Study – the fifth in a biennial series – found that trust levels in financial services among retail and institutional investors have reached an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 markets globally, the report is a barometer of sentiment and an encouraging indicator of the trust gains in financial services.
Wealth managers may want to know how this trust can be cultivated, and how they can enhance it within their own organisations. I outline three key trends that will shape the future of client trust.
THE RISE OF ESG
ESG metrics have risen to prominence in recent years, as investors increasingly look at environmental, social and governance factors when assessing risks and opportunities. These metrics have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express personal values or invest in companies that have a positive impact on society or the environment.
The Trust Study shows us that ESG is stimulating confidence more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their trust in financial services. 100% of this group expressed an interest in ESG investing strategies, as did 77% of retail investors.
There are also different priorities within ESG strategies, and our study found a clear divide between which issues were top of mind for retail investors compared to institutional investors. Retail investors were more focused on investments that tackled climate change and clean energy use, while institutional investors placed a greater focus on data protection and privacy, and sustainable supply chain management.
What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.
TECHNOLOGY MULTIPLIES TRUST
Technology has the power to democratise finance. In financial services, technological developments have lowered costs and increased access to markets, thereby levelling the playing field. Allowing easy monitoring of investments, digital platforms and apps are empowering more people than ever to engage in investing. For wealth managers, these digital advancements mean an opportunity for improved connection and communication with investors, a strategy that also enhances trust.
The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases trust in their financial advisers and asset managers, respectively. Technology is also leading to enhanced transparency, with the majority of retail and institutional investors believing that their adviser or investment firms are very transparent.
It’s worth acknowledging here that a taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help navigate their investment strategy over a human advisor. Of the over-65s surveyed, however, just 30% expressed the same choice.
THE PULL OF PERSONALISATION
How does an investor’s personal connection to their investments manifest? There are two primary ways. The first is to have an adviser who understands you personally, the second is to have investments that achieve your personal objectives and resonate with what you value.
Among retail investors surveyed for the study, 78% expressed a desire for personalised products or services to help them meet their investing needs. Of these, 68% said they’d pay higher fees for this service.
So, what does personalisation actually look like? The study identifies the top three products of interest among retail investors. They are: direct indexing (investment indexes that are tailored to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world outcomes); and personalised research (customised for each investor).
When it comes to this last product, it’s worth noting that choosing advisors with shared values is also becoming more significant. Three-quarters of respondents to the survey said having an adviser that shares one’s values is at least somewhat important to them. Another way a personal connection with clients can be established is through a strong brand, and the proportion of retail investors favouring a brand they can trust over individuals they can count on continues to grow; it reached 55% in the 2022 survey, up from 51% in 2020 and 33% in 2016.
TRUST IN THE FUTURE
As the pressure on corporations to demonstrate their trustworthiness increases, investors will also look to financial services to bolster trust. Wealth managers that embrace ESG issues and preferences, enhanced technology tools, and personalisation, can demonstrate their value and build durable client relationships over market cycles.
2022 ESG Investment Trends
Jay Mukhey, Senior Director, ESG at Finastra
Environmental, Social and Governance (ESG) themes have been front and center throughout the pandemic. While the framework has been surging in popularity for several years, COVID-19 served as a period of reflection causing many companies, investors and other individuals to take these factors seriously. It’s something that we can no longer afford to ignore.
We are witnessing drought, adverse weather patterns, hotter climates, and wildfires with more regularity, raising the profile of the climate crisis. Efforts were renewed at COP26 in Glasgow last November to help address the challenge, with the signing of the Glasgow Climate Pact and agreement of the Paris Rulebook. As a result, we are now seeing record net new inflows into ESG investing and impact.
Evaluating ESG criteria
Long gone are the days when ESG issues were at the periphery of a company’s operations. In just a few short years, ESG criteria have become a key metric for investors to evaluate businesses they are considering investing in.
Investor money has poured into funds that consider environmental, social and governance issues. Data from the US SIF Forum for Sustainable and Responsible Investment shows that ESG funds under management have now reached more than $16.6 trillion. It’s not just institutional investors who are embracing ESG, with Bloomberg Intelligence predicting that savers across the world will amass £30.2 trillion in ESG funds by the end of the year.
Due to the multitude of divergent factors that contribute to a company’s success on ESG, it can be tricky to pin down exactly what criteria to measure. Depending on the industry a company operates within, environmental criteria could include everything from energy usage, the disposal of waste and even the treatment of animals.
Social criteria are primarily related to how a company conducts itself in business relationships and with stakeholders. For example, does it treat suppliers fairly? Is the local community considered when the business makes decisions that would impact them? Do they have a statement and policy around modern slavery?
While governance criteria have traditionally been an afterthought, this may be changing. Everything from executive pay to shareholder rights and internal controls are relevant to investors within these criteria.
Tracking ESG for competitive advantage
Many experts within the financial services industry point to the power of ESG as a major competitive advantage, if used correctly. It has been noted that increasingly corporations, from big Fortune 500 companies down to small scale-ups, will communicate on their sustainability metrics to grow their business and to attract talent. However, it’s no longer enough to just pay lip service to ESG issues, with abstract commitments increasingly being seen as insufficient. Companies must now quickly progress to concrete objectives that can be measured and tracked.
A wide range of data providers now offer detailed information and tools that can measure ESG performance and effectiveness. Yet major challenges remain around bringing together what is often extremely fragmented data and transforming it into actionable insights.
Focus areas for 2022
The ESG criteria that investors measure is by no means stagnant. Complex societal challenges regularly emerge that require the attention of companies. Contributors recognize several topics that demand a sophisticated approach, including the COVID pandemic, diversity challenges and powerful social movements.
Companies operating within the financial services sector face several specific challenges related to ESG, with contributors believing that fintech will also continue to play a central role in finding answers to them.
For example, industry experts expect customers to be more demanding of firms in SME lending when it comes to understanding exactly what impact they are having on the climate. For many financial services firms, 2022 will be the year that they will try to reduce the time it takes to bring ESG products and services to market, such as green loans and mortgages, as well as checking accounts with sustainability and carbon tracking capabilities.
When selecting a service provider, customers are increasingly interested in the ESG credentials of their bank or financial institution. Research from PwC finds that 80% of consumers are more likely to buy from a company that stands up for environmental and governance issues. Consumers are one of the main drivers of ESG and many are putting their money where their mouth is. It’s a trend that’s not going away; financial institutions need to start implementing their strategy for ESG now.
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