Blog | July 7, 2021

Fraud continues to hamper a return to “normal”!

BY David Mirfield

As economies slowly bounce back after months of lockdowns and social distancing, consumers are looking to resume their daily lives. Moving house, booking a trip, buying a new car or a big-ticket item delayed due to Covid-19 are now firmly back on the agenda.  This renewed enthusiasm for spending and borrowing though comes with a warning – fraud is on the rise and financial institutions need to ensure their defences are watertight.

This is no surprise because during the past 15 months, sophisticated fraudsters have capitalised on every opportunity the pandemic has given them as consumers moved increasingly to a digital sphere. This is evident by a recent report by UK Finance which showed that Authorised Push Payment (APP) fraud cases, where customers are tricked into authorising a payment to another account controlled by a criminal, jumped by 22% to almost 150,000 in 2020. This translated into overall losses of £479 million, up 5% on the previous year. 

The study found investment scams a particular hotspot as criminals convinced their victim to move their money to a fictitious fund or to pay for a fake investment. Losses were the highest of any APP scam type, totalling £135.1 million. Separate studies by LexisNexis Risk Solutions show this is not just confined to the UK but has global implications too. The volume of successful attacks across financial services and all lending sectors dramatically rose during Covid-19 with larger institutions – those generating over $10 million in annual revenues – the most impacted.

Economic recovery is already underway

The breaches are expected to only accelerate as the economy gathers steam. However, this is not the textbook economic recovery of the past. There is no debt overhang as seen during the global financial crisis in 2008 and other downturns. In fact, savings are at record levels and there is a great deal of pent-up demand waiting to be released. Also, the UK along with many other governments have pumped significant sums of money into the system and have kept interest rates low.  The result is a faster than expected revival with the Bank of England in May raising the UK’s GDP estimate to 7.25% from 5% in 2022 – the fastest rate since the second world war. 

This buoyancy is already seen in recent figures from Zoopla which showed that UK homeowners collectively borrowed £35.6bn in March, the highest level since Bank of England records began in 1993. Meanwhile the auto industry saw an eye watering, year-on-year 1276% hike in new business volumes in the consumer car finance market in April, according to the latest figures from the Finance and Leasing Association (FLA). In the first four months of 2021, it was 13% higher than in the same period in 2020 which was depressed by Covid-19 and lockdown.

Many of these applications will be online, with face-to-face meetings the exception, which has raised concerns that financial institutions may struggle to keep up with the demand. Fears are that credit controls and due diligence processes will be loosened just at a time when they need to be bolstered.   This could open the door wider for fraudsters looking to take advantage of an overwhelmed banking system. For example, if a bank receives 10,000 requests, it will typically accept 50%, and reject 30%. This will leave 20% that may require additional verification and banks take a risk relying on manual, siloed processes in today’s fast paced digital world.

Seamless and dynamic onboarding

Honestly, financial institutions need to redefine the traditional onboarding process in a more seamless and automated manner. This means adopting a holistic and dynamic approach which leverages sophisticated technology such as artificial intelligence and machine learning, along with third party data to better identify potential financial crime activity. This combination is tailored to the particular business requirements and paints a truer reading of the individual applying for a loan. Past behaviour is analysed in detail and in a much shorter time frame. Misdemeanours and transactions are highlighted as well as credit history flagged. Together, these tools also uncover hidden attacks in the first instance as well as minimising false positive outcomes.

The result is not only a much more cost effective and efficient process for financial institutions, but more importantly provides an enhanced and more secure customer experience.

Additional Resources

Network Analytics + AI = the Future of AML

By now, we all know the statistics. It’s estimated that, in just one year, laundered money totals 2% to 5% of the global GDP. That amounts to a towering $2 trillion in US dollars. Traditional transaction monitoring approaches just aren’t equipped to win the money-laundering war. In fact, existing systems return false positive alerts as […]

Forward-thinking FIs see staffing shortages as an opportunity

Many have written volumes about the “new normal.” It’s pretty much a certainty that you’re tired reading about it, but the fact remains that the pandemic and ensuing events have altered the way both consumers and corporations function, and the banking industry is no exception. For financial institutions, one of the most disruptive consequences of […]

Sensa + NetReveal = A transformation of the FinCrime market

SymphonyAI has acquired NetReveal, a leading financial crime detection company, from BAE Systems. This is an exciting moment for all of us. It has the potential to shake up the industry and deliver a huge change in our collective ability to detect and combat financial crime. It is also an enormous recognition of the progress […]