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Best Practices and Strategies for Fraud Prevention

With global fraud rising beyond control, it’s vital that organizations implement effective fraud prevention policies and procedures that provide security while ensuring a quality customer experience. With the best practices for fraud prevention, businesses can onboard customers quickly and seamlessly.

In the year 2019, the loss because of identity fraud in the U.S was estimated at $16.9 billion. There are more than 40 types of fraud, and businesses need to figure out which type of fraud can affect their business the most and build strategies for fraud prevention accordingly.

The threat of cybercrime is increasing, with the annual cost to the global economy from cybercrime estimated to reach $6 trillion by 2021. Countless online threats pose a significant risk of fraud for businesses. Cybercrime can also break down the internal compliance process, or it can weaken control systems that can detect illicit activities. Top fraud prevention and detection strategies can even help in picking out the best fraud prevention technologies. 

Understanding the threats and the tactics used by fraudsters to create new fraud opportunities is important for the development of the best practices for fraud prevention.

Types of Online Fraud

Fraud detection is a huge problem for businesses because fraudsters are constantly innovating to keep tricking businesses. To keep up, strategies for fraud protection must also innovate to stay one step ahead.

Below are just some of the most common online fraud schemes that organizations should consider as part of their fraud prevention strategies.

1. New Account Fraud

New account fraud usually happens within 90 days of opening a new account. New account fraud is often referred to as application fraud or account origination fraud. As fraud happens so close to when the account was opened, the main purpose of the account was to commit fraud such as money laundering.

For businesses, new account fraud can be extremely dangerous as there’s no history with an existing business and no history of trust. The initial activities in the account may be small but they are often to cover future acts of fraud.

2. Card-Not-Present Fraud 

With the financial industry moving towards digital transformation, card-not-present fraud is something businesses would want to keep track of. There are huge risks of CNP fraud and the merchant is liable for any of the costs incurred during the fraud. 

To mitigate CNP fraud, businesses need effective fraud prevention strategies. By understanding the techniques that fraudsters use and the techniques available, you can develop and operate tactics that mitigate costs while being consumer-friendly.

Businesses should only rely on merchants that meet the Payment Card Industry Data Security Standard (PCI). The PCI is an industry-standard for payment organizations to develop standards for payment data security.

3. Identity Fraud

Identity fraud is when a person assumes the identity of another person without authorization to deceive or defraud someone. 

With most of our lives going digital, fraudsters have no limit to the means of acquiring personally identifiable information (PII). Also, the constant rise in data breaches is making it easier for fraudsters to acquire information that they can use to assume identities. 

The data stolen from data breaches can be brought for as low as $4 on the dark web. In upcoming years, the risk of ID fraud will grow even bigger for businesses with synthetic identity fraud.

Synthetic identity fraud (SIF) is a new and more dangerous type of ID fraud where fraudsters combine real PII with some fake ID data to create a completely new identity. One example of what comprises a fake identity is one that contains a real social security number along with fake addresses and other synthetic data points. Fraudsters can then use synthetic identities to get a driving license, credit cards, open bank accounts, and so on.

Managing FinTech Fraud: Bank-FinTech Partnerships for Better Fraud Prevention

Banks have to fight fraud from all directions and recently the situation is worsening. When a bank partners with a FinTech in a Banking-as-a-Service (BaaS) model, it mitigates risks by placing the responsibility for fraud losses onto FinTech. However, since the economics of the bank and FinTech are linked, it is in the bank’s interest to ensure that controls are in place to help FinTech partners fight fraud while protecting the bottom line.

Additionally, most frauds are financial fraud that requires assessment and sending of suspicious activity reports to the relevant regulatory bodies. This is the reason banks have to be extremely careful while choosing a FinTech to partner with. In this article, we’ll be outlining the risk a FinTech faces while detecting fraud and is there any reason how FinTechs can work together to protect their businesses.

Common Risks to FinTechs

In 2020, the number of fraud cases in that financial sector surged as more people went online for their banking needs. According to industry reports, over $1 trillion was lost globally to cybercrime in 2020. Fraudsters recently have been focusing on the FinTech industry. FinTechs are slowly changing the industry tides by developing cutting-edge technologies to detect and prevent fraud. FinTechs are extremely attractive to consumers, because of the digital environment, low entry bar, mobile-first security and so much more. These are the same reasons why FinTechs are extremely attractive fraudsters within days of launch. 

FinTechs that offer financial services will have to prepare for fraud and will struggle to survive with precious capital to cover the losses. FinTechs with traditional fraud prevention methods like CDD is vulnerable to attack. As FinTechs become a vital part of the financial industry, the risks will keep growing as consumers become more and more familiar with online banking.

Type of Fraud FinTechs Go Through

With the wave of digital transformation, online fraud has grown more than anything. The most common types of fraud include phishing, synthetic ID fraud, online account takeover fraud, and digital transaction fraud. 

1. Phishing

Phishing scams are extremely common, they rely on tricking individuals by unknowingly volunteering personal details or information that can then be used for creating fake bank accounts, and credit cards. Fraudsters who carry out phishing scams build a fraudulent website, a fake text impersonating a government or private entity.

2. Synthetic ID Fraud

Synthetic ID fraud is one of the biggest challenges for financial institutions as of now. To commit synthetic ID fraud, fraudsters combine real “personally identifiable information” and fake information to combine a whole new identity. Such as a legitimate social security number from people who don’t use their credit (child, homeless people, deceased individuals, or someone else), combining that real information with a fake address, phone number, or fake social media accounts. Then this synthetic ID is used to open bank accounts, apply for credit cards and commit more illegal activities.

The first request is obviously denied, but the first application puts that fake identity into the credit reporting system, legitimizing the fake identity. The fraudsters will keep applying for credit cards, switching markets and providers with less mature identity verification processes until the fraudster finally get their hands on credit cards. 

3. Account Takeover Fraud

One of the biggest challenges faced by FinTechs is Account Takeover Fraud, it costs the whole industry billions per year. Account takeover fraud and account opening fraud cause the most problems. More than 50% of businesses reported higher losses due to account opening and account takeover compared to any other type of fraud. 

Account takeover fraud is a situation where a fraudster takes control of a legit business account that belongs to someone else. Account opening fraud on the other hand happens whenever a fraudster opens a new account using a fake, stolen, or synthetic ID. 

4. Transaction Fraud

Transaction fraud is another common type of fraud where a stolen payment card is used to complete an illegal transaction. Since FinTechs are pretty good at completing real-time transactions, they are also at risk of running into transactional fraud. Quicker transaction times are one of the major factors that fraudsters look for in committing transactional fraud.

Transaction fraud can happen at any given time during a financial relationship. Account creation, login, and wherever money flows in and out of FinTech’s systems such as deposits, payments to merchants, withdrawals, etc.

Implementing Anti-Fraud Technologies During Account Creation

The steps for detecting and eliminating fraud should happen during all stages of a customer-business relationship. Businesses and financial institutions need to prevent bad actors from entering their systems, which can help significantly reduce fraud. 

To build the perfect anti-fraud technology & strategies to reduce fraud, businesses must use a combination of identity verification and authentication methods to deliver the ideal level of risk protection. Here are some of the most common fraud-prevention methods:

1. Identity Verification

Before a new account is opened, Identity verification technologies and procedures can detect potential fraudsters and prevent future damages. Anomalies in a person’s identity documents such as out-of-date information, mismatched data, and even the smallest red flags demand further examination. By cross-referencing multiple data points and data sources for ID checks, financial institutions can create stronger barriers for fraudsters.

While ID verification is extremely important, it shouldn’t create friction for legitimate customers. Finding the balance between a secure ID verification process and a positive customer experience is something financial institutions have to do. 

2. Biometric Authentication

Biometric authentication is another huge part of fraud detection and prevention for financial institutions. Biometric authentication authenticates a person by distinguishing biological traits to uniquely identify a person. Combining online document verification with biometric authentication provides multi-fold authentication for financial institutions. If done properly, this can help eliminate fraud while successfully maintaining a positive customer experience. 

3. MobileID Checks

Smartphones can help financial institutions prevent fraud by collecting a significant amount of ID data, including name, mobile number, address, and device information. To make a proper image of customer identity, this data can be cross-referenced with other ID data points. Mobile ID data can help financial institutions authenticate the individual, and the data collected can also help in finding potential future risks.

Collaborating With Banks for Better Fraud Prevention

As the fraudulent landscape becomes increasingly more complex, it becomes tough for banks and FinTechs to detect suspicious transactions and prevent illegal activities. Fraud prevention solutions that leverage data learning and machine learning can help FinTechs better safeguard themselves and detect fraudulent actions. 

By collaborating with banks, FinTechs can take a better approach to financial fraud prevention. Banks can bring their expertise to comply with ever-changing KYC, KYB, and AML regulations. Whereas, FinTechs can play their part and bring in much-needed technological expertise. Financial technologies such as online document verification software, online bank account verification software, and utility bill verification software tend to enhance the overall fraud detection and prevention programs. With a proper collaborative approach, FinTechs and banks (or other financial institutions) can fulfill the need for digital transformation, while ensuring a positive customer experience and preventing fraud.

Fraud Prevention Technologies for Financial Institutions

Businesses can build as many best practices for fraud prevention as they want, but without the help of the right technologies, fraudsters will find a way to sneak into the systems. By integrating technologies into the fraud prevention workflow, financial institutions can eliminate most of the major risks of fraud. 

DIRO’s online document verification service helps businesses with proof of address verification, bank account ownership verification and so much more to eliminate fraud. DIRO verifies over 7,000 document types from all over the globe instantly and provides stronger proof of authentication. By integrating DIRO into the workflow, businesses can successfully comply with AML and KYC regulations while ensuring a positive customer experience.

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UK Payments Changes after Brexit

For businesses operating globally, UK payments are some of the most challenging types of payments after the implementation of Brexit. While the vote that decided the UK’s departure from Europe took place in 2016, the changes brought forth by Brexit only came into existence in January 2021. Not just customers, but the impact of Brexit is going to be a challenge for international eCommerce businesses that also operate in the UK.

Online shopping was incredibly popular in the UK even before the Covid-19 pandemic. After the pandemic, the online shopping industry has become supercharged, and compared to their European counterparts, UK shoppers spend on average per capita (€3,344 compared to €2,184.24 spent by the average European).

As a matter of fact, the UK is the third-largest global eCommerce market, right behind the USA and China. eCommerce businesses selling to the UK have to make sure that they’re keeping up with the potential impact of Brexit on payments and shipping procedures.

How does Brexit Impact eCommerce Merchants?

If you sell products to the UK from Europe or any other country, you need to know about all the ways Brexit can impact your eCommerce business. Brexit can impact a business’s ability to accept payments from UK customers. 

  • Currency Fluctuations: The volatility in pound sterling exchange could impact the profits you make from your sales. If you charge in your native currency, while the pound is performing low, the UK customers will feel the prices are expensive and they’ll search somewhere else. Another option is to charge customers in Pound sterling, after looking at whether you need to adjust prices to consider the price fluctuations. Generally, charging in native currencies is a great practice for cross-border eCommerce that can improve sales and profit margins while reducing the sale abandonment process.
  • EU Passporting: Financial services businesses operating in the UK will no longer be entitled to provide in the EU without additional authority. The UK leaving the EU makes it a “third country” and thus businesses there lose the “EU Passport”, in turn limiting the international payments between the two countries. 
  • Changes in Local Payments: As the definition of European countries can differ between card schemes and other payment methods, local online payment methods are sure to be affected. Using a payment method that provides you access to local payment methods can help with local currency settlements and cross-border fees acceptance makes the process much better for merchants. 
  • No Freedom of Movement: Now that the UK has removed itself from the EU, there are stricter customs regulations, and goods from global merchants are taking longer to arrive. To mitigate this challenge, if your business has lots of customers from the UK, it’s worth keeping a percentage of it at a local warehouse to reduce shipping time to customers. Using a third-party fulfillment service in the UK for storage to avoid future issues.
  • Volatile Trade Rules: With the relationships between the EU and UK in jeopardy, merchants will stay up to date on new changes and all the situations surrounding them. The UK government website is a good start in terms of staying informed. 

What to Consider While Accepting Payments in the UK?

  • Keeping up-to-date on current situations and regulations around accepting payments from the UK.
  • Make sure that the price you offer to consumers considers potential changes – or do you need to adjust prices for UK consumers?
  • Offer preferred local payment methods to encourage UK consumers to stay loyal.
  • Check new VAT rules for the EU and other countries selling products and services to the UK.
  • If you already sell to both the UK and EU, you’ll now need a UK EORI (Economic Operator Registration and Identification Number) as well as EU EORI.

Brexit and New Payments: Keeping Your Business Ready

The complete impact of Brexit on accepting UK payments may not be clear, but it’s also worth being ready in advance to avoid making crucial mistakes. Many UK consumers will be experiencing a variety of challenges because of the changes, and if you can make their eCommerce experience as smooth as possible, they won’t leave your business for other customers.

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5 Biggest Challenges of Digital ID Verification

Now that everything is going digital, businesses need to verify more and more consumers who they say they are. Digital ID verification is the process of verifying a customer’s identity electronically. This includes authenticating the attributes of a person and then verifying that these attributes belong to a real person. This allows the company to create a digital credential for a person, thus allowing them access to anything from banking apps to borrowing institutions, and more.

ID verification has three different types:

  • Biographical information: User’s name or age
  • A trusted ID document: a user’s passport or driver’s license
  • Biometric data: User’s fingerprint or facial image

Online ID verification services use a combination of these services to build a legit user profile for a person. The number of people who want and are currently using digital services is increasing rapidly. So, it makes sense that businesses need to invest in online ID verification technologies. 

Challenges Faced in Digital ID Verification

1. Variety of Documents

On average, there are over 6,000 types of documents globally that can be used for ID verification. Each document type has its own unique protection against fraud, but some documents are easier to forge than other documents. 

To verify an ID document and authenticate a user’s identity, an image of the ID, the visible data on the ID, and any additional information stored within the document. Once the data is extracted, it is analyzed for authenticity.

Even if you limit the type of ID documents a student can use to verify themselves, complex algorithms are required to identify which document type the ID is. 

2. Evolving Biometric Forgery

Once the ID document has been verified, the next step is to confirm the validity of the applicant, but are the customers who they say they are. This is done by comparing the facial image with the photo on the ID document. Some companies can even choose to ask for face liveness detection.

This step of ID validation also has its issues. It is more than common for a legit user to fail a facial matching exercise due to bad lighting conditions. Additionally, instances of biometric data forging are becoming common. 

3. Building for Everyone

According to some reports, over 1.1 billion people globally don’t have any sort of official ID document. It is impossible for a business to verify a person with ID documents if they don’t have any documents, to begin with. When developing a digital identity verification service for the public, it is important to think about the potential users who:

  • Are not digitally literate
  • Don’t have clear migration status
  • Cannot provide biometrics due to physical appearances or features
  • Have opposing religious or personal beliefs to the capture of biometrics.

4. Finding Balance between Compliance and User Experience

Financial institutions, banks, and other firms have to follow through on strict regulations. These regulations differ company by company. For these businesses, they need to have a strong online ID verification process. Additionally, they need to focus on seamless customer experience. Most customers care more about a smooth experience while onboarding instead of a strict, and secure process. 

When developing ID verification services, businesses need to carefully plan acceptable thresholds for rejection, which balances out the risk of potentially accepting fraudulent identities.

5. Privacy, Data Security & Trust

Privacy controls are essential for services that rely completely on personal, biographic, or biometric data. Legally, users need to stay informed about how their data is being managed, stored, and maintained. Banks and financial institutions should also provide a certain degree of control over the consumer’s data. 

The introduction of the European GDPR has helped in protecting the data of the consumers, but governments and businesses need to build their frameworks for data management. This can include providing control over data. 

Reducing the risk of security breaches and improving how a business handles the data is crucial for all kinds of business. 

Final Take: Challenges for Digital ID Verification

It doesn’t matter how big or small the business is, every step in digitization needs some challenges to be addressed. The key to building a successful digital ID verification is finding the perfect mid-point between the user’s experience and security. Companies should also focus on handling all the privacy and security needs. Maintaining all this, and still keeping a high customer onboarding rate is the perfect strategy for fraud deterring.

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Customer Onboarding Costs: Simple Steps to Reduce Expenses and Enhance the Process

Onboarding new customers have always been a challenge, be it a manual process or digital customer onboarding. Up until a few years ago, customer onboarding included standing in lines, slow manual document verification, and a waiting period ranging up to a few weeks. Fortunately, the pandemic took the standing in lines out of the equation. If not done properly, customer onboarding costs can go through the roof, and still, the customer experience won’t improve.

Signing up new customers should be a simple, fast and seamless process. However, most banks, financial institutions, and other businesses fail to provide a good customer experience. Every additional 5 minutes in a customer onboarding process increases the abandonment rate, thus increasing the customer acquisition costs.

By offering a seamless and positive customer experience, you’re showing your users that they’ve picked a brand that cares. However, creating a seamless, friction-proof customer onboarding process isn’t easy, here are the 5 ways you can avoid the increasing customer onboarding costs:

Steps to Reduce Customer Onboarding Costs

1. Speed up the Process

The primary reason for the increased rate of customer drop-off rate is the speed of the abandonment process. If your process takes days or weeks to confirm if a customer will be approved or rejected then you need to change the process. Most customers won’t wait that long and move towards a competitor that can provide a better experience. 

Businesses need to stay on top of the changes in industry regulations and perform the needed KYC and Due Diligence Checks while customer onboarding. However, relying on human resources to conduct KYC/AML and other checks while providing fast and accurate results are impossible. That’s where the integration of technology comes in.

2. Reduce the Number of False Positives & Negatives

Since industries of all kinds are forced towards digital transformation, fraud detection and prevention have become tougher. Fraudsters can easily create fake documents and identities that can pass as real persons. Too many false negatives mean that fraudsters are easily slipping past your defense mechanism and too many false positives mean that genuine customers are getting flagged as fraudsters and potential risk elements. The inability of reducing the number of false positives and negatives results in business loss.

Organizations need to find the fine line between fraud and friction. They need to pick fraud detection and prevention solutions that can effectively separate legit users and bad actors. According to a report, the eCommerce industry will experience false-positive losses of $443 Billion by the year 2022.

3. Update the ID Verification Methods

Traditional checks still hold some value, but outdated methods like checking credit history often result in good customers abandoning the process of being rejected by businesses. The majority of millennials don’t have CRA data and that’s one of the reasons why they are rejected. In countries where this type of data isn’t available or available with difficulty, an automated process of verification can make a lot of difference. 

By utilizing and analyzing other data sources, businesses can easily enhance their ID verification process while still providing a secure and fast onboarding experience.

4. Automation is Necessary

Technology has penetrated every aspect of our lives, and excluding it from basic business operations will only increase customer onboarding costs. Relying on manual processes is costly, ineffective, onerous, and prone to human error. Customers are unable to track their application status and there are thousands of other things that can go wrong with manual processes. 

Banks that have automated their manual processes have achieved a 32% reduction in lost documents, and have reduced the processing time by almost 60%. Automation also helped banks in reducing their storage, handling, and transportation costs by more than 35%. 

Needless to say, automated customer onboarding is faster, more accurate, and more efficient.

5. Mobile Friendliness For Better Experience

Allowing onboarding through mobile devices makes the process more accurate, and fast. The mobile onboarding process also comes with its own set of challenges, the inability of conquering these barriers can also lead to an increased drop-out rate.

 According to several studies, more than 50% of Millennials will abandon the application process if they are unable to complete it on their smartphones. That’s the reason why mobile-friendly services have a more competitive edge across industries.

How does DIRO Help?

To reduce and avoid the increased customer onboarding costs, banks and financial institutions need the help of a tool that makes their process smooth. 

With DIRO’s online document verification software, onboarding customers is easier than ever. Document verification is instantaneous with DIRO with a stronger proof of verification. DIRO’s online document verification tool can verify over 7000 document types from all over the globe by cross-referencing document data from original web sources. This results in 100% elimination of the use of forged and stolen documents during the onboarding process. By integrating DIRO’s online document verification technology in the customer onboarding workflow, firms can cut down on both time and costs while providing a secure and good customer experience.

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Financial API Integration

Over the last decade, a new financial landscape has come into existence using APIs. This ecosystem is interconnected, and open, and leads to building an array of new financial services that offer people more freedom to handle their finances. In this guide, we’ll walk you through what financial API integrations are and how they work. Also, how financial API integrations help both businesses and consumers.

Understanding Financial API Integrations

Application programming interfaces (APIs) are a set of tools and protocols that allow software programs to communicate with each other. API integration helps in connecting two or more applications together and allows for seamless exchange of data. 

Financial APIs are most often made to integrate a bank’s and financial institution’s core banking platform with third-party data networks and applications. This allows for safe and secure consumer-consented third-party access to essential account information such as account and routing numbers, balances, and transactional history. These financial API integrations allow these trusted third parties, be it FinTechs, mortgage, and auto lenders, or any other financial institutions, to build data-driven financial solutions.

How does Financial API Integration Work?

Based on how they’re used, financial API integrations can serve several roles, such as:

1. Partner API (One-to-One)

When financial API integrations are built directly to work between a financial institution and a financial app or service they’re known as partner APIs. These types of APIs are built when a financial institution uses a third-party vendor that builds a FinTech solution for them. These solutions are perfect for customers of a single institution, instead of being available to the general public.

2. Open API (Many-to-Many)

Open banking APIs are usually built by data networks, rather than by financial institutions or by a third-party vendor. By building API integrations with several financial institutions, the data network creates an open API that can connect several financial institutions for many FinTechs and services. 

In this situation, a FinTech app wants to allow customers from several financial institutions to connect their accounts to the app. The work of building API connections to each financial institution is carried out by a data network.

The term Open Finance comes from open banking APIs. In the open finance ecosystem, consumers have complete control over their financial data, and by letting third-party access consumer data, consumers can gain access to personalized services.

Types of API Integrations

There’s no limit on the type of APIs and the role they serve for businesses and consumers. Below, we have mentioned some of the most useful APIs that have been changing the financial landscape:

1. Account Verification

Account takeover fraud has become a common instance in recent times. Financial institutions have no way to verify if a consumer who’s trying to access a new FinTech app or service is legit or not. The new account that’s being created needs to be verified. This is the first step toward funding a new account on a trading app or connecting a bank account to a P2P payments platform.

The account verification process then verifies if the person using the account actually owns the account. This is crucial for preventing account takeover fraud. DIRO’s bank account verification fraud helps banks and FinTechs in verifying if an account is being used by the legit owner or not.

2. Balance

Once consumers authenticate their accounts, they can grant permission to different types of account data to digital financial tools that they want to use. One of these data is the account balance, by verifying a user has enough funds in their account, FinTechs can prevent users from going into a loss by making a transaction over their account balance. 

Balance-checking APIs also offer pre-funding, and if a new customer wants to add money to the FinTech app, the API will check if the person has enough balance in your account to handle the cost. Thus saving the consumer from the risk of non-sufficient fees. 

3. Transactions

A transaction API allows a bank, financial institution, or FinTechs to access a customer’s transaction data going from the past couple of months and years. This crucial data is vital for making personalized financial services possible. 

4. Account Aggregation

Most consumers have several accounts for checking, savings, loans, investments, credit cards, and more. It can get hard for users to manage all this data, so account aggregation APIs create a dashboard for users to manage their data in one place. 

Let’s say someone wants to access their entire investment portfolio in one place and show changes made in real-time. API integration between their investment accounts and a FinTech app could offer a solution.

An API integration that can automatically connect all the information and share it with the lender during the application process can greatly reduce manual efforts.

Benefits of API Integrations

Financial API integrations make it possible to fill the gaps left by basic banking services. This leaves room for private companies to create personalized financial services with ease. These services help in making several processes faster, more efficient, and more secure for consumers. 

The benefits of financial APIs can be broken down into 4 groups such as:

  • Financial institutions
  • FinTech companies
  • Consumers
  • Non-financial businesses

Need for a Connected Ecosystem

Financial APIs are becoming more and more essential for financial institutions, FinTechs, and consumers. Financial APIs allow for new possibilities that financial institutions and FinTech apps alone couldn’t provide. 

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Steps for Digital Transformation in Banking Industry

Consumers’ expectations from banks are changing and the need for seamless and efficient processes is growing. Banking Digital transformation helps banks evolve and stay competitive. Most banks have a huge task ahead of themselves and they need to step up to customer expectations to stay relevant in changing times. 

As per data collected through a survey, 14% of the US consumers were looking forward to changing banks, with 43% of customers planning to do so in the next 3 months. To retain customers and gain new ones, banks and financial institutions need to invest in digital and on-demand services. Customers who are on the market looking for a new bank will definitely prefer the ones that offer services beyond their expectations. This can be achieved by digital transformation in the banking industry

The financial services industry has been under huge turmoil in recent years, as tech companies have made subscription-based and on-demand services a normal habit. This unique environment has also entered the financial services industry. FinTechs have been filling the gaps that traditional banks lack. This newfound preference for FinTechs over banks is challenging for large financial institutions, as they need to innovate. This is why digital transformation in banking and financial services is becoming a necessity. 

Most financial institutions have started investing in digital transformation, and a lot of them are still struggling to keep their customers happy. In this article, we’ve mentioned the steps for successful digital transformation that banks can follow.

Best Steps for Successful Banking Digital Transformation

1. Leaders Should Focus on Innovation

Digital transformation in the banking industry requires huge changes and a cultural re-vamp. For innovation to be a major part of the industry, it needs to come from the top management to the lower level. To make this happen requires bringing in new leaders who have innovation experience. 

To embrace digital transformation in banking and financial services, leaders should be the ones who try to implement innovative solutions the most. The innovative ideas should focus on long-term ROI and should help in building a lasting competitive advantage rather than attempting to avoid the short-term costs of making impactful structural changes. 

To make sure the innovative processes are working ideally, there are six areas to focus on:

  • Skills: Build teams that have the skills to adapt to new methods
  • Security: Gain customers’ trust by providing data security
  • Stability: Create resilience in IT systems to ensure that digital and online apps don’t experience downtime
  • Scalability: The solutions should be able to scale up or down to meet changing customer requirements
  • Speed: Focus on building multi-functional teams that can handle several projects at once and can reduce time.
  • Satisfaction: Make sure that customers are satisfied with the end product.

2. Unlock Data Framework

Software built-in in older times didn’t take data integration in mind. Keeping customers’ financial data in silos that can’t be easily accessed outside the company. This is changing as people want to access their money anytime, anywhere. 

With the digital payments apps of today, it’s almost seamless to send and receive to friends and businesses. If a particular bank can’t connect to these third-party payment services, customers will switch to a bank that can. 

Financial institutions need to invest to build better online customer experiences, financial institutions should invest in a centralized data-linking system. To get a data linking system, financial institutions can either build one from scratch or choose a third-party vendor that can do the heavy work themselves.

3. Build Data Partnerships

Internal data is valuable, but it doesn’t provide the full picture of your customers’ financial lives. To offer the best products and services, you have to be able to access permissioned data from financial accounts they hold somewhere else. Up until recently, accessing consumer financial data from outside banks was next to impossible. But, in the last ten years, there are several technology companies that allow banks to do that. 

For retail baking customers, linking an external account is relatively simple. They select their outside bank and enter the username and password for those accounts. 

Data partnerships can paint the complete picture of a customer’s financial life, providing banks with the ability to build solutions that are able to keep up with customer demands. This can help in refinancing their mortgage at a lower rate or offer to target savings tips. 

In addition to data partnerships, banks can also consider relying on open banking API infrastructure that makes data sharing seamless. Partners like these can be a good solution for resource-limited banks that want to follow the digital transformation in banking industry.

4. Recruit Technical Talent

Technical talent is critical for successful digital transformation in the banking industry. Without proper technical talent, financial institutions can’t build the much-needed solutions. 

Recruiting high-performing product managers, designers, and software engineers start with building an innovative environment. Financial institutions aren’t exactly perceived as tech giants, so most technical talents don’t wish to work for financial institutions. According to a report, 50% of financial institutions say that they have challenges in finding IT talent. 

Fortunately, the culture is shifting, so banks need to offer enticing incentives for IT professionals. An ideal solution is to offer salaries that are up to par with top IT companies such as Google and Amazon. This may be the only way to recruit several tech workers, and possibly the most effective solution.

5. Focus on Solving Customer Pain Problem

Once a bank gathers data and the people they need, it can probably identify the gaps that digital transformation can fill. For example, a bank’s data team may need to find a significant number of customers, the problem they’re facing, and how to fix them. 

Addressing issues customers face can involve working with designers and engineers to build innovative solutions that can fix the pain problems. This is one of the biggest benefits of digital transformation in banking, as it focuses on improving customer experience.

6. Adopt a Product Mindset

Digital transformation in the banking industry isn’t a one-off process, it’s a continuous process. Ahead evolving customer expectations require having a product-focused mindset.

Here are some of the key factors financial institutions need to keep in mind:

  • Identify a key performance metric to improve upon
  • Get to know the needs of your audience and the type of problems they’re facing
  • Figure out ideas on how to solve the problems for the target audience
  • Identify the top 3 ideas and build prototype solutions around them for testing
  • Measure the impact of those tests and evaluate their results.
  • Choose the most ideal process and implement it

7. Choose Carefully Between Building and Buying

Not every financial institution can shell out millions of dollars annually for seamless digital transformation. For most banks, the challenge is how to deploy limited resources in the most impactful way. To make the digital transformation successful, banks and financial institutions need to decide which solutions to build and which technologies to buy. 

Let’s say, if an institution has an amazing onboarding flow, they should build upon it and make sure that they boost the process. They can do this by updating their existing technology or getting third-party technologies such as online document verification solutions or other solutions to enhance the process.

Digital Transformation In Banking Can Overcome Consumer Problems

The financial services industry is changing and is soon to be disrupted by external factors such as FinTech and cryptocurrency. Under these circumstances, history has shown that only a couple of players stand tall at the end. Others either go out of business, get acquired, or slowly go toward the decline. The great news is that the standing players come out stronger than ever.

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Information about New Indian Digital Currency

If you don’t know already, the Digital Rupee is India’s own regulated cryptocurrency that will be soon launched by the RBI. On February 1, while announcing the annual budget for 2022-23, Union Finance Minister “Nirmala Sitharaman” announced to the whole country that RBI will be launching an Indian digital currency in the financial year 2022-23. The currency will be called “Digital Rupee” and will be based on blockchain technology. Digital Rupee will be the rival for other cryptocurrencies such as Bitcoin, Ethereum, and more. There’s a lot of speculation about the Indian Digital Rupee. 

During the budget announcement, the finance minister said that India’s digital currency will be launched by the Reserve Bank of India (RBI). She also stated that the Indian rupee digital currency will be a cheaper and more efficient method of sending and receiving money throughout the country. The launch of the new Indian digital currency is already under work with RBI making sure every step is followed through carefully. The RBI is working on an implementation strategy that makes sure that every part of the general populace has access to the currency while ensuring the safety of the users. As of now, there’s no set/fixed Indian digital currency launch date.  

The Digital Rupee can help the country lessen the usage of the older cash system.

Indian Digital Rupee: Coming This Year?

New Indian digital currency will operate on the well-known blockchain technology, which is the basis for all the other cryptocurrencies globally. There’s no news on whether or not users will be able to mine the currency, if yes, will it be considered legal?

India isn’t the first country to launch its own cryptocurrency. Before the Indian rupee digital currency, China already started and tested its cryptocurrency in several cities. The US and UK governments have also been considering starting their own cryptocurrency. 

While the government hasn’t proposed any bills on crypto, the two primary regulatory clarifications from the finance minister have made it clear that digital currency is a growing industry. As RBI will be launching the cryptocurrency, there will be some heavy regulations surrounding the currency, ensuring safety, efficiency, and fair transactions. Plus, as RBI will be entering the blockchain scene, it suggests that governments are seeing the benefits of blockchain technology and how it can help the consumers. 

Although, the hefty 30% tax on crypto transfer gains is sure to halt the new users entering the space. From here on, we can only wait and see where this Digital Rupee idea proposed by the Indian Government will head to.

What is CBDC in India?

Central Bank Digital Currency is what CBDC stands for. CBDC is the legal tender issued by a central bank in digital form, it’s the same as a fiat currency and is exchangeable one-to-one with fiat currency. The only difference between the two is their form.

What’s the Difference Between CBD & Cryptocurrency?

CBDC is a digital or virtual currency, but it’s not similar to other private currencies that have gained popularity over the last decade. As per the RBI, virtual currencies aren’t as useful as traditional money as they aren’t commodities and they have no intrinsic value. Whereas a CBDC is centralized, cryptocurrencies are decentralized and don’t represent the finances of a particular person or entity. 

The CBDC can also reduce transaction demand for bank deposits, but they reduce settlement risks, being-risk free, CBDC can lead to a shift from traditional banking services. If banks lose deposits, their ability to create credit will be limited and central banks can’t provide credit to the private sector. 

What’s the Need for CBDC in India?

There’s been a slow yet accelerating shift of digital payments combined with an all-time low interest in cash usage, especially for small value transactions. While CBDC is highly unlikely to replace the use of cash, the currency to GDP ratio, if switched to CBDC, would cut the cost of printing, transporting, storing, and distribution of physical currency.

Future Plans by RBI

The RBI has been figuring out the use cases and building an implementation strategy for introducing the CBDC with almost zero disruption to the cash-only economy. According to the Central Bank, several crucial elements need to be designed and tested before the digital rupee in the form of CBDC can be introduced. The RBI is working out implementation models and strategies, and use cases of the digital currency.

When’s the Expected Launch of Digital Rupee?

Even if the RBI is ready to launch the Digital Rupee for everyone, it’s impossible before the crypto law is passed and approved in Parliament. Some changes will be required in the RBI Act as well before the digital rupee is launched in India. Some of the most crucial changes in the RBI Act are:

  • Coinage Act
  • FEMA
  • Information Technology Act

Without the crypto bill, and small changes in the RBI Act, there’s no way that the Indian digital rupee is launched in the country. 

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Guide on Types of Cryptocurrency Fraud

Almost everyone who wants to invest their money has looked towards cryptocurrencies at least once in the last few years. Cryptocurrencies like Bitcoin, Ethereum, Solana, and a few more are taking the investment market by storm. Most people invest in cryptocurrencies with the prospect of becoming rich instantly. This leads them to risk and invest in risky or complete scams instead of actual beneficial currencies. There are several types of cryptocurrency fraud and it’s easy to become prey if you’re not careful. 

Digital currencies or cryptocurrencies aren’t backed by a central entity or any government. And yet, you can use crypto for the sale and purchase of goods and services. You can even exchange it for any conventional currency. Unlike conventional currencies like the dollar or the pound, the value of cryptocurrencies is driven solely by demand and supply. That’s why the crypto market is extremely volatile, and it can bring tons of losses for those looking to get rich quickly.

As the value of crypto has exploded, so has the amount of crypto fraud. The Federal Trade Commission received almost 7,000 complaints of cryptocurrency fraud from October 2020 to March 2021. The accumulated losses in these reported instances of fraud reached up to $80 million. 

To make sure that you can identify and prevent cryptocurrency fraud, we’ve created this guide of common types of crypto fraud. 

Common Types of Cryptocurrency Fraud

While the cryptocurrency in itself is a new scam for most people, the fraud is mostly a rehash of classic scams. Some of the most common crypto fraud are:

1. Fake Websites

Fake website scams aren’t anything new. They’re often full of fake testimonials, technical jargon, fake profiles, and reviews to trick a user. Fake website scams in crypto often promise guaranteed profits or quick earnings. Those who aren’t familiar with how crypto works end up investing and losing their money.

2. Celebrity Endorsement

A new type of scam that has emerged with crypto’s success is celebrity endorsement. Masses of the population will buy crypto if it’s promoted by a huge celebrity. A recent example of this is Elon Musk’s tweet about Dogecoin.

Con artists pose as online billionaires successful businesses or well-known celebrities to trick you into buying the currency. 

3. Pump-and-Dump

Pump and dump is another scam that came into existence with cryptocurrency. Using messaging apps or social media, crypto promoters try to promote a currency with any means necessary. Their aim is to lure investors to buy, drive up the price and then sell the stake, which then causes the value of the currency to drop. Elon Musk and Dogecoin is the primary example of this. While that can’t be categorized as a scam, it’s categorized as influencing.

4. Ponzi Schemes

Fraudsters and con artists try to sell crypto by creating the illusion of big and guaranteed profits by investing in a particular currency. Federal authorities are pursuing criminal and civil cases against one such scam known as BitConnect, which raised more than $2 billion before it was shut down. 

5. Romance Scams

Fraudsters assume the identities of someone else on social media, dating platforms, and other online channels and try to persuade someone from the opposite gender to invest in a particular currency. The FBI’s Internet Crime Complaint Center (IC3) received more than 2,000 reports of crypto-based romance scams in 2021. The total losses from these types of scams reached $133 million in just 7 months of 2021.

6. Fake Wallet, Exchange, or Custodian

Not only individuals, but businesses also deal with several types of crypto fraud. Most of them involve a fake crypto digital wallet, exchange, or a fraudster assuming the identity of a custodian. As of now, there aren’t many solutions that can help businesses be vigilant about this type of crypto fraud.

Warning Signs about Crypto Fraud

There is some basic information that you can keep in mind while dealing with cryptocurrencies. The best way to prevent being a prey of a crypto scam is by looking out for warning signs. Here are some of the most common warning signs of crypto fraud:

  • Some unknown person sends you a text out of the blue regarding crypto investments. If they’re trying to get you to invest in particular crypto.
  • The pitch for a crypto investment claims that there’s no risk involved or promises guaranteed returns.
  • A call, text, email, or social media message claiming to be from a government entity, utility, or any other entity asking to pay bills with cryptocurrencies.

How to Prevent Crypto Fraud?

It’s becoming relatively easy for fraudsters to trick a business with fake or falsified wallet, exchange or custodian information. As a lot of businesses are becoming crypto-friendly, fraudsters are trying to trick them. 

Without the use of proper technologies, businesses can’t distinguish between a real person and a fake one. DIRO can instantly verify crypto account information within 90 seconds with automated user consent and impersonation check-in over 195 counties. 

The output is a machine-readable JSON file that is accepted as a court-admissible document in case of fraud. DIRO’s crypto verification API allows for real-time verification, thus reducing friction for legit customers and preventing fraud during the initial stages. 

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Best Fraud Prevention Tips for Digital Currencies

Cryptocurrencies and digital currency trading and exchange platforms have been becoming increasingly common in recent times. For the first time, investors and crypto enthusiasts entered the market because of the sudden boom in the value of Bitcoin. As cryptocurrency’s core nature is anonymity, financial institutions are becoming increasingly aware of a rise in money laundering cases. To minimize the risk of fraud in digital currencies, financial institutions need to follow the best fraud prevention tips for digital currencies.

The nature of cryptocurrency relies on exchanging coins online or via a phone or computer. This also means that payments can be made almost instantaneously and without many legal protocols. Credit and debit cards have legal protection, this allows you to dispute a payment and get your funds back in case of fraudulent activity. With cryptocurrencies, reversing payment isn’t possible unless the exchange itself has regulations regarding it. 

With the growing interest in cryptocurrencies, the rate of money laundering fraud is also increasing. There are also a series of third-party websites that offer cryptocurrency mining opportunities. The use of these sites will boost the growth of new cryptocurrencies and provide a base of credibility for upcoming currencies.

Digital fraud is also increasingly committed by tricking crypto enthusiasts and new investors into sharing their personal details including bank statements and ID documents to make an investment or deposit into a legit business. These stolen bank details can be used to deposit money out of a person’s accounts and move it into a fraudster’s behavior. 

Digital currency fraud including growing and well-known cryptocurrencies is becoming increasingly common. Plus, fraudsters are becoming increasingly sophisticated. This is making it harder for financial institutions to detect fraud.

We’ve come up with a list of the best fraud protection tips for digital currencies that can be followed by individuals and financial institutions.

Most Popular Online Scams

1. Social Engineering

Social engineering scams involve tricking customers into sharing their personal information. There are only two types of social engineering scams that you can find online including digital currencies:

  • Baiting Scams: Baiting scams include tricking customers by offering them something. The scams usually are based on impersonating an investment professional, a representative of a legit crypto firm, or a representative of a non-existent entity. Scammers tend to offer special rewards or extra earnings to trick customers into divulging their personal information.
  • Scareware: A scareware attack involves customers being tricked by false threats and alarms. If you’ve ever visited a third-party website, you must have seen a pop-up something along the lines of “Your Device is Being Attacked”. 

2. Phishing Scams

When it comes to the cryptocurrency industry, phishing scams trick customers into providing their information regarding digital wallets. Specifically, hackers are interested in crypto wallets’ private keys. Scammers will try to take control of customer e-wallets and encourage you to disclose your password or other authentication measures. A phishing email asking you to share your information regarding digital wallets.

3. Website Cloning

More sophisticated scammers are able to create a webpage that looks exactly like the original e-wallet website. Once you try to log in to the fake website the fraudster will have access to your information. Once you pay a little more attention to the website, you’ll find some inaccuracies. These types of sites can usually be identified by differences in the URL link.

How to Prevent Digital Cryptocurrency Fraud?

As cryptocurrencies are becoming increasingly popular globally, crypto exchanges have to comply with KYC regulations and AML regulations. Customers are required to complete thorough ID verification for consumers in order to buy and sell cryptocurrencies.

Here are the best fraud prevention tips for digital currencies:

  • Familiarize yourself with all the basic fraud prevention tips offered by your crypto exchange provider.
  • Check email addresses and contact names thoroughly before conducting any activity.
  • Make sure to not share sensitive data such as personal details, passwords, and card numbers with new sites.
  • Keep on the lookout for clone websites or website URLs.
  • Don’t sign up with crypto exchanges that don’t comply with KYC or AML regulations.

If you feel like you’ve been a victim of fraud, then the first thing you need to do is report it to the nearest authority.