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Future of Open Banking: Why Banks Need to Take the First Step?

open banking

The digital revolution for banks and financial institutions is underway at full speed. While the major tipping point for digital transformation in the financial industry was the COVID-19 pandemic, the seeds of a secure and agile digital environment were available in the industry. Banks and financial institutions were trying their best to keep up with the increasing rate of demand for digital services.

The events of 2020 only pushed the already existing demand for digital transactions and interactions. As banks and financial institutions make way toward digitization, the concept of Open Banking and Open Finance seems even more enticing. Open Banking is sure to help banks stay competitive, provide a series of personalized products and services and enhance the financial institutions to a greater level. 

Open banking is enabling banks to be more innovative and try a thing that has never been tried before. The slow yet steady shift to open banking is underway in Europe, Hong Kong, and Singapore. Consumer protection rights, especially PSD2 which was released in January 2018, are the primary reason behind the adoption of Open Banking in Europe. After President Joe Biden’s statement, the use of Open Banking is well on its way to the USA as well. With a focus on increasing innovation and competition among banks, PSD2 made Open Banking API mandatory for banks operating in the EU. 

The result of this has been a sudden surge in consumer-focused FinTech technologies all revolving around open banking API standards. Open Banking APIs like document verification API, utility bill verification API, and bank account verification APIs can help banks streamline their toughest tasks (complying with KYC and AML regulations).

Benefits of Open Banking

Open Banking isn’t only for benefiting consumers, the shift towards open banking has given birth to dozens of new FinTechs that are focused on building new solutions that can enhance banking operations. Open Banking APIs are creating a new ecosystem for small, medium, and large-scale businesses that can benefit directly by connecting APIs to financial businesses or using the endless data available to provide personalized services to customers. 

While the whole financial industry can benefit from the use of open banking, banks can make themselves the gatekeepers of the one essential key in open banking: Data. Banks can also utilize this new technology to its extent and enhance their customer business relationships by assisting customers in managing their finances better rather than being a medium for financial transactions. 

Additionally, open banking will allow retail and commercial clients to choose from a broader set of products and services rather than settling for the only option available. The new connectivity among consumers and third-party service providers that open banking will make possible will make things better for clients as data sharing will lead to faster lending, smarter lending, and better credit-worthiness assessments. 

Regulatory bodies are already working on guidance for Open banking in the USA, and banks will have the choice of whether or not to invest in this new technology to enhance the customer experience and build a better financial industry. 

According to some industry experts, banks that won’t welcome Open Banking with open arms will only be limiting their customer interactions and also limit the opportunity to be the leader in this newly emerging market. Instead of being unprepared when the regulatory bodies in the USA release guidance for Open banking APIs, banks should start preparing in advance and build their strategies in a way that they can make the most of Open Banking. 

Open Banking is Inevitable

There’s already widespread use of online document verification APIs, Proof of address verification API by leading banks and financial institutions. Currently, the EU and the UK are the most dynamic market in open banking all thanks to the EU Policies that facilitated the widespread use of open banking APIs. The Second Payments Services Directive (PSD2) required banks operating under the EU to allow licensed third-party payment providers to bank’s infrastructure and data using a specific open banking API protocol.

By 2022, open banking is expected to generate over $9 billion of profit opportunities for financial service providers. While the US has yet to take a new approach, to generate the same amount of revenue, USA banks need to embrace open banking. 

In the USA, the need for open banking, and open banking APIs has been pushed forward by consumer and business demand. This enhanced level of demand with an enhanced level of activity in the Atlantic is enough for the US to adopt Open Banking. Up until now, the move toward Open Banking has been driven only by regulation, but there’s another approach that banks can take and embrace the Open Banking landscape without government rules and regulations. 

How Banks in the USA Can Seize the Opportunity?

Before pouring millions of dollars into building technologies that can support open banking, the first thing that banks in the USA need to do is to build their strategies. Leaders first identify how open banking can drive value for the bank and what type of return on investment banks can expect, both in terms of revenue and customer loyalty. 

The overall methodology requires banks to secure funding for new investments but also align multiple departments that will be working relentlessly to drive success for the Open Banking infrastructure. It’s a good option for banks to survey customers to gain insights into the type of tools and services they would want to provide their financial data. Mid-market banks on the other hand should use foundational data capabilities to utilize the benefits of open banking. A condition to successfully leverage open banking and gain all the benefits is that banks, financial institutions, and third-party payment providers are to protect customer data at all costs. This isn’t just a requirement for open banking, this is a practice that every bank or financial institution should use. 

In the future, banks will want to focus their investment on their internal infrastructure and ensure that tools, policies, and procedures are in place to support the open banking infrastructure.

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20 Internal Controls Methods That Businesses Can Use for Fraud Detection and Prevention

detecting fraud

Businesses all over the world lose billions of dollars to internal and external fraud. Unfortunately, this kind of fraud is easily preventable with a little bit of strategy and reinforced structures. According to a survey conducted in 2018 by the “Association of Finance Professionals (AFP) Payments Fraud and Control Survey” 78 percent of businesses were a victim of payment fraud in 2017. 

What’s even more concerning is that only 47% of those organizations were able to uncover the fraud in less than 2 weeks. There are a lot of steps to follow to be able to detect and prevent fraud. Streamlining data management, building a comprehensive checklist for month-end close, time spent on documenting and implementing strong internal controls, eliminating redundancies, and so on.

It is important for businesses to build a strong checklist to prevent themselves from internal and external fraud.

Top 20 Internal Controls for Businesses

1. The company’s tone and how fraud tolerant a firm is should be well communicated throughout the organization. If the employees understand how strict the fraud prevention policy is, the chances of internal fraud will reduce dramatically. 

2. Firms need to make sure that all employees must comply with a code of conduct. Employees should also be aware of the consequences if they don’t comply with internal policies. 

3. A Segregation of Duties policy needs to be established throughout the organization.

4. The Delegation of Authority policy should be set in place for all organizational expenses and commitments.

5. Monthly or quarterly customer monitoring checks are vital to keep track of suspicious activities and monitor fraudulent transactions. 

6. System Access Controls have to be reviewed by organizations on a monthly basis. If that’s not possible, then they should happen after a system upgrade or organizational change.

7. The compliance managers are responsible for implementing effective internal controls in all sectors of the company. This includes identifying, assessing, and managing the risk of fraud from internal and external sources.

8. All representations and assertions relating to internal controls have to be supported with proper documentation. 

9. Costs and expenses of all the operating units must be maintained under budgetary controls. Comparing actual expenses to be budgeted amounts must happen regularly. 

10. All operating units have to develop a system of internal controls to make sure the assets and the records of the company are protected from loss, destruction, theft, or illegal access to data. 

11. Critical transactions happening inside the business process have to be traceable, authorized, authenticated, have integrity, and should be retained in accordance with established policy.

12. To ensure the reduction of fraud, background checks have to be done for all the employees and customers. 

13. All the business records must be maintained and retained in accordance with the firm’s policy. 

14. The business’s network and information program and corporate policy must be followed perfectly. Employees, merchants, and third-party payment providers must refrain from disclosing sensitive information.

15. All computer systems and software applications that can impact the operations of a business process must have the adequacy of their internal controls verified before the implementation. Unverified systems and software can cause a lot of fraud. 

16. Contracts or documents that bind the organization to any obligation can be executed by purchasing personnel or individuals duly authorized under the organization’s delegation of authority policy. The legal team should be able to review and approve all the contracts and legally binding documents. 

17. All suppliers must be verified before they become a part of the business. The verification process includes:

  • Requires a W-9
  • Performing a TIN matching
  • Compliance screening
  • Address and phone verification

18. All payments over a certain amount should be reviewed and approved. Firms should pay special attention to international payments and wire transfers.

19. All the intercompany payments that are sent and received should be verified on a monthly basis. 

20. A physical inventory process should be set in place to keep track of fixed assets. A physical inventory and counting process should be established for businesses that manufacture and supply the products. 

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Best Practices for Keeping Millennials Hooked to Account Onboarding

millennials

Banking has gone digital, and when was the last time you went to a physical bank? Traditional brick-and-mortar banking is slowly becoming obsolete, over the last six months, 40% of Americans haven’t stepped foot in a traditional bank. Most generations are in the favor of digital banking as it saves time and offers all the features of traditional banking. Millennials are taking the lead when it comes to using online banking, 47% of all millennials are relying on digital banking instead of traditional banking services. Millennials are more apt to adopt mobile banking, but they’re also the most likely ones to walk away if they don’t like the services. Almost 93% of all millennials abandon the customer onboarding process whenever they run into any trouble. 

Financial institutions have a huge opportunity to win all millennial customers by offering seamless mobile account opening, or digital account onboarding. Customers aren’t willing to sit through the cumbersome digital customer onboarding process. 

Identity verification is a vital process in the customer onboarding process and more than often the step where countless potential customers abandon the process because of the time and effort it requires. ID verification is important because that’s the step that will help banks determine which online customers are legit and which ones are fraudsters. By enhancing the number of fraudulent checks, banks can increase the chances of reducing the risk of fraud, this additional due diligence steps can also increase the level of friction during customer onboarding leading to an increased rate of abandonment. 

According to a report by IBM, more than 75% of all millennials have no problem in leveraging biometric authentication for digital onboarding. This signifies that traditional ID verification methods like Knowledge-Based questions and Multi-Factor Authentication will no longer be relevant. Millennials are more than comfortable with mobile-based ID verification methods that are needed to prevent fraud. 

So how is it possible for financial institutions to find a balance between tackling fraud and ensuring that new customers have a seamless experience while opening a new account? By working with a perfect online ID verification solution, you can make the customer onboarding process as smooth as possible.

Best Practices to Provide a Seamless Customer Onboarding Experience

1. Speed Up the Process

The biggest reason behind abandoned customer onboarding applications for banks is because the processes take way too long. Traditional customer onboarding methods are used to take up to 3-5 weeks. Millennials don’t have the time or the attention span to wait this long. For banks to keep millennials engaged in the onboarding process, it’s essential to quickly and correctly verify users within the mobile experience in minutes.

2. Better User Experience

User experience is a major part of customer experience and is mindful of the number of screens in use. Banks can utilize on-device data extraction to pre-populate forms during the ID verification process, thus reducing the amount of information a customer has to add manually. Create a custom journey for users by providing different colors and themes to the screens and sections. Make sure that you take care of the needs of every customer by adding multiple functionalities. 

3. Provide Clear Instructions

Not every user is tech-savvy, so banks should focus on making the process as clear as possible. There should be clear language on each screen so that every step is explained easily to the user. Provide clear instructions in simple English. It’s vital to clearly explain why banks require a picture of the ID document and the selfie and what they’re willing to do with the information. 

4. Instant Feedback is the Key

Users want to know their application status in real-time. If there are any issues with the ID document or photo submitted, then users would want to get that feedback in real-time too. Providing instant feedback allows users to understand how long it’ll take for their application to be completed. 

5. Omnichannel Support

For companies that want to capture as many users as possible, it makes sense to ensure that you provide Omnichannel support for potential customers. For example, a variety of ID verification solutions support smartphone image capture and exclude other channels such as desktop webcams. By doing so, banks are leaving out customers that are more comfortable on their desktops and laptops. 

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What Businesses Should know about ID Fraud

identity fraud for business

It’s pretty clear now that identity fraud isn’t going anywhere, the threat of identity fraud is evolving. In the last couple of years, the number of identity fraud has grown steadily. The overall cost of identity fraud is $42 billion for businesses.

Now that the pandemic has adversely affected businesses, the threat of identity fraud seems even bigger now. With most businesses pushing towards digital transformation, the types of identity fraud are going to get bigger. Weak and inefficient digital systems developed and used by financial institutions act as a magnet for fraudsters. Businesses need to be prepared for upcoming identity fraud trends.

6 Things to Know About Identity Fraud

Businesses and financial institutions that don’t follow the common identity fraud trends. Here’s all a business should know to protect themselves against evolving fraud.

1. Fraudsters Will Continue to Develop New Methods

As more and more customers are relying on online solutions because of the pandemic, the environment is also inviting fraudsters. 

Documents and biometric IDs that are presented by customers manually can’t just happen in a digital environment. It is almost impossible to check the signs of manipulation and identity fraud is more scalable online. This works in the favor of fraudsters.

Bad actors are using sophisticated methods for document fraud. In the upcoming years, there will be an increase in fraud documents and fake ID cards. That shows that fraud techniques are getting more sophisticated and the pandemic has given birth to first-time fraudsters in need of financial help. 

Businesses in this digital environment face attacks from two fronts. First-time fraudsters with low-level fraud and unsophisticated techniques and experienced fraudsters with evolving types of fraud with the use of sophisticated techniques.

2. Biometric Fraud Will Soon Evolve

As of right now, businesses use AI and machine learning solutions that leverage biometric data for verifying customer identities. Current biometric fraud is simple and easy to detect using intelligent solutions. But deep fakes will make things more challenging.

Deepfakes are digital media, such as videos in which a person’s existing video/photo can be replaced by someone else’s. While this technique is mostly used by social media users to make entertaining videos. However, this can also be used for malicious activities like bypassing the ID verification systems. Sophisticated efforts like these are less common in the real world as they take up too much time and money.

Over time, with the improvement of technology, the costs will come down and biometric fraud will evolve and be hard to detect by businesses.

3. Synthetic ID Fraud Will Rise

Synthetic identity fraud is one of the biggest threats, it combines stolen information with fake details like names and addresses to create a completely new identity. Fraudsters can then use this identity to apply for loans, credit cards, and more. 

In recent years, synthetic fraud has grown a lot. Data breaches in the past few years have worked as a helping hand for synthetic ID fraud. The hack of the US Census is one such example. Because of the amount of stolen customer data available online, credit and database checks won’t be good enough for verifying identity. Businesses will need to consider other methods of verification like third-party technologies.

4. Coercion Attacks will Become a Huge Concern

Coercion attacks are a huge threat for businesses as they don’t need any technical experience and are difficult to detect. Instead of stealing an identity, fraudsters persuade victims into opening legal accounts and use them for illicit activities. 

To identify coercion attacks, businesses need to verify the intent of account opening which is almost impossible for humans. One sign of coercion attack is if someone else is in the shot when a biometric check is being completed, however, that’s still too big of a stretch. Businesses and ID providers need to be aware of this undetectable fraud.

5. Cash Incentives Will Continue to Increase Fraud

It seems like a thing of the past but frauds promising cash incentives continue to affect businesses. Fraudsters take advantage of a marketing campaign that promotes cash incentives. They do so by targeting bonus promotions while opening a new account, referral bonuses, or extreme currency fluctuations. Fraudsters open several accounts using an original identity but with some different details like email address and address and so on. They open the account and get the monetary perks.

6. Financial Industry is Always the Biggest Target

Out of all the industries, the financial industry was impacted the most by online fraud. The financial industry is always at risk of ID fraud, but suspicious behavior has become harder to catch because of changes in spending habits. Businesses are having trouble being able to distinguish between legit and fake users. To successfully onboard customers, businesses need proper bank account verification software that facilitates security and agility.

This is one of the main reasons why businesses are focusing more on transforming their channels. Most businesses combine machine learning with biometric verification instead of username and password. This is one method that can help in verifying between legit users and bad actors. 

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Understanding Artificial Intelligence & Identity Fraud Solutions

artificial intelligence verification

In December 2020, 4iQ discovered a single file with the personal data of over 1.4 billion people which is the largest database found to date on the dark web. What was even scarier was that none of the passwords were encrypted and the passwords that were tested turned out to be authentic. This is a major issue for all of us. A recent report published by a cyber-security firm stated that almost 80-90% of the people that log in to a retailer’s e-commerce site are hackers stealing PII (personally identifiable information). Unsurprisingly, cybercriminals use techniques that have the least resistance and they simply buy the stolen credentials from data breaches from the dark web to create fake accounts and access internal systems. And obviously, passwords alone aren’t enough. 

Unfortunately, traditional methods of verification such as knowledge-based authentication (KBA) and two-factor authentication/ multi-factor authentication, aren’t enough to keep fraudsters aware of internal systems. Fortunately, the latest AI-based technologies tend to be efficient when it comes to online identity verification.

AI and Online Identity: A New Era

How is it possible for modern companies to evolve beyond usernames and passwords? When verifying identity matters the most (home rental, creating new bank accounts, funds transfer), companies have to add a layer of real-world ID/identity verification to ensure that the person using the username and password is the same person to whom the account belongs to. This is where artificial intelligence comes into play.

Machine learning solutions and deep learning algorithms are slowly changing the industry trends where ID verification delivers a smooth experience that doesn’t compromise a positive customer experience for security. These technologies are being utilized for online ID verification to protect your consumers and businesses against fraud and account takeover.

Artificial intelligence, machine learning, and deep learning solutions are extremely efficient in distinguishing between real and fake documents used by fraudsters. With the growth of technology, it is easy for fraudsters to build fraudulent documents including driver’s licenses, proof of address documents, passports, and so on. These documents are scanned to onboard customers during account opening. AI and Machine Learning solutions can detect even the smallest of discrepancies in the documents, including the presence of genuine microprint text and other features, these solutions can even link the individual to an ID document.

Machine learning creates a more efficient and accurate process compared to relying on an untrained eye to examine and verify an ID document. Over the last four years, there have been hundreds of ID solutions popping out that help in simplifying the overall customer onboarding and verification process.

As customer IDs are physical documents, they tend to face wear and tear and they may even contain manufacturing defects. Plus, the way those documents (driver’s licenses, passports, and ID cards) are captured also possess a challenge while verifying customers. In most cases, the cameras in smartphones and laptops fail to provide the ideal quality for AI-based solutions to read the details on ID documents. In other cases, the user takes blurry photos or clicks a photo in insufficient light. In these cases, which happens more often, the best machine learning solutions are tried and tested.

Solutions Apart from AI-Based Solutions

AI, Machine learning, or deep learning-based solutions are only as good as the algorithms and the data that is fed to them. In case the data is bad, the solutions won’t be able to find out the errors in the documents.

Other solutions help in simplifying the document verification process for KYC and AML compliance. DIRO online document verification software can help in instantly verifying documents by cross-referencing them with private and government sources. DIRO online document verification software can help banks, financial institutions, crypto, and other businesses to easily comply with regulations. The technology helps in eliminating screen scraping, and other tedious tasks from customer onboarding.

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5 Strategies Businesses Can Use to Prevent Digital Payments Fraud

digital payment frauds

Digital payments have grown at an exponential rate since the pandemic changed the banking industry into a digital-first. To prevent and detect digital payments frauds, today’s finance and regulatory teams can use a series of tools and technologies. Combining these strategies with techniques like IP whitelisting, VPNs, corporate firewalls and antivirus solutions can allow businesses to build strong digital payment fraud prevention techniques. Here are all the best practices to follow to prevent digital payments fraud.

Physical Payments Fraud: A Gateway to Digital Payments Fraud

Preventing payments fraud is a major priority for financial institutions, and the level of sophistication that fraudsters use makes it almost impossible for financial institutions to uncover and prevent fraud. 

Most of the time, it’s a ransomware-style takeover of a company’s payment systems or the subversive use of credentials to extract funds. The modern era of corporate fraud is being done using digital channels only. 

Digital payment frauds are especially worrisome for banks because the level of sophistication is greater than check fraud or small-level cash fraud, and these digital-first frauds are causing more loss than other types of fraud. A study conducted in 2016 stated that the average loss a financial institution faces during check fraud was only $1,500 compared to almost $130,000 and $1-10 million for account takeover fraud.

The fact that digital payments fraud tends to offer a better payout for criminals, however, there are other factors behind the shift to digital payments fraud. 

For instance, as B2B digital payments have become mainstream, the shift to electronic payment solutions has made it possible for tech-savvy criminals to target companies. Not all customers use physical cash and checks so conducting fraud using these is no longer profitable for businesses. 

Now that customers are using ACH, wire transfers and cards, and even cryptocurrencies, fraudsters love to conduct fraud digitally. The widespread use of mobile payment apps and online banking software are all working in the favor of a criminal. 

Even with today’s heightened sophistication and the rising prominence of remote work, most of the losses suffered by financial institutions are due to gaps in their own compliance or security gaps. Also, the lack of proper employee training of the company’s digital security solutions can also lead to an increased level of fraud. This is why banks and financial institutions need to figure out a way to protect against digital payments fraud.

Structured and Multi-level Approach to Digital Payments Frauds Prevention

Thankfully, just as criminals introduced new frauds, cybersecurity firms, and global payments are working around the clock to develop safer and more robust solutions. Today, most financial institutions utilize a wide variety of tools right alongside each other to ensure complete security.

Solutions like IP Whitelisting and multifactor authentication, VPNs, standard firewalls, and antivirus solutions may be essential for digital security. 

Given the fact that most digital payments are extremely complex, there is no single layer of security that can block every fraudulent attack. To completely prevent digital payments fraud, financial institutions must use a structured and multilayered approach. By implementing multiple layers of security, financial institutions can find the ideal balance. 

So, ultimately what are the most advanced tools and techniques that can help in preventing digital payments fraud in 2021?

Five Major Ways to Protect Against Digital Payments Fraud

1. Regular & Intensive Employee Training

One of the best ways for digital payment fraud prevention is by training your employees. Fraudsters have evolved with time and they utilize the best solutions to stay out of the regulatory body’s eyesight. 

Digital solutions work well only if the employees are operating at 100% efficiency. For instance, if an employee forgets to utilize multi-factor authentication on customer accounts or forgets to delete an old employee’s credentials from the payments system, companies can be exposed to a certain level of risk. If a number of employees are negligent in following company policies, the threat of loss is huge.

Companies have to develop strong internal strategies to ensure that the employees are regularly and constantly educated about the policies and strategies. This education has to cover all the information about growing fraud trends and best practices used to prevent these types of fraud. Teaching customers about the practices in use to detect and prevent these frauds can be extremely helpful.

2. Multi-Factor Authentication

Multi-factor authentication is one of the most secure methods of preventing digital fraud as it is incredibly fast and effective in preventing a fraudulent takeover of customer credentials. 

Criminals can’t utilize stolen credentials as multi-factor authentication requires authorization for making any kind of payment. This could include something that a user knows (passwords), something a user has (a security token), or something a user is (biometrics authentication). In practice, this means that instead of only earning a username and password, employees may be required to submit a fingerprint scan or enter a string of code that is sent to customers via text whenever they try to transact. 

MFA is a tool that is used majorly in the financial industry. To prevent digital payments fraud, MFA is essential. 

3. Multi-User Payments Control

Financial institutions shouldn’t allow a fraudster or a rogue employee to exploit the user credentials to access a payment solution. There are a series of preventive measures that can be used to stop them from deploying funds. To prevent that from happening, dual controls are necessary. 

Dual-controls have been used by financial institutions for ages, and it ensures that the authority to execute a transaction between employees is cut in half. This prevents a single rogue employee from acting on their own. By ensuring that 2-3 employees are required to review every single payment before it’s executed is the best way to prevent fraud.

Financial institutions can assign specific users to initiate and review and approve the truncations that happen in their internal payments systems. Banks and financial institutions can prevent any single employee from having authority over the payments process. 

4. Customer Authentication Software

Another method of preventing fraud is by using transaction monitoring solutions. User auditing software has become a vital part of many financial institutions as it can keep a complete log of every single action. This way, administrators, auditors, and compliance teams have complete transparency in evaluating potential fraudulent actions that happen on any specific user account. 

In situations where fraud has happened, administrators are alerted of suspicious activities and these activity logs can help in training employees for future situations of fraud. Online document verification software helps in ensuring that fraudsters don’t access the financial institution’s internal systems. By proactively preventing customers from entering the systems, fraud can be prevented even further.

5. Payment Safelists and Blocklists

Another way to prevent digital payment fraud is by implementing a safelist and blocklist. These controls can be configured directly within various internal platforms that offer them, and they work by placing internal parameters over which internal bank accounts can be used to send payments. 

Payment safelists and blocklists are incredibly helpful as they give companies total control over individuals and entities that are allowed to engage with the business. Thus helping in digital payment fraud prevention.

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Five Ways to Tackle the Growing Money Laundering Problem

how to deal with money laundering problem

Banks, financial institutions, and other organizations face countless challenges every day to keep their business secure from fraud. Keeping track of all the anti-money laundering regulations and making use of the latest and most efficient technology to tackle the money laundering problem can be tough. This is basically an endless battle against fraudsters who try to acquire funds using illicit methods and banks need to learn how to combat money laundering. 

All that a fraudster needs is one bank system to stop paying attention and they gain a new portal to launder money. A single banking institution’s mistake can have a huge impact on the global economy, in a particular industry or the money could be used to fund terrorist activities. All major regulatory bodies like the FinCEN, need to keep updating their regulations to be able to fight the money laundering situation from growing and so that banks and other financial entities can find ways to combat money laundering.

There are several things that banks and other FinTechs can do to tackle money laundering. Following the ways to combat money laundering to the last point can reduce the chances of online fraud by tenfold.

How Technology Can Stop Money Laundering

1. Improve Searches By Utilizing Technology

The growth in technology can be utilized for providing fake information such as bank statements, and wrong proof of address to trick banks. It is becoming increasingly difficult for organizations to filter between potential threats and false positives. 

If a bank or any other financial institution wants to protect its current customers, it needs to look at its past mistakes and set up countermeasures for future mistakes. If institutions can reduce the count of false positives, they can expand their scope of fighting money laundering and other kinds of online fraud. 

Using machine learning and AI-based technologies to conduct searches at regular intervals can reduce the burden on AML officials. AI and Machine Learning technologies can help in finding out some false positives while searching through the database. You can even strengthen your process by AI searching on a broader scale and your manual team focused on one specific location. This combination of technology and manpower is one of the answers to how to combat money laundering with the use of technology.

2. Have Regular Cross Communication

Multiple organizations have a quarterly or half-yearly round table meeting with state and local law enforcement and other banks in the area to discuss all the latest trends and how to fight the money laundering problem. The primary goal of these meet-ups is to stay up to date on all the methods of fighting fraud that can risk the security of customer data in any way. 

By staying connected, law enforcement can inform banks about the latest schemes opted by fraudsters to trick organizations. While a lot of banks have systems in place that allow them to stay on top of all the new schemes used by fraudsters, this alliance can be really helpful in curbing money laundering activities. 

By having constant meetings, banks, and law enforcement can keep each other on top of all the new trends/schemes. Verify any suspicious activities and enhance the business-law relationship. All this is one strong step in keeping customer’s information safe and making sure no one acquires money using illegal methods. While this isn’t the answer to how technology can stop money laundering, it is still an effective method of making sure the fraudsters don’t operate freely.

3. Use Data Analytics to Find Patterns

Making use of data analytics is one of the best methods of fighting money laundering practices. Data analytics helps banks and financial organizations understand the pattern in recurring money laundering or online fraud activities. There can be a pattern like a specific geographical location origin, specific product/service type, and a specific job occupation type. 

Once the AML officials recognize such patterns, they can develop countermeasures or special strategies that can reduce potential risks. The objective of using data analytics is to analyze a customer in “real-time” and reduce the risk for banks before anything happens. Money launderers need less than a week to place the money in the bank and after that, the money is gone, so is the person who deposited it. 

Data analytics deem people with multiple PINs or people with connections to tax frauds as potential threats. Knowing this information during the customer onboarding process can help banks prepare for fraud and learn how to deal with money laundering problems.

4. One Standard System All Across The Institution

 Like any other industry, banks also grow themselves by acquiring their rivals. Constant acquisitions lead to a wide network of different computer systems, different bookkeeping types, and other differences. 

Some divisions may use spreadsheets, some may use ledgers, and this difference in the system can benefit those who are looking for a weakness in the system for fraudulent activities. That’s not all, this can also lead to information breach, customer information loss, and loss in working efficiency. 

This is one of the reasons why all industries are moving towards a complete digital working environment. The growth of the cloud industry can support huge organizations running on digital technology, this also improves the privacy of data.

5. Training Against Fraud Is Crucial

Almost every bank or financial institution has a team of AML officials that ensures finding and getting rid of any suspicious activity. To be able to do that, AML officials need to know what to look out for. That’s why proper training is needed to detect fraud and report it to the right authorities.

Training the staff that’s your first countermeasure against money laundering is crucial. Let’s say some cyber attacker is using an account of a deceased person to launder money, if your staff doesn’t know what anomalies to look out for, this activity would go unnoticed. Training the front-end staff on what they need to notice is one of the best methods to fight money laundering problem and comply with AML regulations.

DIRO’s Assistance to Banks for Fulfilling AML Regulations

DIRO’s award-winning document verification technology aims to weed out fake or fabricated documents. Banks, financial institutions, and FinTechs can use DIRO’s instant document verification technology to verify documents submitted during the KYC and AML Compliance process. 

The technology instantly verifies the document against the original document on any third-party web source. It even provides strong proof of authentic documents that can be used as original documents. DIRO places the document on the blockchain which makes sure the information is provable and unable to temper with. Using the technology, banks can improve the overall customer onboarding process by reducing friction and also reducing the risk for money laundering and other types of online frauds. The utilization of DIRO document verification technology is one example of how technology can stop money laundering.

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What Is AML: DIRO’s Role In AML Compliance

anti-money laundering compliance

Anti-money laundering (AML) is a set of laws, regulations, and proceedings that were made to prevent criminals, cyber attackers, and even businesses from disguising funds acquired using illegal methods as legal money. 

Firstly, the illegal funds are covertly introduced into the legit financial system, then the money is moved around so the government and regulating bodies can’t keep a track of it. Money laundering can usually support crimes such as drugs, trafficking, and terrorism, it can even impact the global economy. 

While the anti-money laundering act covers just a limited range of transactions, the impacts can be wide-ranging. The AML laws require banks, FinTechs, and financial institutions to follow all the rules to reduce the risks of money laundering. Let’s start with learning what AML is in banking so we can move on to how to prevent AML risk with DIRO.

How Anti Money Laundering Works?

AML laws are made to target illegal activities that revolve around manipulating the market, deal with illegal goods, tax evasion, and several other methods to hide the funds that are acquired using illegal methods.

Criminals tend to launder the money that they obtain through ventures like drug trafficking, etc. so the money can’t be traced back to them. One of the most common methods of hiding the money from governments and other regulatory bodies is by moving the money around using legal cash-based businesses. These businesses are either owned by the criminals themselves or they are run by their supporters. These businesses that seem legal upfront then deposit the illegal money which can later be used by criminals for terrorism, destabilizing the global economy, and more. 

Another common way money launderers hide their money is by depositing cash into foreign countries in small amounts as not to arouse suspicion or use the cash to buy assets that can later be converted into cash. A lot of money launderers will invest their money using methods that can provide them with high returns in a limited time. 

One of the major factors of AML regulation is the “holding period”. According to this rule, the deposits made into an account are to remain there for at least 5 trading days. This holding period is set in place to reduce money laundering and mitigate financial risks. How anti-money laundering works is by building a set of rules and regulations that are to be followed by banks and other financial entities.

Reporting Suspicious Activity

It is the duty of financial institutions and banks to keep an eye on customer deposits and other transactions that seem suspicious and could be a part of money laundering activity. All financial institutions have to verify where large sums of money originated from, and report all the transactions that contain cash more than $10,000. If banks want to comply with AML regulations, they must make sure that all their clients are aware of the rules.

If a specific person or organization is under money laundering investigation by regulatory bodies, they will look for inconsistencies or activities that look suspicious in all the financial records. With the financial industry becoming tougher to survive in, extensive records are kept and managed for each and every financial transaction. During the investigation, when law enforcements try to trace a crime, they use specific methods that are better than others to find the origin of funds.

If the law is investigating robbery, embezzlement, or larceny, they often can send money back to the victims. Let’s say that a federal agency uncovers a money laundering crime, the agency has the means to trace it back to those from whom the money was taken.

The Difference Between AML and KYC

The difference between AML and KYC is quite simple to grasp. While both the compliances are closely related to each other, they have some minimal differences. In banking, KYC rules are the rules that organizations have to follow to identify customer identities. 

AML has a much wider application, it is the measures institutions follow to tackle and prevent money laundering, terrorism financing and reduce other financial crimes. Banks follow KYC and AML compliance to make sure their crimes face minimum risks.

History of Anti-Money Laundering

Anti-money laundering became prominent in global financial operations in 1989, it came into existence when countries from all over the globe joined forces and built the “Financial Action Task Force”. The primary objective of this international force is to develop strategies that can be used to fight money laundering and promote the implementation of these strategies globally. After the 9/11 terrorist attack, the FTFA expanded its efforts to diminish or completely stop terrorist financing. 

Another organization that builds upon AML compliance and works tirelessly to fight against money laundering is the International Monetary Fund (IMF), just like FTAF, the IMF has the support of 189 countries to fight money laundering and fight terrorist funding.

How to Control AML Risk With DIRO?

DIRO’s award-winning document verification technology is the ideal solution for smoothening and streamlining KYC and AML compliance. We have worked tirelessly to develop a technology that can verify any document from any third-party web source globally. 

Banks, financial institutions, and FinTechs can make use of DIRO’s document verification technology to mitigate the risk of money laundering & other financial crimes by verifying account holder information and bank statements in mere minutes. 

Employing DIRO’s innovative technological solution, financial organizations can cut costs by reducing manual document verification. It can also help in improving the customer onboarding experience by reducing the friction of AML and KYC compliances. Having DIRO’s document verification technology, financial organizations can make a huge impact on KYC & AML compliance.

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Blockchain for Fraud Prevention: How Blockchain Works?

blockchain for business

Blockchain technology has been around for a long time, and it is still growing. A lot of people wonder how does blockchain secure data and how blockchain works. Regardless of all its benefits, there are a lot of mixed feelings towards blockchain technology. It doesn’t matter how mixed the reviews of the technology are, the role of blockchain against fraud and the role in the global economic landscape is great. 

The growth of blockchain first came into the limelight with the rise of Bitcoin. If you’re not into cryptocurrency, you should know about the blockchain for fraud prevention. 

How Blockchain Works?

At first glance, blockchain looks complicated, but the core concept of how blockchain works is really simple. A blockchain is a type of database, to completely understand what is blockchain technology, you need to understand what is a database. 

A database is a collection of information that’s stored on a computer system. Any information that’s stored on a database is stored in a table-type manner for easier searching and filtering of data. Now you may wonder, what is the difference between a spreadsheet and a database. 

The major difference between a spreadsheet and a database is that a spreadsheet is made for a single person or a small group of people. These people can store and access limited information. In comparison to that, a database is designed to store much larger amounts of information, that can be quickly accessed, filtered, and changed quickly by any number of users at the same time. 

Huge databases achieve this functionality by using data on servers that are built on powerful computers. While a spreadsheet database can be accessed by several people, it is often owned by businesses. Now that you understand what is a database, we can move on to “how does blockchain secure data”.

How Does Blockchain Secure Data?

One of the major differences between a typical database and a blockchain is the way the data is structured. A blockchain collects information together in groups that are known as blocks, these blocks hold a set of information. Blocks have a specific amount in which information can be stored, when the storage is filled, they are chained to the previously connected blocks, all of which form a chain of data, which is known as the blockchain. 

So the question remains, how does blockchain secure data? Major blockchain features and benefits account for the issues of security and trust in multiple ways. First, new blocks are always stored linearly and chronologically. The new information is always added to the “end” of the blockchain. 

After a new block has been ended to the back of the blockchain, it is almost impossible to go back and alter the contents of the block unless it is the major consensus to do so. The reason it is considered secure is that it each block contains its own hash, alongside the hash of the block before. A hash code is built using a mathematical function that turns information into a string of numbers and letters. This is how blockchain works in banking and other financial transactions like bitcoins.

Types of Identity Theft

Another common type of online fraud is identity theft, the growing rate of identity theft is alarming. Most people aren’t even aware that their identity has been stolen after the damage has been done. Now that we know how does blockchain secures data, we can discuss how blockchain prevents identity theft. Here are the most common types of identity thefts. 

1. Driver’s License Identity Theft

Anyone that has access to your driving license can make use of your sensitive information and commit fraudulent activities. They can open credit card accounts or use the stolen identity theft if caught for reckless driving. 

2. E-Commerce Fraud

Online identity theft is basically cybercriminals stealing your information like payment details and credentials. Using this information, these criminals can make all kinds of unauthorized transactions. All these transactions will end up hurting your bank balance. This is one of the most common types of identity theft. 

3. Mail Identity Theft

Your mailbox can be vulnerable to all kinds of cyberattacks. One out of 3 identity theft is done via email. Your mailbox contains all kinds of sensitive information including bank information, several login details, or insurance data. This crucial information can be used for all kinds of fraudulent information. 

4. Social Security Number Theft

The social security number is provided to a citizen from the time of their birth. The nine-digit number contains information like financial records, including bank details and a person’s earnings. Now imagine someone gets hold of your social security number, they can use the information for all kinds of purposes. 

If they can use your financial information, they can fill in fake account opening forms or even withdraw money from a person’s account using social security number. More than that, attackers can use your social security number to gain a tax refund. Social security number theft is another common type of identity theft.

5. Synthetic Identity Theft

Synthetic identity theft is a tricky type of identity theft. It is where an attacker mixes stolen information with fake details to create a new fake identity for committing a crime. This newly made identity can then be used to execute all kinds of fraudulent practices. 

How Blockchain Prevent Identity Theft?

Identity theft is a part of online fraud, and it is growing at an alarming pace. A lot of people nowadays are aware of data breaches, but not many are aware that identity theft occurs every two seconds around the globe. In this perilous time, the need for securing one’s identity is crucial, and the way to do that is by safeguarding your documents. Now that you know about types of identity theft, here’s how blockchain prevents identity theft. 

Blockchain against fraud technology has been taken into consideration since the rise of cybersecurity. The incredible technology holds brilliant potential for securing sensitive data from malicious activities.

Since blockchain contains digital assets including documents that are secured via powerful cryptographic keys. This is one of the primary reasons why it is harder for attackers to manipulate information stored in the blockchain. The data is stored on multiple computers on a blockchain network, so if someone wants to access crucial information, they will have to gain access on all computers which is almost impossible in all cases. Even if the hackers happen to gain access to data, any change they make to the data will be highlighted in the information. This is what blockchain unique and suitable to secure data. Now you know how blockchain prevents identity theft.

Storing any identity information on a blockchain will help both government and the public to prevent identity theft. This is how blockchain works, and the blockchain features and benefits are slowly causing it to come into mainstream adoption. 

While blockchain is still a growing technology, it has countless possibilities for securing data. As the current measures for identity information storage are being attacked and breached, the use of blockchain for fraud prevention is at an all-time high. 

Blockchain Features And Benefits

1. Blockchain Is Distributed

A blockchain is a type of distributed digital ledger which contains transaction data that is hosted on a peer-to-peer network. There is no centralized administrator so there’s no one point of failure that can be accessed for information breach. Instead of a single point, the management and authorization are spread all over the network. 

2. Blockchain Is Unyielding

Another blockchain feature and benefit is that any transaction or information recorded on the blockchain is unchangeable as the information can’t be deleted or changed. While you can create a new transaction to change the state of any asset, the new information will just be added to the chain. 

3. Blockchain can be Permissioned

Businesses of all kinds tend to deal with a lot of confidential data and they can’t have just about anyone access the vital information. So they have to find some way to make sure that outsiders can’t access their data. This is where permissions come into play. You should know that not all blockchain is permissioned. This is why permission networks can be a great solution for fraud prevention because they can restrict who can access the data. 

How DIRO Makes Use of Blockchain For Document Verification?

Till now we have discussed, how does blockchain secure data, how blockchain work, the types of identity theft, and how blockchain prevent identity theft. A major part of all the information and the data breach are documented, most of the online frauds are conducted by using fake or tempered documents. 

A person who steals an identity can open a new bank account and use that bank account for many fraudulent activities. That’s where the innovative technology for document verification by DIRO comes in. It verifies any online original information on the web with automatic user consent and impersonation checks. You can verify any bank statements, proof of address, student certificates and so much more.

Once DIRO verifies a piece of information, it provides a trusted certificate that ensures a document is original. This original document can then be shared in the form of a PDF. DIRO provides the digital document with a unique hash, which then is placed on a blockchain. use this information to verify the documents that are already on the blockchain.

So banks, financial institutions, and others can drop this PDF into DIRO’s verification engine, which verifies the information against the blockchain. DIRO’s original documents are much more secure to share as the information can’t be tampered with by attackers or anyone else. Organizations can use DIRO’s software to minimize online fraud.

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How to Prevent Fraud in KYC/AML for Online Business?

fraud in KYC

Due to the digitization of the world, the interactions between businesses and consumers are on the rise. As businesses are switching to digital methods of transactions, commerce is becoming global instead of sticking to one particular region. With the rise of digital services, the problem of document verification and how to build trust among your brand and customers also increases. If your business is online, then you will need to learn how to prevent your business from online identity theft. 

According to the global fraud index, the number of frauds is on a constant rise. In the last 12 months, more than 60% of businesses have experienced some kind of fraud or an increase in fraudulent activities. This sudden growth in fraud-related activities calls for swift and secure document verification processes. As a business, you must learn how to protect your business from online fraud in KYC/AML. 

Using the best document verification technology, you can satisfy internal compliance and AML teams, and regulators with a verifiable audit trail of the original source of documents. Almost 80% of businesses that operate on digital models have shown a lot of interest in acquiring greater security measures and using them for document verification processes. Here are our tips for online KYC verification.

How to Prevent Business from Online Identity Theft During Document Verification?

As a business, what kind of investments have you put in place to manage your risks against document fraud while keeping in mind compliance with KYC and AML. If you know that your business is weak in this particular area, then you should make use of the following KYC tips. You should be aware of the main areas you need to focus on to prevent fraud and stolen documents in KYC & AML. Here’s how to do online KYC securely:

1. Make Sure All Your Payment Methods are Secure

It doesn’t matter if your business uses Paypal Credit Cards or any other form of online payment, you need to be aware of all the policies that can affect your business adversely. If you want to start preventing businesses from online identity theft, then you should pay attention to payment method policies. 

As a business, it is good practice to familiarize yourself with all the necessary security measures and apply them to your business. Following up with that can be incredibly beneficial for your business and it can help you protect yourself from document fraud. It is one of the best tips for online KYC verification.

2. Protect Yourself Against Chargebacks

Chargebacks are huge issues for businesses that operate completely online. They happen when a customer reaches out to their bank to claim that a payment hasn’t been authorized properly. 

Different banks, credit cards, and even PayPal have different policies for handling chargebacks, we suggest that you look up these policies so you know what to do to protect yourself. 

In terms of preventing and winning cases for chargebacks, you need to make sure you always have tracking. If you sell physical products then tracking lets you prove the suitable delivery of goods and signature on receipts. This step will help you in preventing businesses from online identity theft.

3. Use Common KYC Practices to Fight Fraud

If you’re wondering how to do online KYC securely, you need to follow the most common KYC practices to fight document fraud. 

  • Verify email addresses.
  • Verify telephone numbers (by sending an OTP via SMS).
  • Check public records while you’re dealing with businesses or individuals (for verifying addresses and other details).
  • Validate any document with the issuing bodies.
  • Ask specific questions that only the customer or the business you’re dealing with would know about. 
  • Try doing the whole KYC procedure on video. Which is also known as the video KYC process. 

Follow these KYC tips for online business, to make sure your business doesn’t get hurt. All of these KYC tests are simple and very easy to implement and all of them are great ways of preventing document and identity fraud. 

4. Use a 3-D Secure System

A 3-D secure system was introduced and adopted by major credit card companies way back in 2010. It’s a secure system that was designed to authenticate at three different levels. Preventing businesses from online identity theft is one of the main purposes of a 3-D secure system.

A 3-D secure system verifies information on the bank and the business of the sender and the information on the bank of the receiver. You can deploy the 3-D secure system as an extra layer of security so you can prevent yourself from document fraud. Using this, the information that is exchanged via intermediary companies can be used to process a transaction that can also be used for verification purposes. 

5. Use AVS Response Codes

Address verification service or AVS has a specific code that can be used to confirm a user or customer’s address. This whole process depends on cross-referencing, the address that a customer has provided is cross-checked with the address provided to a credit card company. Using AVS response codes is a well-known document fraud prevention method in KYC. It can even help a business decide whether they want to go forward with a transaction or not. 

6. Use a Third-Party Document Verification Software

Most businesses that rely heavily on an online business model have shown an increased need for security measures. As a business, you can outsource your document authentication process to a third party that can be affordable. 

Security expectations and requirements for solutions differ greatly based on the type of business. If you want to decrease the fraud levels of your company, there are several things that you can do to achieve that. 

There are a lot of companies out there that offer a manual document verification process for KYC and other things. Others use software solutions for document verification. 

This is where DIRO’s world-class document verification technology comes in. Using their software solution, you can authenticate documents like bank statements, certificates, and other documents anywhere in the world using a single click. This process is secure and can suit the needs of banks, payment services, lending, mortgages, and FinTech businesses. This is one of the greatest tips for online KYC verification, as using a third-party document verification service can be extremely beneficial to your business operations. 

7. Reassure Your Customers that Your Website is Secure

According to reports, the rise in fraud is directly related to weak website security. A website that has weak security measures doesn’t look well in front of your customers. Awareness about identity theft is growing and your customers need to rest assured that you are taking preventive methods to reduce that. 

Lack of visible security is basically a welcome sign for fraudsters. If you can put measures to secure your website then you are assuring your customers while reducing the risk of identity and document fraud. 

Doing this the right way can be a tough thing as you would have to change a lot of things. While doing that, you also need to keep in mind not to add too many layers of security which can increase the risk of customers switching to other businesses. You can’t learn how to protect your business from online fraud if you don’t follow the right online KYC practices.

How DIRO can Save Businesses with Groundbreaking Technology in KYC?

As we mentioned above, the number of online frauds is on a constant rise. Preventing business from online identity theft can be a huge task if you don’t have a solid plan. If you are seeking compliance during the KYC process, you need to make use of DIRO’s award-winning technology. Using DIRO’s software solution, you can verify any document online with automated user consent. The verification happens using a secure browser and you can get results in under 30 seconds. Businesses can make completely authentic documents with a few simple clicks.