Author: Ady

Categories

Identity Identification vs Identity Verification

Identity Identification vs Identity Verification

Fraudsters love to come up with new methods to commit fraud, launder money, or steal money. A growing number of fraudsters also impersonate real customers for getting access to their accounts.

As more and more transactions happen online today, businesses are facing a number of threats such as card fraud, phishing attacks, and electronic transfer fraud. This constant wave of fraud impacts business growth, and impacts the level of trust customers have in businesses.

To fight against fraud, Identity verification and identity identification services need to be implemented. Moreover, these services help businesses comply with regulatory guidelines. But, there are some key differences between identity verification and identity identification.

In this blog, we’ll cover identity verification vs identity identification. Let’s go over them and what they mean for businesses.

What is Identity Identification?

Identity identification is the process of checking if the person actually is who they claim to be. It’s the act of identifying individuals by checking their photographs, and personal information in ID documents.

This can be as simple and quick as showing an ID badge when visiting a government office, or showing identity documents when buying something age-restricted.

In online environments, the identity identification process is a bit different. Customers are asked to prove their identity by entering personal information alongside their payment details. All this information helps organizations verify if the information presented is correct or not.

For low-value transactions or organizations that are comfortable with a higher level of risk, this is enough due diligence. But, with the level of ID theft fraud growing every year, normal identification methods aren’t enough. More sophisticated methods of verifying identity should be in place to deter fraudsters. 

To ensure a higher level of security and to comply with ID regulations, it’s not enough to make decisions using user-submitted information. In simple words, it means that the information provided by customers needs to be verified against another source. This will help organizations understand if a real person is submitting the information, or if a fraudster trying to trick the organization.

What is Identity Verification?

Digital identity verification services help organizations to verify identity information available in the ID documents that are submitted by customers. This data is compared from an issuing source, like the DMV. Comparing information available from a third party, or verified data sets can reduce the risk of identity theft taking place.

In this increasingly digital environment, organizations may need to verify a customer’s identity almost every day. Especially when it comes to onboarding new customers. Verifying a customer’s identity is crucial when they want to open a new account, make a high-value transaction, or access age restricted-services. Identity verification is often used by organizations that have stricter security standards. Banking and financial industries have higher security standards. 

With more than 1.2 billion personally identifiable information records available on the dark web, it’s a major risk to allow customers to onboard without verifying their information. Onboarding people without verifying their identities can lead to huge losses for banks, can put other customers at risk of exposure, and break the existing trust value of an organization.

To minimize the risk of ID fraud and money laundering, most identity verification solutions require users to verify their ID documents in additional ways.

In doing so, the level of security increases in line with the number of checks performed. Every security check needs to be done with a particular target in mind. This is one of the best ways to reduce the risks of fraud and build a certain level of trust in the industry.

Customer ID identification and ID verification methods should have the perfect balance between stringent, and easy-to-follow. Ensuring perfect fraud prevention and customer experience.

Categories

Mobile Fraud – How Does it Work, How to Prevent it?

mobile fraud

Chances are that you’re reading this blog on your smartphone. That’s because over 60% of all online traffic comes from smartphones. We use our mobile phones for a lot of things, online accounting, social media, emails, and so much more. We carry it with us all the time and use it for every small thing. Smartphones have become an integral part of our personal and professional lives. So, it makes sense that fraudsters would want to gain access to your smartphone.

Mobile fraud has become a major concern in recent years. Just by accessing a single device, fraudsters can take over every single thing they need to. The threat to personal finance and security is very real.

In this guide, we’ll cover the five biggest mobile fraud threats and the best fraud prevention best practices.

Techniques Fraudsters Use for Mobile Fraud

Fraudsters keep coming up with new and interesting ways to conduct fraudulent activities. Although, there are some tried and tested techniques that work in their favor. So here are the top 5 mobile fraud threats that fraudsters love to try:

1. SIM Cloning & SIM Swapping

A common mobile fraud technique that fraudsters use is to take over an individual’s online accounts. This helps them ‘socially engineer’ access to their bank account and other personal and financial data.

This is done by collecting personal data from multiple sources, including messaging and social media sources. Then they use this data to try and persuade the mobile operator to issue a new SIM that a fraudster uses to get all the one-time passwords (OTPs) to access your accounts.

If this method isn’t successful, fraudsters use smart card copying software or use remote hacking to clone a SIM Card.

Cloning a SIM card provides access to all the data, and account details. Through this, they can conduct all kinds of fraudulent activities.

2. Device Cloning

Device cloning is another commonly used mobile fraud technique fraudsters use. Our smartphones contain all the apps and personal data that you need to access services like online banking, online stores, etc.

Fraudsters can transfer data and services from one mobile device to another one, making a clone of the original device. Fraudsters can make calls and conduct transactions from cloned devices without specific checks.

3. Caller ID Spoofing

Your Caller ID is the number visible to the people you’re calling. This helps others to identify who the call is from. Fraudsters can create false caller IDs from a local service provider/company that the victim knows. When the victim picks up the call, the caller tries to obtain personal information under false pretenses.

Calls and messages are sent from this fake ID to trick the victims into divulging personal/confidential information. Once the call or message is answered, the fraudsters will use social engineering methods to persuade victims to provide confidential information.

4. Recycling Phone Numbers

When a mobile user’s account is closed, the mobile operator will release the phone number again after a short period of closing the account. Now the number can be reassigned to someone else and can be used by some other user.

Today, it has become a common practice that mobile numbers are associated with personal accounts. Allowing for the transfer of funds using mobile numbers. A lot of fraudsters activate old mobile numbers with the aim of finding a number that has been recently recycled.

This number can then be used to access accounts linked with the number.

5. Call Forwarding

Call Forwarding is another mobile fraud technique used by fraudsters. In some online transactions, customers are asked to prove whether they have the mobile in their possession or not. This is done by sending a one-time password to the customer.

Sometimes, fraudsters call or text an intended victim, asking them to forward their call on to someone else. This can be done for any fake reason. Once the victim forwards inbound calls and texts to a fraudster’s device, the fraudster will be able to access all the one-time passwords needed to access personal accounts.

Fraudsters can now access accounts, make payments, and conduct other frauds without the victim ever knowing.

Use of Real-Time Data for Preventing Mobile Fraud

Mobile phones have become an undeniable part of our lives. Without smartphones, there are hundreds of things we won’t be able to accomplish on regular basis.

Mobile phones provide unique data in that it is the only source of ‘dynamic’ data on what’s happening in ‘real-time’. This dynamic data can be used to immediately figure out if a device has been lost or stolen, or if a SIM card has been recently swapped. It can even help in figuring out if the inbound calls or texts have been forwarded.

By using mobile data, you can keep fraudsters out, and it’s also helpful in identifying good guys. Companies can do mobile data checks behind the scenes to access online services securely, quickly, and easily, and ensure that customers won’t fall prey to mobile fraud.

Categories

Know Your Customer’s Customer

KYCC - know your customer's customer

KYCC is a great way to protect your business’s reputation and protect itself against financial crimes.

KYC (Know Your Customer) protocols are too common and are known by almost every regulated business. But, have you thought about the level of risks your customers’ customer present to your business? The type of products and services your customers provide will decide the type of customers they have. Based on the number of customers, you may face unique risks.

When you comply with the Know Your Customer’s Customer (KYCC) process, you can protect your business from potential threats that come up.

What is Know Your Customer’s Customer (KYCC)?

KYCC is an additional compliance method that businesses can employ. KYCC goes a step beyond ordinary KYC or KYB methods. It is the most similar to the Know Your Business (KYB), process. It involves you doing a close analysis of our business’s customers.

With KYCC, you have to evaluate your business clients. You have to go past your business’s clients and see who they work with. Based on your customer’s customer base, your business could be exposed to new and unique threats.

The primary goal of KYCC is to:

  • Confirm that businesses that are your customers are actually who they claim to be. By verifying their accounts, you can be a bit more confident that you’re dealing with an actual business, not some fraudster.
  • KYCC allows you to identify if any of your customers are offering their services to shell companies, or high-risk companies.

Importance of KYCC

KYCC measures can protect your business, customers, and the economy against tax evasion, terrorist financing, money laundering, etc. Without proper regulations, these crimes can grow at an alarming pace. 

KYCC procedures are not widely regulated across the globe currently. But, these regulations are becoming a standard. The 5th and 6th Directives in the EU and FinCEN have indicated a deepening interest in KYC, risk, and compliance. 

As new regulatory bodies continue to understand the importance of KYCC, it’s expected new regulations will soon be announced. If customers discover your businesses have facilitated illegal activity, it’s going to hurt your reputation. When you implement KYCC protocols, you’ll be able to identify these issues and reduce the level of risk associated. 

KYCC is more crucial for high-risk industries, such as finance. That said, any business can benefit from the reputational benefits of KYCC.

What Does KYCC Look Like?

KYCC looks a lot like KYC. The only big difference is that you have to verify your customers’ customers. Similar to KYC, there are some basic steps in KYCC:

  • Identification – In this step, businesses have to identify and verify the identity of each of your customers’ customers.
  • Due Diligence – This step involves checking sanctions lists, account history, and other information to make sure your customer’s customers aren’t involved in illegal activities.
  • Ongoing Monitoring – It is where you implement measures to find illegal activities. Businesses have to take action to handle the task accordingly.

How to Start Implementing KYCC?

To begin KYCC, you’ll first need to ask your customers to provide a list of their customers. If they’re not comfortable sharing this information or are hesitant to share it, you may have to teach your customers about the benefits of KYCC.

When you have the information, you’ll have to collect all the necessary information to do KYC checks on these individuals. To be able to perform KYC checks, you’ll need to collect information and data from multiple sources.

As your customers conduct business, they’ll add new clients to their list. It’s essential that KYCC becomes an ongoing process. This way, companies will be able to detect any suspicious activity as soon as possible.

Despite the efforts, a thorough KYCC process improves both your and your customer’s businesses. It helps businesses raise their reputational standards, establish improved compliance methods, and increase trust and safety. 

How to Protect Your Business with Proactive Implementation?

You can protect your business by implementing KYCC measures. But, you should only do this if other compliance methods are already fulfilled. While the measure is not too important currently, in the near future regulatory bodies may come up with new regulations.

By implementing KYCC in place today, you can proactively protect yourself from financial crimes such as money laundering. You’ll also be able to protect your business against reputational risks and avoid legal troubles that come along.

Categories

How Identity Proofing Prevents Fraud?

digital identity proofing

Building trust online requires proof in today’s time. After the pandemic, it has become harder for businesses operating in the growing digital world needs to ensure that a customer is a real person. This is also known as “identity verification or Know your Customer” for businesses in regulated industries.

There are several technologies that involve verifying name, date of birth and address information to reputable data sources such as credit references. But, all of these steps are worthless if identity proofing is not done beforehand.

What is Identity Proofing?

Identity proofing is the process of making sure that the person who’s signing up is actually real. This is one of the most important parts of an identity verification journey. If a business is unable to verify the identity of a customer, any verification step afterward is in vain.

Not having a proper due diligence process for vetting your customers can lead to financial and reputational losses.

Document Verification in Identity Proofing

During physical customer onboarding, businesses can rely on physical identity data to verify if a customer is real or not. In physical settings, companies can check for ID documents.

After Covid, we’ve moved to a digital onboarding process. Businesses have to go through a digital identity verification process. So, what is the approach businesses can take to verify the identities of customers?

Knowledge-Based Authentication

A lot of new technologies have come to the market to accommodate this. Knowledge-based authentication questions are one method of identity proofing. KBA is a set of questions that only a real person would know. Common questions include:

  • Amount of money spent on mortgage
  • Color of the first car
  • Name of the first pet
  • Your favorite teacher

There are legitimate questions, but a spouse can also answer them. Bad actors try to guess answers to these questions. In case there has been a major data breach, fraudsters tend to use this data to answer questions. But knowledge-based questions aren’t really a secure method of identity proofing.

Businesses need to use solutions that replicate face-to-face interactions. There need to be solutions that can be legitimate, and secure.

Step-by-Step Process to Digital Identity Proofing

1. Document Verification

To verify identity, a customer is asked to provide copies of their government-issued ID documents. Robust document verification solutions such as DIRO can verify the legitimacy of the document by cross-referencing information from the issuing sources.

2. Face Match

In the next step, businesses need to verify that the person presenting the documents is legit. The right way to do this is to match the face on the document with the person who presented the document.

Some companies ask the customer to verify themselves by submitting a selfie. Face-matching is an important part of identity proofing.

3. Liveness Check

The problem with face match is that a fraudster can submit the selfie of the original person that they can download online. So Liveness check is crucial to make sure it’s a legit person submitting the application, not a fake person. 

Liveness check is the process where a person has to record a video and say a code in the video. This prevents the use of any impersonation tools or the use of fake photos.

4. Digital Identity Data Layering

All the Identity verification experts that no one size fits all digital ID proofing works for all businesses. With any system, there are outliers and exceptions. Having a multi-layered approach to digital identity verification is wise.

Relying on trusted third-party data is a crucial part of the identity-proofing process. Taking a data-centric approach to ID verification makes it easier for businesses.

5. Secure and Smooth Customer Experience

A great customer onboarding experience is crucial for both businesses and customers. Customers who have a poor onboarding experience tend to never use the services.

For businesses to scale up, you need to provide a secure yet smooth customer onboarding experience. Fraudsters, tend to find the path of least resistance, and by avoiding detection and prevention steps between bad actors.

Categories

What is Risk Based Approach to AML?

Risk-Based Approach to AML

Money laundering is a severely growing problem, and it’s not limited to any one country. The United Nations Office on Drugs and Crime (UNODC) that money laundering figures worldwide will exceed the global 2% of global GDP ($1.7 trillion).

Eurojust Report on Money Laundering, states that cases registered regarding money laundering have doubled within the last 6 months. 

Anti-Money Laundering (AML) is a set of guidelines pertaining to financial institutions and other related industries. These guidelines are meant to prevent activities that support the financing of terrorism. Regulated businesses should not knowingly or unknowingly support these activities.

Risk-Based AML and Global Regulation

There are several anti-money laundering regulatory bodies that set up rules and regulations that local and international organizations have to follow. For companies to do business in a particular location, they have to comply with the rules and regulations set by the governing body. 

The Financial Action Task Force is the global money laundering and terrorist financing regulatory body. The FATF has the responsibility to set international standards that aim to prevent illegal activities and the harm they cause to society. 

FATF works with several governments and national regulatory bodies to achieve regulatory reforms. Regulations made by FATF cover more than 200 countries and jurisdictions. 

The UK was the first one to propose a risk-based assessment for anti-money laundering. It was further adopted and improved by the FATS in 2012. this led to the development of proactive risk management.

Common AML Risk Factors

A proactive risk-based approach to AML can only be done when there is an accurate risk assessment. And there are 3 distinct areas of risk that regulated industries need to focus on during risk assessment.

  1. Individual Risks

Governments need to collect and maintain lists of high-risk individuals. These lists include known fraudsters, money launderers, terrorists, and red-flagged Politically Exposed Persons (PEPs). 

These individuals are considered high-risk individuals because of their influence and access to a large number of funds. During customer onboarding, businesses need to identify high-risk individuals as it’s a KYC requirement. 

  1. Location Based Risks

Governing bodies also compile assessments of risk that comes with geographical jurisdictions,  flagging unsatisfactory money laundering and terrorist financing. 

The geographical location determines the laws, regulations, technology, security, data privacy, and data accuracy of a business environment. To take a risk-based approach to AML, businesses need to take location-specific risks into consideration. 

  1. Channel Risks

The way a product or service is taken to the market can also affect the risk level. Now that we’re living in an internet-based economy, sales of products and services that happen online always carry a hint of risk. Without robust KYC verification and ID verification process, there’s no way to eliminate the level of risks associated with online transactions.

How to Implement a Risk-Based Approach to AML?

Taking a risk-based approach to AML is similar to managing any other type of risk in your business. A risk-based approach to AML includes:

  1. Identifying Business Risks

To be able to take a proactive approach to AML, you first need to identify the risks. A business needs to review products, services, and portfolios, that contain common AML risk factors, such as:

  • Customers – How much do you know about the type of customers for your service?
  • Geography – What’s the exposure of the target markets to financial crime?
  • Delivery channel – By what means the product will be delivered to the customers?
  • Industry – How advanced are the regulations of your business’s industry?
  • Monetary Value – Does your product and service has a high monetary value?
  • Regulatory Controls – If the regulations in the country are advanced enough.
  • Process Controls – How well can you document and follow your processes as a business?
  1. Analyzing Business Risks

Analyzing and assessing risks that a business has to face is crucial for a risk-based approach to AML. Using a table of risk factors for each product or service, a business can assign risks. Then the level of risk can be categorized as “low, medium, or high”. 

The FATF has a guide that businesses can use to show how to rank risks using a simple matrix.

  1. Implement Policies that Eliminate Risks 

Once the risk assessment is complete, businesses need to make policies and implement policies that help mitigate risks. These policies should make sure that the right level of scrutiny is applied to the right type of risks. 

There should be an ideal balance between high scrutiny for high risks, and minimal friction for customers with low risks.

Technologies Involved in Anti-Money Laundering

To manage risk and maintain the risks of a business, there needs to be a solution that can cover every part of the business. There are a lot of AML technologies out there that can automate the risk-assessment process for new customers, and new transactions within seconds. 

Technologies involved in anti-money laundering can be broken down into two categories:

  1. Know Your Customer

Know Your Customer (KYC) is the combination of customer due diligence and enhanced due diligence that regulated organizations comply with to make sure their customers are real people and not someone posing as someone else. If there’s a customer that poses a level of risk needs, to be monitored throughout the relationship with the business. 

In an economy that’s moving towards digital solutions, new solutions that cater to online ID verification, and ID proofing are always coming up. These technologies can help businesses identify whether a customer is a genuine person or a criminal with stolen ID data.

  1. Transaction Monitoring

The process of monitoring a customer’s transactions, be they small or big is known as transaction monitoring. Transaction monitoring techs are designed to eliminate the risk of money laundering. These techs can monitor digital transactions across all business channels and look for suspicious behavior.

The cost of these solutions to the business is the only consideration businesses need to have before finalizing a technology.

Frequently Asked Questions

1. What is Anti-Money Laundering?

Anti-money laundering is a set of rules and regulations outlining steps a business needs to take to manage or prevent the risks of money laundering. These regulations help businesses fight terrorism financing and other illegal activities. Businesses that work in under-regulated industries need to comply with these rules and regulations.

2. What is a risk-based approach to AML?

AML regulations can be enhanced by taking a risk-based approach. The risk-based approach includes assessing the risk of a product and service’s exposure to the market, customers, channels, transactions, and other risk factors. 

The assessed risk is categorized into low-risk, medium-risk, and high-risk categories. The potential impact on the business needs to be analyzed so businesses can come up with policies to prevent and manage these risks.

3. What is Know Your Customer (KYC)?

Know Your Customer or KYC refers to the customer’s due diligence and enhanced due diligence process. Regulated companies have to make their customers go through the diligence process to verify if the customer is an actual individual or not.

The KYC process also includes continuous transaction monitoring, through which businesses can figure out suspicious activities.

Categories

Common Challenges in Risk Management

Challenges in Risk Management

It is almost impossible for lenders to measure and manage credit risk, based on the disruptive patterns in consumer behavior in the last 2 months. How can large banks ensure that their digital transformation programs are working perfectly?

Managing risks is becoming tougher in today’s time, and businesses from all over the globe are implementing new methods.

Managing Risk Models in a Crisis

One of the biggest problems faced by risk leaders worldwide involves changes in consumer risk. Leaders also need to know how to measure these risks to be able to better decisions. 

Every major change in the economy brings up the issue of risk model performance.  The current models are based on risk models prior to Covid.

Robust risk management models will keep performing well even when the situation in the financial industry has changed. But the actual level of risk will change, making the model monitoring and governance more critical.

Biggest Challenges in Risk Management Today

There are 5 major challenges in risk management as of today, including:

1. Failure to Use Appropriate Risk Metrics

Value-at-risk or VaR is a common risk metric, but it only tells the largest loss a firm has incurred at any given time. VaR gives no idea about the distribution of losses that exceed VaR.

This would suggest the application of VaR doesn’t guarantee the success of risk management. The effectiveness of implementing VaR also depends on the liquidity of the financial market.

2. Measurement of Known Risks

Risk managers sometimes mistake accurately depicting the probability and the size of the losses. They could also use the wrong distribution channel. For a financial institution with endless positions, although they may properly estimate the distribution associated with every position.

Unable to measure, or wrongly measure a known risk is a big challenge in risk management.

3. Failure to Take Known Risks into Consideration

Sometimes, risk managers face challenges in considering all the risks in a risk management system. Sometimes it’s because of neglect, and sometimes it’s because of the additional expense. This happens because it’s impossible to forecast future events.

4. Unable to Communicate Risks to Top Management

Risk managers have to share information about the risk position of the organization with the top management. The management and the board have to take this information into account and come up with a risk management strategy.

If a risk manager is unable to provide this information to the top, they won’t be able to come up with a risk management strategy. The strategy they do come up with is based on ill information. This leaves the firm vulnerable and unable to manage risks properly.

5. Failure in Monitoring and Managing Risks

The last challenge for risk managers is to capture all the changes in the risk characteristics of securities to adjust strategies accordingly. As a result, risk managers often fail to monitor or get rid of risks simply because the risk characteristics of security may change too quickly to allow them to assess them, and put on risk-preventing methods accordingly.

Categories

First-Party Fraud, and How To Prevent It?

what is first-party fraud

The word fraud is used almost every day today. It’s not always hackers sitting behind multiple screens who conduct these frauds. Ordinary people with a little bit of knowledge also conduct fraud. In reality, a lot of customers end up sharing their personal information with fraudsters unknowingly. These fraudsters use this information to rack up huge credit card bills. In other cases, users end up committing fraud using their own information.  

Both of these types of fraud are called first-party fraud. 

Most of us assume that first-party fraud happens only in banks, but as telecom companies have entered the financial industry, so they’re also feeling the pinch. Debt collection agencies are leaking more profits and costs, trying to collect something that isn’t recoverable.

First-Party Fraud Affects Profitability

First-party fraud usually comprises 10% of the volume of credit card losses. These losses are also called bad debts. This huge risk often gets missed as it comes somewhere between the risk department, operations, and the fraud team. In other words, first-party fraud does not have an owner most of the time. 

Soiled fraud and collection departments can reduce the chances for fraudulent patterns to be discovered. While the relatively low volume of first-party fraud reduces its priority level, for some organizations, first-party fraud remains one of the biggest profit drains. 

In 2022, it is more vital than ever to take decisive actions and manage first-party fraud.

Why It’s Easy to Miss First-Party Fraud?

Traditional third-party fraud requires some kind of impersonation or stolen identity. Be it stolen credit card data, or someone taking over your identity. At some point, many victims of third-party fraud become aware of the crime when unknown transactions come up on their statements. 

Compared to third-party fraud, first-party fraud is often confused with credit risk problems. Accounts that don’t pay their debts are sent to collections for a progression of treatment. 

Unlike third-party fraud, the transactions happen with accurate information and they look like legit transactions. This makes first-party fraud much harder to spot. And in this way, first-party fraud can be eventually written off as it is uncollectible. This information is also sold to third-party external collection agencies.

Newer financial services providers are even more challenged in figuring out first-party fraud. Newcomers don’t have access to all the historical data that banks have to analyze which transactions are legit and which aren’t.

Be it an online bank, or a telecom service financing costly devices, all these organizations face similar challenges in fraud prevention.

Common Types of First-Party Fraud

There are different types of first-party frauds that organizations should know about:

  1. Sleeper Fraud: It occurs when a fraudster gets their hands on a type of credit, and over time builds up a reputation. As they build trust with the service provider over months, they can take maximum advantage of cash and any goods with these cards. Once they’ve racked up a huge debt, they leave this information and move on to the next one.
  2. Bust-Out Fraud: This type of fraud is also called hit-and-run fraud. It can happen in a type of financial service. It’s quick and sometimes easy, and credit cards and loans are the easiest targets. In some countries where cheques are in use or have slower clearing cycles, fraudsters can exploit these weaknesses to rack up a credit balance 10 times the normal limit. Then the fraudsters cash out before these transactions are even caught.

How Does First Party Fraud happen?

First-party fraud is highly opportunistic and it can be done on a small scale by a single fraudster or by a group of fraudsters. Both sleeper fraud and bust-out fraud can be conducted in an opportunistic fashion. 

Some of the first-party fraud schemes are executed in both ways. For example, in the UK, Europe, and the Middle East, the highly fluid mobility of university students creates conditions that are perfect for fraud. 

In this type of fraud, fraudsters gangs have focused on out-of-country students to buy their ID data and bank account information as these students go back to their home countries. There are many potential victims, as only 10% of foreign students stay in their country. Almost 90% of students go back to their home countries, thus their information is ripe for exploitation. 

Fraud with student credential fraud often starts with criminal gangs advertising in student unions and social media. Sometimes they even infiltrate family WhatsApp groups just to get their hands on some quick cash.

While these offers may be tempting to cash-strapped students, the fraudsters have different intentions. With 1.3 million students in the EU, you can see why this group is one of the biggest targets for fraudsters.

Strategies for Fighting First-Party Fraud

The biggest challenge with first-party fraud is distinguishing between fake and real customers. So, what can businesses do? Here are some strategies to try fighting first-party fraud:

  1. Learn to recognize the distinction between unintentional bad debt and intentional bad debt, or fraud. With the right type of analytics, patterns can start to become clear, and very evident. 
  2. You need to accurately categorize fraud as fraud, instead of calling it a bad debt. These instances should be called first-party fraud or synthetic identity fraud. This will help you to begin identifying patterns and common traits in the schemes fraudsters use. 
  3. Define clear rules and models and perform link analysis to analyze data for known fraud patterns. These common signs include phone numbers, names, email addresses, and other identifiers that fraudsters will use again and again to apply for loans, credit cards, accounts, and mobile subscriptions. 
  4. Improve sign-up and onboarding processes by using these analytics. By doing this, you can monitor for links between declined applications for credit risk and new applications where the same data is used for application. 
  5. If you don’t have enough evidence to mark a transaction as fraudulent, tag these accounts as suspicious accounts. Once an account is opened, and credit is extended, the account can be monitored more carefully for suspicious activity. Any sudden changes in account data can be a sign of fraudulent transactions about to happen.

Be Proactive With First Party Fraud

The rate of fraud is only increasing, so businesses need to be proactive in fraud prevention. For those fraudsters with established synthetic identities hidden in account portfolios, the high time for using these identities is now. 

At the same time, organizations that are keen to increase their customer base have had to increasingly look to digital channels, as face-to-face interactions have almost vanished. Increased criminal activity coupled with increased reliance on remote onboarding processes has made it harder to prevent fraud.

Businesses need to make sure that they act before fraudsters do.

Categories

Compliance vs Risk Management Process – Everything You Need To Know About it

different between compliance and risk management

According to surveys, 60% of top-level executives in the financial industry consider compliance and risk management as the two most complicated categories. Some surveys have showcased that a huge number of banks globally don’t have ideal techniques in place to maintain compliance.

There are tons of misconceptions about compliance and risk management. While both of them help businesses protect their legal structure and physical assets from fraud, both of them are unique. Most people end up interchanging the terms with each other. For businesses operating in the financial industry, the need to understand the difference between the two is crucial.

Without having an idea what compliance and risk management have to offer, it’s practically impossible to stay secure.

Business leaders can come up with strategies that take advantage of all the tools at hand. The end goal should be to comply with all laws and manage risk as much as possible.

What is Compliance?

Compliance is the process of following a set of standards, regulations, and legal guidelines. Compliance management is the process of making sure the entire organization is doing activities that help them conform to the rules. Managing compliance in businesses involves two important steps:

  • Regulatory compliance: These are the steps and changes made by an organization to comply with the set of rules, guidelines, and laws set by an external authority.
  • Corporate Compliance: These are the actions and security practices an organization implements to ensure compliance with the organization’s internal rules.

For an organization to operate smoothly, they need to comply with both regulatory and corporate guidelines. Maintaining regulatory compliance can protect businesses from external threats, and prevent fines, legal actions, and even shutdowns in some instances.

What is Risk Management?

Risk management is something an organization has to do on its own. It’s the process of analyzing, assessing, identifying, and then managing potential threats that can hurt an organization’s reputation and financial health.

These risks come from various sources, including legal liabilities, data-related issues, financial uncertainty, poor KYC and customer onboarding processes, poor vendor onboarding processes, etc.

Risk management involves building and implementing plans that can increase awareness of these threats and teach how to avoid them. 

Risk management allows businesses to predict future threats and prepare for them.

Difference Between Compliance and Risk Management

Compliance and risk management are closely intertwined. Compliance in association with industry regulations makes sure that businesses stay protected from emerging threats. Risk management, on the other hand, helps businesses prevent risks that can arise from non-compliance. Let’s break down the differences between both them:

  1. Prescribed vs Predicted

Compliance is a set of rules and regulations that are set forth by regulatory bodies (governments, industry leaders, etc). Risk management is mainly internal. Organizations have to predict for themselves the risks that can arise in the future. Based on these assessments, businesses have to come up with solutions that help manage these risks.

  1. Tactical Approach vs Strategic Approach

Not complying with industry standards and rules can lead to huge fines, penalties, and reputational damage. Businesses spend hundreds of hours worth of manpower to take a “check-box” approach to make sure the organization is complying with the rules.

Compared to that, risk management is all about building strategies as it requires carrying out decisions that minimize risks.

  1. Preventing Risks vs Creating Value

Businesses need to take a far-sighted approach to risk management. Without preparing for the future, businesses are not usually able to generate value propositions for themselves.

The compliance process ends when an organization is sure that a particular rule is followed. Out of the two, compliance is easier. But, it gets a bad reputation in the industry as it requires time, effort, and resources from employees. Instead, employees could be spending their time on other projects.

A good risk management program is a never-ending process. It requires constant changes, amendments, and thought. Risk management requires changes to strategies all the time so the organization can stay compliant with external rules. Constantly staying up to date with compliance leads to generating a great brand reputation in the market.

Can Compliance Happen Without Risk Management?

Your organization can’t have risk management without compliance. Not being able to or not wanting to comply with rules leads to fines, exposure to threats, and reputational damages. So, make sure to include the compliance process in your business.

The average non-compliance cost for a business is $9.4 million. A  good risk management plan will be able to allocate resources and time to ensure an organization is up to date with all the latest compliance laws.

Organizations can prevent hefty fines, losses due to theft, and reputational damages by simply investing in a risk management process.

Categories

Importance of Compliance Management

what is compliance management

No business can survive without a list of rules and regulations. To maintain this compliance, businesses have to follow the rules and regulations that are related to their industry. Businesses consider “maintaining compliance” a challenge as the rules are always changing. If you fail to stay up to date on these compliance rules, it can damage your company’s reputation.

What is Compliance Management?

Compliance management is the process of monitoring and assessing an organization’s internal systems to make sure that they comply with industry regulations.

Maintaining compliance isn’t just the role of top management, it comes down to everyone within the organization. The knowledge and understanding should correlate with the organization’s goals. All employees should be aware of how they can follow compliance standards. This helps in smooth working operations.

Importance of Compliance Management

As technology is becoming a major part of all sectors of our lives, legal regulations are becoming fiercer. Compliance management is crucial for every business as non-compliance can lead to legal and financial penalties, data theft, and damage to a business’s reputation.

Compliance management software or verification software can help financial institutions to keep up with compliance requirements.

Here are all the reasons why businesses need to comply with industry rules and regulations:

  1. Avoid Violations

Noncompliance with industry rules and regulations can hurt your business’s financial health. According to a recent study, it came to light that businesses without a compliance management system were imposed fines 2.71 times more than organizations with a system in place. 

These fines amounted to $14.83 million annually. The same report also stated that the annual cost for compliance management is $5.47 million. Businesses operating in financial industries especially need to comply with industry standards and regulations.

  1. Helps in Evaluate Security Risks

Complying with rules and regulations allows businesses to evaluate and manage security risks. Not just written guidelines and documents, but organizations need proper systems that can help to maintain compliance.

Risk assessments help in evaluating the level of risk an organization is facing at any given time. It also helps in uncovering potential risks. In addition to continuous monitoring, compliance management tools like KYC verification software can help you fix vulnerable parts of the operations.

  1. Protect Against Data Breaches

In case you fail to follow compliance requirements, it can lead to data breaches, and legal penalties, and it can hurt your business’s reputation. Every year, the number of data breaches is increasing, leading to the loss of millions of dollars worth of data. That’s not all. These data breaches ultimately increase the number of ID theft cases, leading to a whole new domino chain of fraud.

Challenges of Compliance Management

The reason why businesses shy away from compliance management is the challenges they face. Complying with laws and maintaining them throughout the organization is a major task. 

  1. Regular Changes in Laws

Regulatory bodies often keep changing the rules and regulations based on current fraud trends. As new cyber threats move quickly across industries, regulatory bodies have to make immediate changes to rules to help organizations protect customers.

  1. Large Enterprises with A Lot of Employees

Managing and maintaining compliance is most challenging for larger enterprises. With a large workforce, it can be tough to make sure everyone is following the compliance initiatives. This leads to complex organization systems and can increase the risk of data breaches. 

  1. Scattered Working Environments

As organizations now have both on-site and remote workforces, it becomes even more challenging to get an accurate view of compliance status. As a result, it has been challenging for most organizations to manage and monitor for risks and weak points.

Compliance Management Best Practices

Compliance management is a major process that requires a multi-faceted approach. You need to build a system that allows you to monitor all environments at the same time. Here are some best practices that you can follow for compliance management.

  1. Conduct Policy Audits

If your organization’s policy was written years ago, then most likely it needs to be added. Go through your organization’s compliance management policy, and take note of all the things that look dated. An audit will reveal gaps and weak points in your policy. Try to fix all the issues and you’ll be able to come up with a newer and stricter compliance management policy.

  1. Train Your Staff

Your staff needs to have a complete understanding of how they can maintain compliance throughout the organization. If your staff are your weakest link, then just making policies won’t solve anything. 

Training helps reinforce policies and procedures and helps you handle employee questions and concerns. You should also schedule training sessions throughout the year to make sure all the employees are up to date on compliance standards. 

  1. Continuous Monitoring and Due Diligence are the Keys

Data security and privacy legislation are some industry standards that want organizations to manage their cybersecurity standings. While privacy and security are two completely different things, they do go hand-in-hand.

The new privacy laws require businesses to consider “privacy by design” or “security by design,” and the use of continuous monitoring solutions. Businesses need to note that they should perform due diligence on third-party vendors. They can do this by using vendor bank account verification solutions.

Categories

Managing Online Payment Fraud Efficiently

manage online payments fraud

Banking has become digital. The payments sector has been especially impacted by digitization. But with the growing use of digital payments, fraudsters have found a new avenue for success. According to a 2022 payment fraud study, merchants spend an average of 10% of eCommerce revenue on fraud management.

Every merchant and business needs to manage payment fraud to mitigate losses. Constant payment fraud even acts as a red flag for the organization. Preventing payment fraud can even help organizations scale at the right pace.

One of the biggest challenges of fighting online payment fraud is that interconnected networks are complicated.

Every single transaction could be a potential attack point for the organization. Regardless of the threat, an organization has to provide a seamless payment experience.

There are a lot of moving parts that customers have to care about, such as interfaces, websites, apps, and back-end services. On top of all of this, additional services such as ID verification, authentication, transaction monitoring, and more.

Banks need to be highly careful about the ever-changing nature of the payments industry, and the new techniques being used by fraudsters. Maintaining a safe and seamless payment environment for customers is becoming increasingly challenging.

Fortunately for banks and financial service providers, preventing payment fraud doesn’t need to be super complicated, expensive, or time-consuming. The best way to move forward is to take a risk-based approach that covers your specific needs and aligns with your organizational goals.

Knowing Your Customers is Crucial

Regulated industries have been struggling with fraudulent transactions. Since they have to fight fraud all the time, they have better fraudulent transaction handling. Businesses in these industries have well-established procedures to identify customers and understand the risks that come along.

KYC procedures are made to design and prevent money laundering and offer intelligence into the nature of the customer. You need to know who the customers are, and if they are real.

KYC happens during the customer onboarding process. You need to ensure that fraudsters can’t even create an account. While these processes tend to weed out fraudsters, they can also hurt genuine customers. Your fraud prevention process should not create unnecessary friction in the customer onboarding process.

You absolutely need to implement seamless, effective ID verification solutions. It is the first-ever step in managing payment fraud.

Understanding Payment Flows

While it is possible that every single transaction is fraudulent. Businesses still need to monitor, flag, and analyze transactions to provide ongoing intelligence and add another level of risk management.

As payments are becoming faster, the increasing speed of payments requires faster payment information processing. Latest innovations such as real-time payments will require solutions that are incredibly sophisticated.

Financial institutions need solutions that can help them understand who their customers are, and whether the information provided to them is accurate or not.

In the EU, legal obligations require strong customer authentication for multiple transactions. Two-factor authentication such as confirming a text, email, or in-app notification, is an authentication technique that businesses can deploy.

A new verification method has come out called 3D Secure 2.0, and it is backed by all the major credit card providers.

Some other dynamic fraud detection tools same as transaction monitoring can also help in risk mitigation. Some online fraud mitigation processes can help in:

  • Spikes in activities
  • Exceeding thresholds
  • Out-of-area or unusual cross-border activities
  • Changing purchase patterns
  • Consumer alerts
  • Credit reports
  • IP address discrepancies
  • Fraudulent patterns

Integrate Security into the Process

Managing payment fraud should be a natural part of the process. It should not feel like an additional task that you have to manage. Security is a crucial part of running a successful digital company and it contains a lot of factors. If there are a lot of weak points in your security, that’s the place where fraudsters will target.

There are some methods and solutions that every business needs to have to prevent fraud:

1. Tokenization

The best way to protect customers from a data breach is to tokenize the information. In the case information is stolen, it won’t mean anything to anyone other than the transaction and the retailer. If the retailer is hacked, the hackers won’t be able to gain anything from all the data.

What’s even better is that the Payment Card Industry promotes this practice and it works with almost all existing POS systems. It replaces the actual 16-digit credit card number with a 16-digit token. It doesn’t add anything to the payment process, and it cuts down on compliance costs.

2. Encrypt the Information

For all major retailers, end-to-end encryption is a great option to prevent fraud. PCI standards don’t allow storing credit card information after a transaction, and converting that data via an algorithm protects the data while still allowing authorized use. But you need to keep one thing in mind: encryption is an expensive process that doesn’t work well for small and mid-sized companies.

4. Address Verification

Currently, all the eCommerce address verification checks are done using the Address Verification System (AVS). AVS can check the address on the credit card file to the data provided by the customer.

AVS checks the zip code and the street number of a billing address and it compares those numbers to the zip code and street number of the credit card owner. Visa, MasterCard, and American Express support AVS in the U.S., Canada, and the UK.

But, the AVS isn’t perfect. Customers could have moved to a new location, or they may be ordering things online for someone else. In these situations, the AVS just falls apart. What works better is the address verification solution offered by DIRO. DIRO address verification can verify addresses using utility bills straight from government sources, thus eliminating the risk of payment fraud.