Category: Bank

Audit breaches & failures have become a normal occurrence. However, most of the breaches are unintentional, they’re caused by inadequate audit tools. Recent audit failures are teaching businesses that a lack of proper audit frameworks can be catastrophic. Failing audit breaches leads to huge fines for non-compliance. 

Businesses can avoid financial, legal, and reputational damages by implementing open banking tools to overcome many common failures. 

Open banking tools have matured in recent years and auditor adoption can improve the quality of audits.

How Audit Failure Damages Businesses?

Audit failures can have severe implications for firms in multiple ways. Reputational damage is one of the biggest challenges for firms that fail audits. News coverage and press coverage make it harder for firms to be trusted again by customers and win new clients. 

Among the Big Four, instances of audit litigation make national news because the audit companies are well known. 

There is a significant need for audit improvement as audit breach cases are becoming common. Failing to hold on to high-profile audit clients can lead to firms losing revenue in the imminent and future years.

Audit Failings Are Unintentional

Most of the audit breaches are not intentional. In most cases, audit failures happen because auditors do not have access to adequate tools and resources to analyze large datasets that modern businesses produce.

For audit firms, this must be extra frustrating as businesses with remedial measures designed to address the shortcomings in the audit work still end up with audit failures due to inadequate tools. 

The only thing that can fix this issue is based on audit firms showing a willingness to remedy their audit methods and no repeat mistakes. Audit firms have to be provided with better tools to do their job successfully.

How Open Banking Tools Overcome Many Audit Failings?

Most audit failures can be avoided with the use of open banking-enabled audit tools. Specifically, the audit breaches related to inventory, journal entry testing, customer verification, revenue recognition, defined benefit pension scheme, going concern, and the review and supervision of the audit. All of these audits can be improved with the combination of open banking audit tools.

Open banking technology allows firms to access a complete data set of banking transactions.

How Open Banking Can Improve Audit Breaches?

Integrating open banking tools like balance confirmation can significantly enhance the security, accuracy, and efficiency of audit breaches. Instead of relying on limited or sampled financial data, businesses can access a complete, real-time view of bank transactions, ensuring more reliable verification.

By verifying 100% of transactions rather than just a small sample, businesses can detect inconsistencies, reduce fraud risks, and improve compliance with financial regulations. This also helps bridge the gap between what customers expect from verification services and the actual checks being performed.

To drive adoption, businesses need greater awareness of how open banking can strengthen verification processes. One way to encourage this is by demonstrating how it helps prevent fraud and meets regulatory requirements, reassuring both customers and industry regulators.

FAQs

Open Banking is an ever-changing industry. Financial institutions can benefit greatly from implementing open banking solutions. Several things are afoot in the open banking industry. On October 22, the US Consumer Financial Protection Bureau (CFPB) released the first-ever open banking rule, and the same day, a lawsuit was filed challenging the rule.

Open banking regulations are now in place for several countries and jurisdictions across the globe, including – UK, EU, Australia, Brazil, Japan, Singapore, and others. A lot of financial institutions and FinTechs benefit from the rich data. According to a study, 82% of banks in the UK were expected to be using open banking by the end of 2023.

Right now, the open banking regulations vary greatly based on the market and the region.

What’s New in Open Banking?

As we mentioned, the Consumer Financial Protection Bureau has proposed the Personal Financial Data Rights Rule under Section 1033 of the Dodd-Frank Act.

In Canada, the Financial Consumer Agency is working on open banking and named it consumer-driven banking. 

As of now the US & Canada have nearly identical goals for the new regulation:

• Give consumers greater control & ownership of their financial data.
• Make security and consumer protection the primary focus.
• Foster innovation and competition in the financial sector.

Right now, the US has the most mature financial aggregation environment globally. Most US banks are using “bank account linking” during their onboarding process for new accounts and/or in their account management to improve:

• Credit line management
• Verification of income
• Other vital customer information

Canada is behind the US in terms of open banking regulation and in the usage of data. That’s because of 2 primary factors:

• Banks are trying to limit access in a defensive effort
• Security & privacy concerns, as it’s technically a breach of most Canadian bank’s online banking agreements.

Top 5 Open Banking Opportunities for Banks

Here are 5 reasons why banks should care about open banking:

1. Improved Verification of Essential Credit Application Data

Open banking makes verification of essential credit information easier, including data such as proof of income, rent, mortgage, and debts. Solutions such as DIRO’s online document verification, combined with the open-banking can enhance how credit application data is verified.

2. Low-Friction Experience for Customers

Customers today want a low-friction experience with digital banking. Open banking can facilitate the experience for customers. Seamless access to customer data and quick turnaround times will enhance customer experience.

3. Predictive Analysis

Open banking filled with rich customer data can improve the predictive models currently used for credit approvals. This can help the younger population and new immigrants who have little to no credit history. They only have savings/checking accounts.

4. Helps Understand the Nature of Small Businesses

Small businesses always face challenges when working with FIs on credit applications and demonstrating creditworthiness. Open banking data will significantly enhance the ability to understand the financial nature of small businesses.

This provides better predictability on credit performance and affordability, and it can shorten the time-to-decision performance.

5. Personal Finance Consultant

For many consumer banks, open banking can lead to AI-driven personal financial consultants. AI-based personal finance consultants will have to be trained on a lot of rich financial data, this can be done with open-banking data.

Millions across the globe use digital banking services every day. But there’s an even bigger portion that has limited access to basic banking services, let alone the digital one. This segment is known as underbanked. To make the underbanked transition to digital banking and normal banking is a huge challenge. 

Digital banking opens the doors for the underserved to basic banking services, it also opens doors to online banking risks. It falls onto the banks to take a multi-step approach to protect users from fraud.

In this blog, we’ll talk about how to protect the underbanked from online fraud.

Who Is the Underbanked Population?

The underbanked as the name suggests are individuals that have limited access to banking services. Most underbanked individuals do have a basic bank account, they usually have an alternative financial service. 

There can be multiple reasons that can make a user underbanked, such as low income, geographical isolation, distrust of financial institutions, or a lack of understanding of financial products. In many cases, underbanked populations are found in rural or economically disadvantaged urban areas where access to physical bank branches is limited.

For the underbanked, transitioning to digital banking offers an opportunity for inclusion, providing easier access to money transfers, bill payments, and savings options.

Steps to Improve Financial Literacy in Underbanked Areas

Improving financial literacy is one of the most effective ways to protect the underbanked from online fraud. 

When people have a better understanding of basic financial principles, they are more equipped to recognize suspicious activity, avoid scams, and manage their money responsibly. 

Here are several steps that can be taken to enhance financial literacy in underbanked areas:

1. Community Workshops

Hosting financial education workshops in local communities, particularly in underbanked regions, can help spread awareness of essential financial concepts. 

These workshops can cover topics such as budgeting, managing bank accounts, online document verification, financial fraud, and understanding the risks of alternative financial services. Local banks, credit unions, and nonprofits can collaborate to provide resources and training to community members.

2. Partnering with Local Schools

Educating young people early on about personal finance can have long-term benefits. By partnering with schools in underbanked areas, financial literacy programs can be integrated into the curriculum. 

This way, students learn about money management, saving, and financial planning, which they can pass on to their families.

3. Mobile Education Platforms

Given the widespread use of smartphones, mobile apps can be a powerful tool for promoting financial literacy. 

Developing user-friendly apps that teach basic financial skills, along with tips to recognize online fraud, can be particularly effective in reaching the underbanked.

4. Collaborating with Employers

Employers can play a role by offering financial education as part of employee benefits, especially for workers in industries where wages are lower, and financial services are less accessible. 

Workshops, seminars, or even informational newsletters distributed through workplaces can help improve financial literacy.

Teaching About Digital Banking

Transitioning the underbanked into digital banking systems is essential for their financial inclusion, but it must be done carefully.

Teaching the underbanked about digital banking requires a balance between convenience and security. Without proper guidance, users may not understand how to keep their accounts safe, making them prime targets for online fraud.

1. Start with the Basics

It’s important to teach the basics of digital banking before delving into advanced features like mobile payments or online investments.

This includes how to set up and manage online accounts, understanding account balances, tracking transactions, and knowing how to contact customer service.

2. Explaining Digital Transactions

Underbanked individuals may not be familiar with how digital transactions work. They should be educated on the various ways they can transfer money safely, such as using bank apps, money transfer services, or payment platforms like PayPal. 

More importantly, they should learn to recognize red flags, like unexpected requests for account details or unauthorized transactions.

3. Password Management

One of the simplest ways to protect online accounts is by using strong passwords. Underbanked populations must be taught how to create secure passwords, change them regularly, and never share them with anyone. 

The concept of two-factor authentication (2FA) can also be introduced, showing users how to add an extra layer of security to their accounts.

4. Avoiding Phishing Scams

Teaching users how to recognize phishing emails and fake websites is a critical component of digital banking education. 

Scammers often use emails or text messages to trick users into providing their personal information. People must be instructed never to click on suspicious links or share their bank details over email or phone.

Common Steps to Prevent Online Fraud

Once financial literacy and digital banking basics are in place, further measures should be taken to actively prevent online fraud. These common steps can help protect the underbanked as they become more engaged in digital financial services:

1. Fraud Alerts and Notifications

Many banks and payment apps allow users to set up fraud alerts or transaction notifications. Underbanked individuals should be encouraged to enable these features, as they provide real-time updates on account activity and can quickly flag any suspicious behavior.

2. Secure Internet Connections

Emphasizing the importance of using secure Wi-Fi networks, particularly when accessing online banking platforms, is essential. Public Wi-Fi, while convenient, can expose users to hackers. Teaching users to avoid conducting financial transactions on open networks can significantly reduce fraud risks.

3. Regular Monitoring of Accounts

Encouraging regular monitoring of account balances and transaction histories can help detect fraud early. If underbanked individuals check their accounts frequently, they are more likely to notice unusual charges and report them immediately.

4. Using Verified Apps and Websites

One of the simplest but often overlooked fraud prevention tips is to only use verified banking apps and websites. Many fraudsters set up fake banking apps or websites to steal personal information.

Teaching the underbanked to download apps directly from trusted app stores and to always type the correct URL for online banking sites can prevent many scams.

5. Reporting Fraud Immediately

Lastly, it’s crucial to educate users on the importance of reporting fraud as soon as it occurs. The faster fraud is reported to the bank or the authorities, the greater the chances of recovering lost funds and preventing further theft.

Conclusion

The digital era holds incredible potential to increase financial inclusion for the underbanked, providing them with greater access to financial services and opportunities. 

However, with this transition comes the responsibility to protect these individuals from online fraud. By improving financial literacy, teaching the fundamentals of digital banking, and sharing practical steps to prevent fraud, we can help safeguard the underbanked from the dangers of the online financial world. 

Financial education and preventive strategies will empower the underbanked to navigate digital banking confidently and securely, ensuring they can reap the full benefits of financial inclusion.

In 2023, fraudulent attacks increased by 117%. The increased attacks led to €250 million in losses, according to data from Spanish banks. The increase in fraud attacks included ATM fraud, debit card fraud, and bank transfer fraud. To combat the added increase in fraud, Spanish banks have started sharing data.

A survey from December 2023 found that good fraud protection is a top priority for Spanish customers when choosing a bank. 34% of respondents said it was their main consideration, and 72% ranked it among their top three concerns.

Banks that don’t protect their customers from fraud will not only face fraud losses but also struggle to attract and retain customers. The survey also revealed that 19% of Spanish respondents reduced or stopped using their personal bank account due to difficult identity checks, and 18% did the same with credit cards.

The Importance of Customer Communication in Fraud Prevention

1. Communication Helps Prevent Fraud

Streamlined communication between customers and banks is essential for fraud prevention. By involving customers in the fraud detection process, banks can respond faster and stop fraudulent transactions more effectively. However, communication must be tailored to each customer’s preferences. Multi-channel, two-way communication strategies have proven successful in fraud prevention.

When it comes to peer-to-peer (P2P) apps or online banking, the risk of scams and authorized push payment (APP) fraud is growing. Generic warnings are often overlooked but targeted, relevant messages can effectively alert customers. Multiple, thoughtfully crafted messages can even break through a scammer’s deception, prompting customers to take action.

2. Communication Enhances the Customer Experience

Customers expect strong fraud protection but also want a smooth, hassle-free experience. Poor communication can lead to two key issues:

• False Positives Become a Burden: Effective fraud detection tools reduce suspicious cases, but some situations still require customer input. Automated communication tools integrated with case management can speed up the process, reducing disruption and improving the overall experience.
• Fraud Prevention Can Disrupt the Experience: Identity checks are often necessary for fraud prevention, but long, intrusive processes can frustrate customers. 

3. Communication Boosts Efficiency and Cuts Costs

Handling fraud claims is often a complex and time-consuming process. However, by using automated, omnichannel communication tools, banks can streamline fraud claims management and reduce operational costs.

Traditionally, each step in the fraud claims process—from initiating the case to providing forms and additional information—required manual input from fraud prevention teams. With the right technology, this can now be automated. Customers receive updates and can complete forms online, eliminating the need for costly mailings and reducing their desire to speak with an agent. This reduces the volume of inbound calls, leading to significant savings.

Summing Up

In summary, effective customer communication helps prevent fraud, enhances the customer experience, and improves operational efficiency. By putting customers at the center of fraud prevention, banks can protect both themselves and their customers while keeping satisfaction high.

Have you noticed new companies popping out of nowhere, offering great credit cards, bank accounts, and other financial services? Companies with a massive digital footprint, but almost zero physical footprints.

Welcome to the world of digital banking. Digital banking or Neo-Banking is the next natural step that the financial industry will take, at least according to some industry experts.

Every now and then there’s someone who asks what are digital banks, how they operate, and how are Neobanks different from Traditional banks.

The word Neo comes from a Greek word that basically translates to “new.” So, Neobanks is a clever way of saying that this is the new age of banking. Similar to traditional banks, they offer savings accounts, current accounts, loans, money transfers, credit cards, and more.

So what’s the actual difference between the two? That’s what we’ll help you figure out.

Difference Between Neobanks and Traditional Banks

There’s a huge list of similarities between Neobanks and traditional banks, but they’re still fundamentally different. Let’s go over the list of differences between Neobanks and traditional banks.

1. Neobanks have no physical presence

Unlike traditional banks that have branches all over a location, neobanks have no physical locations you can visit. The entire infrastructure is online, and you can handle every setting of your account with an app.

This online-only model helps in saving thousands of dollars on operations costs, and costs that come along with running physical locations.

Traditional banks historically have had a physical presence, and in recent years they’ve started to get into digital banking more deeply. Compared to digital banking services offered by traditional banks, Neobanks’ services are more user-friendly and easy to use.

2. Neobanks are not regulated

While they’re called banks, neobanks are actually financial institutions. The difference between neobanks and traditional banks is that traditional banks need to have banking licenses. Neobanks are not recognized as an official entities by regulatory bodies, and thus they don’t have to follow regulations.

They utilize this saved money to provide better services at a lower cost to customers.

Some neobanks may have partial, full range, or a special banking license. A banking license allows neobanks to offer all kinds of banking services. 

3. Neobanks are more affordable

As neobanks have no physical operations to run, they can save more money, which allows them to be more affordable. They have no opening fees, low maintenance costs, no minimum requirements, no hidden fees, and they offer higher saving interest rates.

Neobanks also tend to be more transparent with their fees upfront. Traditional banks tend to have a lot of hidden charges that consumers may not understand at first.

4. Neobanks offer more flexibility

Compared to traditional banks, every single activity in neobanks is easier to do. Opening up a new account and signing up is far easier than traditional banks. It is also easier to borrow money from a neobank compared to a traditional bank.

Signing up for a credit card, or applying for a loan at a traditional bank means you’ll have to pass a range of checks. 

5. Traditional banks have more services

The biggest difference between a neobank and a traditional bank is the number of services offered. While Neobanks are faster more, user-friendly, and flexible, they often have one or 2 main services. 

Comparatively, traditional banks have a wider reach all thanks to their physical locations. People who don’t yet trust online banking, or haven’t had exposure to online banking services still prefer traditional banking over newer methods. 

6. Traditional banks are more accessible

The popularity of Neobanks has grown tremendously over the years. This is because of those who want the convenience of online banking. At the same time, traditional banks use their old-age methods of maintaining quality relations with their customers.

Neobanks are going through a great phase throughout the world. Millions of customers rely on their services, and industry experts are waiting for the future. Currently, the situation is that more users prefer traditional banks over neobanks as they’re more easily available and more reliable. 

Customers can actually go to a physical office or talk to a representative when they have a grievance. The same can’t be said for a neobank.

Frequently Asked Questions

1. Which bank is better? Neobank or traditional bank?

The better bank depends on your needs. Based on your service requirements, the better bank for you can differ greatly. Neobanks have lower fees, they’re easier to sign up with, and they’re great for tech-savvy people. 

Traditional banks are more reliable, have physical accessibility, and they’re regulated. But they’re more expensive, offer lower interest rates, and more.

2. What are the services of a traditional bank?

The most common traditional banking services include:

• Providing a savings account
• Providing a checking account
• Issuing debit cards
• Issuing credit cards
• Wealth management
• Giving out loans
• Insurance

3. Which bank is safer, Neobank or a Traditional bank?

It comes down to the level of due diligence an institution has employed. Being more tech-friendly, neobanks generally offer better security. They have simpler onboarding, yet they do ID verification, and KYC checks. 

However, traditional banks have huge infrastructure and years of experience under their belts. Moreover, they have to follow regulations set by regulatory bodies. 

In the end, it comes down to the level of customer due diligence an institution employs.

4. Do Neobanks have banking licenses?

No, most neobanks don’t have a banking license. Although, there are chances that some neobanks may have a partial, full, or special banking license. With these licenses, neobanks can offer services that a traditional bank can, with more focus on user experience, and affordability.