Online fraud poses enormous risks, many financial institutions don’t have the procedures and effective systems in place to tackle fraud. No anti-fraud procedure is 100% foolproof. Regardless of that, there are some anti-fraud strategies including 5 key steps that can help in fighting multiple cases of fraud.
Fraud is Growing in Quality and Quantity
Customers all across the financial industries are now using services that operate completely in the online environment. When the entire world went into lockdown because of the pandemic, financial institutions had to rely on digital methods. Even as the world returns to normal after the pandemic, customers wouldn’t want to go back to traditional, slow and inefficient methods. That’s why it is imperative to learn how to prevent fraud in the business.
But one of the major flaws in digital processes is that increased presence means an increase in fraud. According to a report by the FTC, the rate of identity fraud increased by 45% in the last year. Increased online transactions, payments, and personal banking provide new opportunities for fraudsters. The rate of fraud isn’t just growing, online fraud is evolving beyond normal measures. To control this, creative and unique anti-fraud best practices have to be followed.
Businesses have to fight a series of different financial attacks. Some of the most common types of online fraud are synthetic identity fraud, from replay attacks to advanced biometric fraud. To get around the common fraud, businesses set up fraud-fighting procedures, and fraudsters keep on trying new methods of fraud.
To mitigate/eliminate the threat, businesses need to keep relying on the best fraud prevention tips. But are the businesses doing enough to eliminate the fraud?
Impact of Fraud on Global Economy
According to reports, the global losses from online payment fraud alone were around $32.89 billion in 2020. This number tripled since 2011. Among other findings, surveys by financial fraud suggested that they are losing up to 7% of their annual profit because of fraud. Unfortunately, only a small percentage of these losses are uncovered. Normal fraud detection and prevention methods are proving to be ineffective.
There are large numbers of surveys that aim toward understanding the true cost of fraud to businesses & society, but it’s almost impossible to get a rational idea of how many losses fraud causes. Plus, these surveys don’t consider the associated costs of fraud. That includes the hours banking staff spend rectifying the issues and reputational damage and personal costs that fraud has on victims. One thing that financial institutions are clear about is that fraud remains a huge and financially daunting problem. Businesses need to employ the best anti-fraud strategies.
Proactive Approach for Reducing Online Fraud
To reduce the costs of fraud, and to combat new and evolving types of fraud, businesses need to invest time, money, and resources into fraud risk management. Having a successful process and strategy in place provides a comprehensive approach to identifying, assessing, mitigating, and monitoring fraud.
According to the Association of Certified Fraud Examiners (ACFE), the best approach to manage risk is proactive instead of a reaction-based approach. Organizations that have to tackle financial fraud, need to take a proactive approach to fraud. It helps in figuring out how fraudsters are going to attack and measuring the fraud level their businesses have to face.
This can happen using robust fraud detection and elimination solutions and analyzing evolving fraud trends to stay ahead of the fraud types a particular business faces.
5 Foundation Steps for Effective Anti-Fraud Strategies
In today’s online banking environment, organizations need more than a strong team of fraud fighters. So what do businesses need to do about effective anti-fraud strategies? Businesses have to follow 5 foundation steps:
- Educating People About Security and Governance
Fraud risk managers should make it a part of their strategy to educate people about fraud prevention. Fraud managers should aim to scatter their strategy throughout the business chain. A successful model also needs a compatible framework. Senior managers should hire the best team to fight all kinds of financial fraud. The team should have good enough experience in fraud awareness and detection. A customer-centric mindset is important when choosing a fraud detection team, it is crucial for implementing the right type of strategies.
- Finding the Balance
Businesses should have fraud teams focus on customer experience and growth-focused parts of the business to achieve a balance between how much risk they have to tackle and how many customers they onboard. Businesses could eliminate 100% of fraud if they don’t board any of the customers. However, the best fraud strategy suggests that the teams need to find a balance, and the team works with the broader business to find the ideal balance.
- Assessing the Fraud
Businesses need to figure out what frauds are your businesses encountering, and how these frauds have evolved? They also need to figure out, if some kind of fraud happens, how much financial loss it will cost your business. The basis for the prevention and detection of fraud for your business starts with assessing the risks. To understand the risks a business faces, you need a firm understanding of how the landscape works.
- Preventing & Detecting Fraud
How can businesses prevent financial frauds like account takeover and other fraud types? Is there a way businesses protect against fake or stolen identities and data breaches? How can businesses do this and not stop onboarding real customers? Using online document verification solutions and online ID verification solutions can help businesses figure out the real identities from fake ones.
- Using Technology and Analytics
Customers want better digital banking and other online financial services. Humans don’t have the capability of keeping up with evolving fraud. To tackle the risks that are associated with online financial services, banks need to use better technological solutions like DIRO’s online document verification solution. The technology improves the customer onboarding experience and eliminates 100% of fraud.
Online Document Verification for Reducing Fraud
While there’s no limit to online anti-fraud best practices, not all financial institutions can implement the strategies in a way that matters. Most of the online/offline fraud revolves around documents, bad actors usually forge documents to gain access to the internal systems of an institution.
Verifying these documents and ensuring that the documents are real is the foundation of mitigating all kinds of fraud. DIRO’s online document technology can verify online documents during customer/business/merchant onboarding instantly. DIRO helps in enhancing the implementation of AML and KYC compliance and 100% eliminating the use of fake and stolen documents.