Financial fraud solutions must beat the best criminal minds and match the rate of digital change

The escalation of financial crime is not far behind the double-digit growth of digital payments. CredoLab’s senior vice president, Tarun Kumar Kalra, says, “Rapid expansion of digital channels, exploding growth in the number and types of devices, and reduced customer face time are making financial service providers vulnerable to online fraudulent activities.”

According to the Capgemini’s World Payments Report 2019, by 2022 the world would have seen a double-digit growth of digital payments. “Worryingly, the escalation of financial crime is also soaring. Fraud is going mobile, mirroring consumer behaviour.

“We needed to better understand financial crime which is why we joined forces with iovation, who produced the iovation Financial Services Fraud and Consumer Trust Report 2019.”

Interviews were conducted with 5.9 billion financial services providers and over 1,600 consumers in the US and the UK. The study revealed that between 2015 and 2018 there was a 575% increase in online identity fraud. In the first half of 2019, 50% of all risky transactions originated from mobile devices. This matches the trend which is seeing mobile surpass desktop.

“Through our interactions with financial services providers in South Africa, we have established that the problem in South Africa and on the African continent is just as threatening as in other parts of the world,” says Kalra. “The South African Banking Risk Information Centre (SABRIC) reported recently that the country currently has the third-highest number of cybercrime victims worldwide and loses an estimated R2.2bn a year to cyber-attacks.”

Kalra explains that “Tackling this issue is complex. Overly aggressive fraud detection harms the customer experience. It slows transaction speed as customers need to perform too many steps before checkout and can even flag good consumers as suspicious.

“Banks and fintechs need to confront financial fraud with the same levels of sophistication as today’s criminals. They need fraud prevention tools that are real-time and accurate, and in 2020, Artificial Intelligence (AI) and Machine Learning (ML)-based solutions are central to achieving this.

“We have had to be infinitely smarter than hardened criminals while matching the rapid pace of digital change,” he says.

AI and ML concepts are now familiar to most banks and financial institutions, yet conventional AI approaches that rely on rules and predictive models are no longer enough. Accurate information must be generated in milliseconds to combat the issue in real-time.”

Through CredoLab’s partnership with iovation, a global device intelligence network encompassing smartphone device metadata has been created. As consumers increasingly leave their digital footprint in the mobile world, smartphone metadata has emerged as a powerful tool in fraud detection.

“We are helping companies detect suspicious activities by scanning huge volumes of external and internal data. We use device recognition and intelligence technology to detect frauds using indicators such as geolocation, anomalies, device-usage patterns and other indicators to analyse customer profiles, behaviour and intent,” he says.

‍KPMG has reported that fraud costs are increasing at a faster rate than fraud risk management spend, while the World Economic Forum’s Global Risks Report 2019 cites technological instability as a major risk with data fraud and theft now ranked the number-four global risk and cyber-attacks coming in at number five.

“Combatting this epidemic requires solutions that lie at the intersection of data analytics, artificial intelligence, and digitisation,” says Kalra.

CredoLab, a Singapore-based fintech company entered the African market towards the start of last year. “Now financial services companies in South Africa, Nigeria and Kenya can better protect themselves against financial frauds such as identity theft, new account fraud, synthetic identity fraud and account takeover fraud,” adds Kalra.

“We are working with partners in these territories to try and measure the scale and depth of financial crime and offer solutions to combat it. Our business was set up to create healthy financial services sectors, improve trading environments and minimise risk.”