Why Having Robust Fraud Management in Banking Services is a Must for Fintech Businesses?

Highlights:

• Introduction
• Role of emerging technologies in fraud management solutions
• Innovative product launches and the growth of the industry in different regions

Banking frauds are as old as banks themselves. However, with the rising digitalization in the money and banking sectors, the volume and frequency of frauds has increased exponentially. The growing proliferation of online banking services and an increasing number of mobile banking applications have led to a massive rise in the number of banking frauds. Today, banking frauds mainly include frauds such as phishing, identity theft, credential theft, money laundering, application fraud, etc. Traditionally, banks have been tackling these frauds with a siloed approach which has not been quite successful. As a result, the demand for a comprehensive approach to fraud management in banking has been growing.

How are emerging technologies improving the capabilities of fraud management in banking?

A holistic approach to tackling fraud management in banking involves framing policies, using technologies, and establishing protocols to protect the assets of banks, their customers, and their systems. Through this approach, banks engage in behavioral profiling, threat monitoring, and risk identification activities that help minimize the chances of fraud. In the past few years, emerging technologies have been increasingly used to better the efficiency and quality of fraud management solutions.

For example, the adoption of artificial intelligence has improved the capabilities of fraud management solutions massively. Conventional fraud management solutions are hard coded in nature, meaning they are static and cannot evolve as per the changing threat dynamics. Moreover, the binary attributes of conventional systems tend to produce false positives. Also, traditional fraud management solutions have limited capabilities and, hence, cannot detect fraud in real-time. This is the reason why most fraud management solutions report frauds after they have been committed. AI-based fraud management systems, on the other hand, evolve with the changing scenarios and can predict fraud using predictive analysis methods. This helps in preventing scams before they take place, thus helping the banks maintain the integrity of their systems.

Along with AI, machine learning also plays an important role in advanced fraud management in banking systems. Machine learning helps in predicting banking fraud by relying on behavioral analysis and other data sources. Furthermore, biometric authentication is another tool that has been adopted by many banks across the world to curb fraudulent practices. Through this tool, customers’ physical characteristics such as fingerprints, voice, facial images, etc., are stored in the database and then used for identification purposes in the future. These biometrics can also be used for granting and restricting access to bank systems. Additionally, the use of AI and ML helps banks create a database of known threats and the overall fraud landscape. This database can serve two purposes- the bank can make informed decisions and can help banks create awareness amongst their employers regarding the potential threats.

How are financial institutions adapting to the changing fraud management mechanism?

Fraud management in banking industry is predicted to witness major growth across the globe in the coming period. As said earlier, the growing proliferation of online banking and mobile banking applications is expected to play a major role in the growth of this industry. Along with this, an overall increase in awareness regarding financial fraud is expected to help this sector flourish in the coming period. At the same time, the increasing adoption of Fintech solutions and the rising expanse of the e-commerce industry are both estimated to contribute to this domain’s growth. The growth of this sector is especially pronounced in the North America and Asia-Pacific region where multiple small and medium-scale industries have started adopting fraud management solutions. Owing to these factors, the domain in India is projected to rise at the fastest CAGR of 29.8% in the 2023-2032 period.

Apart from these factors, the role of the private sector has also been significant in this industry’s rise. Several leading fintech companies have launched their fraud management services which have helped them gain a substantial market share. For instance, in October 2021, Bank of America, a multinational investment bank, announced the launch of Account Validation, a fraud prevention service. The investment bank released a statement after the launch stating that the new service will help its public and private sector clients authenticate their accounts before any payment is made.

Similarly, Mastercard, one of the biggest payment technology companies, announced the launch of its own generative AI models that will help banks identify fraudulent transactions. Mastercard has claimed that the novel generative AI model will improve the fraud detection capabilities of the bank by around 300%. Both these launches are estimated to help the companies to improve their foothold in the industry in the years to come.

To conclude, the growing digitization in banking service delivery and the rising proliferation of mobile banking apps have led to a surge in the number of financial frauds. As a result, the demand for comprehensive fraud management in banking services has increased, thus helping this sector to grow.

To get an in-depth analysis of the growth drivers and investment opportunities in the industry, feel free to contact us.

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