The Ultimate Guide to Preventing Crime in the Fintech Sector

In today’s challenging times, fraud is flourishing. Indeed, the effects of the ongoing global pandemic, notably the forced digitalisation of society, combined with other major geopolitical events, have created a perfect storm for financial crime.

The reality is that we live in a highly digitised world that is rife with well-equipped and savvy bad actors attempting to defraud us. Within an ever-evolving landscape, the ability of fintechs to effectively fight fraud has become a significant priority.

But what are the key areas where fintechs need to focus? How can they mitigate the impact on their operations and bottom line? And is technology the solution for taking the fight to the fraudsters?

Onboarding – striking the right balance

One key challenge facing fintechs is striking the right balance between preventing financial crime and maintaining customer service and satisfaction. This is particularly true in onboarding new customers, where identity fraud or fraudulent documentation can challenge fintechs’ security and operational processes and hinder their customer service objectives.

Document fraud is costing the global economy $billions annually – and it continues to grow. Fraudulent documents – which encompass the alteration of genuinely-issued government documents, as well as the creation of false documents that imitate real ones – are readily available and popular among criminals because with a single, valid forgery, the fraudster can commit identity or document fraud across multiple entities and often facilitating several crimes, including terrorism and money laundering.

Importance of ‘identity forensics’

The significant increase in identity theft and document fraud, and in particular serial fraud, is being powered by fraudsters having easy access to reliable stolen identity data and manipulated documents, then running mass fraud attacks armed with those assets. At the same time, there has also been a strong trend towards increased compliance, where institutions are asking for more documents to verify identities – not just IDs but, for example, proof of residence and evidence of income.

Routing out fraud in the face of scaled-up attacks executed at high speed is possible through ‘identity forensics‘. Because each new fraudulent tactic is by definition unknown until it is used, every single customer interaction – their documentation and their behaviours – can be subjected to a level of forensic analysis impossible for humans at the same speed, filtering out fake documents, stolen data and bot-executed serial fraud attempts. With identity forensics, fintechs can detect and stop emerging fraud attacks before they can scale.

It’s a team effort

In trying to achieve a balance between fraud protection and customer service, trying to stay one step ahead of criminals is not just one team’s effort. There are many groups involved who need to help strike a balance between customer experience and risk.

With the right Artificial Intelligence (AI)-based technologies in place, it is possible to first identify the areas that can be automated safely, down to the minutiae that would typically go unnoticed by the human eye, at scale and across serial platforms. The result can be described as ‘defence in depth’, where organisations have successive layers of security built on their capabilities and those of the fraudsters targeting their systems.

With this kind of responsible approach, institutions can ensure fewer high-risk identities and document transactions in their onboarding and other processes – and keep the fraudsters out.

Rise of Fraud-as-a-Service

Just as fintechs deploy many of their capabilities via services, following the Software-as-a-Service (SaaS) model, the bad actors are increasingly leveraging similar tech, termed Fraud-as-a-Service (FaaS) to commit fraud on an unprecedented scale. FaaS sees an individual or group of fraudsters providing tools and services to others to facilitate their fraudulent online activity. This service-based crime enables cybercriminals to gain easy, fast – and, arguably, cost-effective – online access to the sort of data, tools and analytics used by the very fintechs they are attacking, for their own criminal gains.

FaaS enables criminals to buy and then exploit people’s identities and data, and use them for fraudulent purposes, as well as providing the means for scaled attacks on fintechs which enable the criminals to overwhelm financial systems with bad traffic and complete fraudulent transactions.

Essentially, the sort of crime fintechs have to fight today has evolved rapidly from what we have seen in the recent past. We are looking at a ‘dystopian future’, where software is fighting software at a scale that can be impossible to manage. We have reached a point where regulatory regimes must catch up with FaaS-based threats in the fintech sector. AI and machine learning are definitely needed to take on these threats – and fight the cybercriminals at their own game.

Combining AI with the ‘human touch’

While AI can be a panacea for financial crime prevention, the question is: “Can AI automate just about any process, including fraud prevention?” The answer is a conditional “no”.

Many fintechs seem to have missed that it is not enough to invest in cutting-edge AI technologies – they also need to invest in human capabilities to achieve financial crime prevention at scale, albeit within an AI-centric model.

The fact is, some things that AI does really well, people are bad at, which is what fintechs need to focus on.

It is not just about bolting an AI-based solution on top of a business problem. It is really about achieving alignment across four key pillars: