Crime Is Rife in Fintech—Here’s Why and What to Do

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The fintech sector is charged with maintaining a high level of customer service —but also must consider what safeguards to put in place to prevent financial crime within the context of their high-speed business model. How can fintech firms strike the right balance in a world where fraud is flourishing and the increasing digitalization of society—combined with the global pandemic and other major geopolitical events—have created a perfect storm for financial crime?

It’s uncomfortable to think about but important to be aware of the fact that our highly digitized world goes hand in hand with bad actors who are hellbent on committing financial fraud. Enforced digitalization has helped both sides in this battle. This environment means that fintechs need to prioritize fighting fraud to protect what’s theirs.

A good start is to understand two key areas where fintechs should focus, drilling down on the best way to safeguard their operations and bottom line:

· Document fraud. One critical area is the onboarding of new customers, since onboarding presents hackers with many avenues to commit identity fraud and/or use fraudulent documentation. Document fraud—which includes altering government, bank or utility documents or creating false documentary evidence—continues to escalate, costing billions of dollars a year in the global economy. This type of cybercrime is very popular because a fraudster can commit identity or document fraud across multiple entities with a single valid forgery. If in possession of multiple IDs, then serial fraud attacks can really scale up the problem for the fintech. And remember that fraud is often just the predicate offense for other crimes, facilitating terrorism, human trafficking and money laundering.

· Fraud-as-a-Service. Another area for fintechs to watch for is Fraud-as-a-Service (FaaS), which enables fraudsters to provide tools and services to other bad actors to facilitate fraudulent activity online. Through freely-available tools and data – or FaaS, fraudsters are gaining online access to the kinds of data, automated tools, and analytics that fintech companies use, but the criminals are of course using such resources to exploit people’s identities and data. FaaS is the primary driver behind scaled attacks on fintechs which can often overwhelm even adequate fraud defenses via the sheer volume of attacks.

AI Models + Human Capabilities

As you consider how to achieve the right balance between financial crime prevention and keeping up high levels of customer service and satisfaction, one question to explore is whether technology offers a viable solution against cybercrime in the fintech industry.

Artificial intelligence (AI)-based technologies offer some relief to fintechs in being able to identify the areas that can be automated safely—and they can do this at scale and across platforms. This approach offers companies successive security layers built on their capabilities. It helps fintechs keep out bad actors by ensuring fewer high-risk identities and document transactions during onboarding and other processes. It allows rapid learning from past and current fraud patterns via the almost instantaneous adjustment of machine learning models. This allows the fintech’s defenses to move at the same speed as the fraud in an adversarial response to attack.

But AI technology on its own isn’t enough to ensure prevention of financial crime. AI can’t unconditionally automate fraud prevention, which is why fintechs must also invest in human capabilities to achieve financial crime prevention at scale, leveraging these within an AI-centric model.

In short, it takes more than pairing an AI-based solution with a business problem. Instead, you must achieve alignment across several areas, to ensure that you not only understand the data you’re working with but you also hire the AI expertise you need to achieve alignment with business objectives and operational workflow. It’s only through this powerful combination that fintechs can emerge victorious over financial crime.

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