Fraud cannot be attributed to one factor only. On the contrary, a multifaceted and multifactor approach to the study of fraud must be undertaken. Looking at a fraudsters perspectives, it is necessary to take account of motivation of potential offenders, condition under which people can rationalize their prospective crimes away, opportunities to commit crimes, the perceived suitability of targets for fraud, technical ability of the fraudster, the possibility and likelihood of fraud discovery and carrying out, expectations and consequences. Institutional factors that lead to fraud may include but are not limited to weak accounting system control systems, inadequate supervision of subordinates, disregard of the Know Your Customer rule, poor information technology and database management, hapless personnel policies, poor salaries, general frustration occasioned by management unfulfilled promises, failure to engage in regular call over, employees’ refusal to abide with laid down procedures without any penalty, banks reluctant to report fraud due to the perceived negative publicity, banking experience of staff and inadequate infrastructure that may include poor communication systems result to a buildup of unbalanced posting, inadequate training, poor book keeping and genetic traits like kleptomaniac who pathologically steals for fund. Social factors are those that can be traced to the immediate and remote environment which may include a penchant to get rich quick, slow legal process, poverty widening gap, job insecurity, peer group pressure, societal expectations, financial burden on individuals, stiff competition in the banking industry may see banks engaging in fraud to meter up in terms of liquidity and profitability.
The current increase in fraud cases stems from the intense pressure faced by individuals. According to the study, fraud grows and thrives under three major factors: pressure on employees to commit, availability of opportunities for fraud and the ability of the employee to rationalize the act of fraud. However, these factors may drive fraud under differing conditions and environments. These factors may lead to proliferation of fraud during economic hardships especially when the organization and or the employees are undergoing times of economic and financial strain. Similarly, as companies seek to reduce their level of employees or reduce their expenditure, especially on employee allowances and remuneration, the opportunities for fraud may increase due to a reduction in the effectiveness of internal controls. Employee layoff has the effect of establishing gaps in the internal control systems which promote fraud. In effect, there exists an inverse relationship between fraud in the organization and its economic strength.
Trust in employees is also a driver of fraud in organizations. Trusted employees can lead to increases in fraud especially where the guilty employees perceive to have a dilemma or financial problem which he/she deems not shareable with the management or fellow employees. If the employee genuinely believes that the violation of the trust may lead to the solution of the problem, the employee will most likely violate this trust and secretly resolve the problem. Insider theft has a significant negative impact on the profitability of the business. Existing statistics show that over 33% of all bankruptcies in businesses is primarily driven by employee theft. However, this may not come as a surprise to the management which will have identified this through indicators such as rumors, inventory shortages, reduced earnings etc. Rationalization of the fraud act, poor internal controls, lack of implementation of laws and policies and managements indifference to the acts of fraud are major drivers of employee theft. In addition, employees argue that the management creates opportunities for fraud which is their primary motivator of fraud rather than their financial need. Furthermore, most employees believe that management inaction against fraud is a major driver of fraud in the organization. This means that if an organization/management expects a fraud free environment it must set examples through honesty, action and adherence to policies. A red flag is a set of circumstances that is unusual in nature or vary from normal activity. It is a signal that something is out of the ordinary and may need to be investigated. Employee red flags include lifestyle changes (expensive cars, jewelry, homes clothes, and significant personal debt and credit problems) behavioral changes, high turnover especially in areas vulnerable to fraud, refusal to take vacations or sick leave and lack of segregation of duties in the vulnerable areas. A fraud model brings together all these aspects of fraud. Factors are embedded in a model grounded on three factors promoting fraud: motivation to fraud, availability of opportunities and rationalization of the act of fraud.
A multi-layered security approach can help detect and prevent bank fraud and reduce the risk of attacks. This might include two-factor authentication, robust cybercrime detection solutions, and strict authentication and authorization processes, among others. Regular monitoring of banking activity and awareness of bank fraud patterns and trends can also help detect potential cybercrime. Encryption and other physical security measures can further protect sensitive data. Ultimately, user awareness and proactive risk management are critical in preventing banking fraud from occurring in the first place.
Banks have to be vigilant in order to detect frauds in baking systems. There are various fraud detection methods that they use, but some of the most common include suspicious activity reports, transaction monitoring, and data analytics. Suspicious Activity Reports (SARs) are one of the primary ways that banks detect fraud. If a bank employee suspects that fraud is taking place, they will file a SAR. The SAR will then be reviewed by the bank’s fraud department. If the fraud department determines that there is enough evidence to suggest that fraud has taken place, they will take appropriate action. Data analytics is also increasingly being used by banks to detect fraud. By analyzing large data sets, banks can look for patterns that might indicate fraud. For example, if a customer suddenly starts making a lot of small transactions that are all just below their daily limit, this could be a sign that they are trying to avoid triggering fraud detection measures.
Banking modernization offers banks the innovation and agility they need to deliver on customer expectations, compete with fintechs, and more. Banking fraud is one of the most persistent issues financial institutions and their customers face and poses a serious threat to all parties involved. It is pertinent that for every penny lost to fraud, banks certain amount in costs and that’s without factoring in the damage fraud can do to a bank’s reputation. As banking systems have moved online, so too has fraud, with fraudsters developing their own digitized methods of stealing customers’ identities and gaining access to their personal accounts. Under these conditions, it’s little wonder that 96% of banking customers surveyed say that security and fraud protection is either a “somewhat” or “very” important factor when choosing a bank. To fight fraud in digital spaces thereby securing the loyalty of existing customers and generating new business banks must leverage innovative technology to enhance their financial fraud detection and prevention strategies.
One of the most frustrating things about banking fraud is that it can take many forms, with new schemes emerging daily. After all, if there’s one thing fraudsters excel at, it’s pivoting. Listed below are some of the most common forms of fraud (at present) in the banking industry: Phishing: In a phishing attack, a scammer reaches out to an individual over email, text, or even a phone call posing as their banking institution. Scammers’ ultimate goal is to convince their target to click a link that loads malware, ransomware, or spyware onto their computer or to provide personally identifying information. Phishing — which is a form of social engineering is often a gateway to other forms of banking fraud, providing criminals with a point of entry from which they can execute subsequent attacks. Phishing is not only incredibly common, but it’s also highly successful since scammers are often able to mimic legitimate institutions with alarming accuracy. What’s more, phishing not only poses a threat to banking customers, but also to financial institutions themselves: Bank employees are a popular target for scammers trying to gain access to internal systems, and phishing attacks are a leading cause of corporate data breaches. Identity theft: Perhaps the most basic form of fraud, identity theft refers to any crime that involves someone wrongfully obtaining another person’s personally identifying information such as their name, phone number, or address — and using it for fraudulent purposes. In many cases, criminals will use a banking customer’s stolen identity to take ownership of that customer’s online account in what is known as an account takeover attack. Credential theft: Another basic form of fraud, credential theft involves stealing a banking customer’s information. However, the scope of the attack extends beyond a customer’s personally identifiable information into more confidential information, such as their ID number, password, card credentials, or Social Security number. As with identity theft, fraudsters often use these stolen credentials to stage an account takeover. Wire fraud: Wire fraud broadly describes the use of telecommunications or the internet to defraud individuals, often across state or national borders. In the United States, wire fraud is a federal crime investigated by the Federal Bureau of Investigation. In the financial services sector, scammers trick banking customers into sending funds via wire transfer, often posing as a family member or friend in urgent need of financial assistance. Money laundering: A form of fraud that impacts banks directly, In addition to funding illicit and potentially dangerous activities, money laundering compromises the integrity of the financial services marketplace and risks drawing banks into criminal networks. Any institution found party to money laundering even unknowingly could find itself subject not only to reputational damage and loss of goodwill but also legal and regulatory sanctions. Application fraud: With application fraud, a scammer applies for a loan or line of credit with a bank using a stolen or synthetic identity. Once approved, the scammer will initially use the account in the expected way, making smaller purchases and scheduled repayments to create the illusion of normal account usage and gain access to new products and/or higher lines of credit. Eventually, the fraudster will make a series of large purchases with no intention of repayment before disappearing without a trace, leaving the bank on the hook for the bill. Application fraud is sometimes known as accounting fraud or account opening fraud. While this list is a good starting point for understanding banking fraud and fraud management in banking it’s essential to remember that fraudsters’ methods are constantly evolving. To that end, here are some emerging forms of fraud to watch out for-Fraud as a Service: A growing number of cybercriminals are offering their services up to the highest bidders in what’s known as Fraud as a Service. Other offerings in the Fraud as a Service “marketplace” include fraud training tutorials for would-be threat actors and access to specialized tools and malicious software programs. Biometrics spoofing: Although implementing biometric authentication is a smart way to enhance banking fraud protection (more on that soon enough), fraudsters have already started to find ways around these security measures. With biometrics spoofing, criminals use banking customers’ photos, video clips, and even stolen fingerprints to spoof their identities for verification purposes and gain access to their accounts.
Collective drives required: Bank fraud detection and prevention refers to the collective policies, protocols, procedures, and technologies financial institutions leverage to protect their assets, systems, and customers against fraud. Detection includes any activities related to threat monitoring, account monitoring, behavioral profiling, and proactive risk identification. On the prevention side, it includes any proactive measures related to threat mitigation, such as developing internal controls, conducting employee training, and implementing multi-layered security. Bank Fraud Detection and Prevention Technology and to be successfully combat fraud, banks must beat cybercriminals at their own game, which requires making advanced technology part of their first line of defense technology such as Artificial intelligence: Traditionally, banks and other financial institutions have relied upon fraud monitoring solutions with rules-based engines to detect fraudulent transactions generated by risky IP addresses or multiple transactions taking place within quick succession on a new account. The problem with this approach is that the rules on which these engines operate are: Hard-coded, which means they’re unable to adapt to evolving threats, Binary, which means they’re unable to accommodate the complexity of a wide variety of input variables and are prone to false positives, Unable to detect fraud in real-time, only flagging fraudulent transactions after a financial loss occurs, Artificial intelligence (AI) is the key to overcoming these challenges. AI-based fraud monitoring systems can ingest and parse massive quantities of data a must, given the high volume of transactions banks process each day and detect fraudulent activity in real-time. Compared to rules-based engines, AI is highly adaptable, enabling banks to easily pivot their fraud management strategy based on new and emerging threats. And finally, AI offers far greater accuracy than manual or rules-based fraud detection, significantly reducing the rate of false positives and providing banking customers with a better overall experience. Machine learning: Machine learning, a subset of AI, is a powerful tool for fraud prevention in the banking industry. Machine learning enables fraud monitoring and detection systems to “learn” from behavioral data, consortium data, and other internal and external data sources and adapt accordingly. The result is that banks are better able to navigate the increasingly complex fraud landscape and deliver more proactive protection to their customers and their assets. Biometric authentication: Biometric authentication is an identification technique that relies on a customer’s unique physical characteristics, such as their voice, facial features, or fingerprints, to verify their identity. Each of these characteristics is known as biometric data. Biometric authentication has quickly become a popular security measure with financial institutions because customers’ biometric data cannot be stolen, forgotten, or lost. Although fraudsters can spoof a customer’s biometric data, it is far more challenging to do so than it is to steal their identity or credentials. To get the greatest value out of biometric authentication, banks should pair it with other technologies and controls to create a truly multi-layered security strategy. Two-factor and/or multi-factor authentication: Two-factor (2FA) and multi-factor authentication (MFA) are identification techniques that require banking customers to provide two or more pieces of evidence to verify their identity. 2FA and MFA are fairly standard security measures that, like biometric authentication, should be layered with the other technologies shown here to create a comprehensive anti-fraud strategy. Advanced analytics: Financial institutions process hundreds even thousands of transactions each day, each of which generates data. When analyzed using advanced data science techniques, customer and transaction data can be incredibly potent, enabling banks to gain a 360-degree view across the business, enhance operational efficiency, and engage in predictive fraud detection.
Strategies should adopt to fighting fraud in Banking: In addition to investing in the proper tools and technology, financial institutions can take the measures to support bank fraud detection and prevention i.e., Host regular fraud awareness training. Bank employees are a popular target for cybercriminals particularly for phishing attacks and other forms of social engineering so it’s essential to educate staff about recognizing potential fraud and what to do if they suspect that they’ve been compromised. Be on the lookout for internal fraud: with banking fraud, sometimes the call comes from inside the house. Employees can expose their employers to substantial risk, whether accidentally for example, unknowingly clicking a phishing link or using an easy-to-guess password or intentionally. Fraud awareness training can go a long way toward preventing accidental fraud, but institutions need to be on high alert for intentional fraud and keep a close watch on employees who: Have access to accounts without a legitimate business purpose, Frequently access or monitor a customer’s account without a legitimate business purpose, Process transactions outside of work hours, Have unusual transfers on their general ledger, Transfer funds from customer accounts to their personal accounts, Make excessive transfers or cash deposits. Create a database of known threats- It’s crucial that banks be aware of and on the lookout for active and emerging threats. By collecting fraud data from internal and external sources, banks can gain a comprehensive view of the fraud landscape and make more informed risk decisions. Financial institutions can also use such a database to support fraud awareness training and enable employees to recognize a broader range of potential threats. Educate banking customers- Customer fraud awareness is every bit as important as employee fraud awareness and can help a bank’s customers protect themselves against would-be threat actors. Adding educational resources to an existing knowledge base, similar to what Wells Fargo has done with its Fraud Education Library, can be an effective means of keeping customers in the know. And customer education shouldn’t end at fraud: Banks should also make customers aware of advanced security measures, such as 2FA or MFA and biometrics authentication, to increase their likelihood of opting in. Monitor transactions in real time-Transaction monitoring is not only essential to comply with Know Your Customer standards and Anti-Money Laundering laws, it’s also an effective way to detect fraudulent activity. Develop multi-layered security systems-a successful bank fraud prevention and detection strategy should be multi-faceted and include administrative, physical, and technical controls: At the administrative level, institutions should develop policies, procedures, and guidelines that reduce their exposure to risk, such as security education and awareness programs and password management policies. At the physical level, institutions should instate tangible security measures, such as restricting access to specific computer programs and data files and cross-checking asset or liability values against those documented in control records. At the technical level, institutions should implement technology that will reduce their risk exposure, such as firewalls, anti-virus and anti-malware software, and AI-powered fraud monitoring systems.
Bank fraud detection is a critical part of a security strategy to protect against financial crimes like phishing, account takeovers, and credential theft. Banks can take a multifaceted approach that includes educating employees and customers, keeping an eye on transactions, and using an advanced bot management solution. Holistic approach includes device fingerprinting, IP reputation, and behavior biometrics, combined with match key challenge solution that perceives and anticipates bad actors, making it an effective tool in combating financial crimes.
