Boosting Fraud Prevention and AML While Preserving the Customer Journey

Boosting Fraud Prevention and AML While Preserving the Customer Journey

by November 22, 2021

As the technologies that power the world of banking and financial services grow more sophisticated, so are the threats vectors affecting them. And although financial service providers are leaning heavily on technology to power next-gen products and services, perhaps the same cannot be said for fraud prevention and anti-money laundering (AML) efforts.

In this context, companies need to seriously consider taking an integrated approach that brings fraud prevention and AML (or FRAML) together to create robust security mechanisms, with a view of preventing fraud before it can take place.

The cost of fraud reached US$42 billion, according to a 2020 report. And yet, just 56% of surveyed respondents had investigated their worst incidents, with less than a third of the respondents reporting the incidents to the board.

Moreover, according to Feedzai’s Financial Crime Report Q3 2021, the dollar amount of online fraud attempts was up 23%. Purchase scams (where items that are paid for are never delivered), social engineering scams, and impersonation scams were the top fraud vectors reported for the previous quarter, followed by account takeover fraud and smishing (SMS version of phishing) scams.

Banking fraud was also on the climb. Australia, for instance, saw banking fraud surge by 259%, the Feedzai report noted.

Rob Rendell, VP Payment Solutions at Feedzai (1)

Rob Rendell

“There has been a significant COVID impact from POS to online transactions as a result, this means that if criminals make 1,000 fraud attempts a day and are only successful 1% of the time, they’ve still defrauded consumers and banks 10 times a day.


And fraudsters are crafty. They know how to circumvent single points of risk controls. It’s all the more reason to have layered controls to intersect at different stages of the fraud lifecycle or kill chain. Banks need to aggregate risk data at scale, to mitigate overall fraud risk,”

Rob Rendell, VP Payment Solutions at Feedzai, said. Feedzai provides a holistic cloud and AI-based risk management platform to help banking and financial companies to combat fraud and money laundering.

Pressures concerning AML are also on the upward trend. A total of 71% of global financial institutions in a 2020 survey reported increased regulatory scrutiny over their AML compliance. The trend was attributed to changes in AML legislations across the world, increasing international pressure by the Financial Action Task Force, and growing crypto services.

At the same time, restricted by poor compliance rules for cryptocurrencies, a lack of corporate transparency (especially concerning beneficial ownership), and lax AML rules for some non-banking groups, responses to financial crime are broadly becoming less effective worldwide.

This is according to the 10th Annual Edition of the Basel AML Index, which suggested that the world is actually getting worse at preventing financial crime.

The interplay between tech and financial crime

The Basel index noted that it is not uncommon for countries to have a high degree of technical compliance as well as state-of-the-art systems for AML and to combat the financing of terrorism, and still be poorly effective at financial crime prevention.

For instance, take this six-month long Interpol-led investigation into online financial crimes in Asia, which involved investment fraud and money laundering among other things. The investigation ended up involving law enforcement from pretty much every continent due to what the Interpol said was the “borderless nature of these online crimes”.

Closer to home, losses from cybercrime fraud since 2017 has surpassed RM2 billion in Malaysia, leading the Commercial Crime Investigation Department (CCID), Facebook Malaysia and a number of local partners to launch the #TakNakScam awareness campaign.

In a survey last year, 43% of Malaysian organisations had experienced fraud, corruption or other economic crimes, surpassing Southeast Asia’s average of 39%. Elsewhere, the country’s visa by investment programme (Malaysia My Second Home, or MM2H) came under the radar for money laundering.

Bank Negara Malaysia (BNM) also noted in its Risk Management in Technology policy that the “growing sophistication” of cyber threats meant financial institutions need to up their vigilance and response capabilities.

BNM highlighted the need to ensure “continuous availability of essential financial services to customers and adequate protection of customer data.” Furthermore, among the many control measures set out by the policy, the central bank recommended deploying an automated fraud detection system with heuristic behavioural analytics capabilities.

All this points towards a need to revamp current approaches to fraud prevention and AML compliance, which is just what FRAML systems help to achieve.

One report highlights how a global universal bank established a centre of excellence to address end-to-end decision making for financial crime-related risk factors. They combined all operations connected to financial crimes on a single global platform, including FRAML.

Apart from now being able to access a “more holistic view” of customer risks, the bank saved about US$100 million in operating costs.

FRAML also has more benefits to offer beyond operational efficiency. Institutions can eliminate duplicate efforts in preventing fraud and money laundering, have greater control over their risk exposure, and gain a more holistic view of customer risks.

However, the combination of technologies and processes that make up FRAML are becoming increasingly relevant to financial companies, but they are not easy to build. They require significant restructuring and transformation of systems internally. It also calls for these systems to be built around the customer journey for integrated controls to have the greatest impact.

Rethinking your fraud prevention approach with FRAML

Both fraud and AML systems are individually complex, with several teams working within each (sometimes in silos, creating further complexity). Therefore, integrating the two, can be both elaborate and challenging.

Apart from these complexities, financial service providers still have to watch out for friction in the customer journey. One study notes that financial companies can register a false positive rate as high as 95%, leading to reviewing costs that run into billions of dollars.

Additionally, a 2019 study points out that 69% of cross-industry business leaders (including the financial sector) were not confident that they were building sufficient digital trust controls into their AI systems.

To address these issues, financial companies can either rely on in-house resources, or rope in a managed service. Building in-house can give more control to companies over their fraud and AML systems, while managed services can bring in top-end technology at lower costs. Both come with a degree of expertise and knowledge that can empower financial service providers to be on the offensive and build systems to prevent fraud before it occurs.

Partners such as Feedzai offer risk management platforms to cohesively address both fraud and AML needs to prevent financial crimes in real time. Not only can companies tap into a powerful cloud-based AML product suite, but they can also leverage hybrid AI models based on behavioural, biometrics, network, device and cross-channel transactions data.

This allows financial companies to address fraud prevention and AML with a 360 degree perspective, breaking down the data silos between the two while integrating efforts into a unified approach for a frictionless customer protection and experience.

It also helps to boost digital trust by streamlining behavioural biometrics, device assessment and identity verification solutions without interfering with the customer journey. By facilitating organisational improvements in controlling customer risks, unified platforms can help to promote customer confidence and digital trust.

Ultimately, financial service providers are facing growing pressure to protect customers without compromising the customer experience in a threat environment that’s becoming increasingly complex. This is true for traditional banks and payment processors, as well as digital banks, fintech companies and e-wallet providers.

With the right fraud and AML solutions under their belt to turn technology and data to their advantage, this no longer has to be a weakness for fraud actors to exploit.

Featured image from Freepik