If Financial Institutions Want To Play Fast, They Must Also Evolve

After all the investments that financial institutions (FIs) have put into protecting themselves and their customers against fraud, scammers are now targeting individuals, which they see as the weakest link.

The method is straightforward: tricking people into either passing on information that would give the criminal access to a bank account or moving money into a fraudulent account on their behalf.

“It’s a very big shift in terms of what the scammers are out there doing,” Featurespace Founder and President David Excell told PYMNTS in a recent interview.

The fraudsters are using several tactics, he said. One is to tell individuals their account is at risk and that they need to move money to another account to make sure it’s safe. Another is to send a text message asking the recipient to verify that a payment just went through. A third scam involves baiting with ads online and aggressively asking people to put down deposits to secure the items.

Frauds That Move Money Into Bank Accounts

Another target throughout the pandemic has been unemployment insurance. Through this type of fraud, money that wasn’t initially in a bank is eventually moved into an account and then makes its way throughout other institutions. The same is done in those scams that move money from a victim’s account into the fraudster’s account.

“Often you don’t want to slow down the process of obtaining a new customer within the financial institution, but you still need to make sure the controls are in place,” Excell said. “Historically, it used to be just about money leaving the bank, but now it’s becoming more about looking at money that’s coming into the bank and then where it will potentially go in the future.”

Looking at other possible targets for fraud, Excell noted that credit cards have significantly enhanced security thanks to embedded chips, which has pushed fraudsters to focus more on attacking bank accounts. Cryptocurrency, too, can be the target of fraudulent activity and investment scams.

To deter scammers and to provide better customer service, FIs are making changes. Having already digitized their services to better retain customers, they are now going into the back office of those systems and exploring more innovations that will allow faster payments.

“We’re seeing a lot of investment in terms of platforms that enable the banks to move money between themselves and also to allow customers to move money between each other much faster than they can today,” Excell said.

Solutions That Evolve and Adapt

Looking ahead, Excell expects FIs to focus on moving to real-time payments while keeping the fraudsters out.

The risk of fraud increases as FIs go from having hours or days to decide if a payment should be transferred to needing to instantly determine the legitimacy of a transaction. Adding to the urgency, today’s consumers expect instant accessibility in their financial products, and also expect everything to work seamlessly.

Considering those two facts, banks and credit unions must rely on the most advanced fraud detection and prevention technology to catch everything that could go wrong.

“It’s really important to look at how the roles of technology and machine learning play into this in terms of understanding what good customers look like, especially as we see fraud continue to evolve and change,” Excell said. “We can’t just match the patterns of the past. We need something that adapts and evolves with genuine customer activity, but also [pinpoints] what the fraudsters are doing out there as well.”