Fintech fraud is growing rapidly. As society becomes increasingly reliant on technology, the unfortunate truth of the matter is it also becomes more vulnerable to cybercrime, says KOSEC CEO Michael Kodari.
Borderless, sophisticated and nearly invisible, cybercrime is committed anonymously, at scale and remotely; sometimes, and even quite literally, a world away from its victims.
It’s a challenge that fintech and financial institutions, both large and small – just look at payment giant PayPal – can’t seem to escape. It begs the question: Are financial institutions getting worse at fraud protection or are fraudsters just getting smarter?
Rethinking customer acquisition
Thanks to government-imposed lockdowns and related movement restrictions that require more people to stay at home; online shopping has skyrocketed. This accelerated shift from in-store to online purchases has resulted in a decline in the use of more secure, in-person cash and card payments.
The pandemic also saw PayPal, adding 120 million new customers. Or did it? With a new marketing campaign that incentivized new customers to sign up by depositing cash into their accounts, the company became a prime target for fraud. Bots (software created to automatically visit websites and take actions), posing as real people, started to cash in on those incentives by creating accounts.
It was a learning experience to the tune of a 25 percent stock slump. Now, Paypal has changed its customer acquisition strategy from incentive to engagement programs to help protect it from fraud.
Outsmarting digital criminals
Currently, there are limited options available to fintech businesses to reduce fraud in the current environment. The biggest challenge facing these companies is implementing fraud detection methods that don’t have an unintended impact on the customer.
This impact may be the inconvenience of compliance measures and other operational procedures designed to detect or prevent fraudulent activities that compromise ease-of-use and operational efficiency. Consumers tend to resist these service impediments and take their business to e-commerce sites that offer a path of least resistance to fraud-control measures. This is exactly what cybercriminals want to see and is the most difficult challenge confronting fintech businesses today.
Traditional fraud-minimization measures, such as real-time auditing and real-time reporting are expensive and not always effective. Existing identity authentication measures, such as one-time SMS codes and knowledge-based authentication measures, are no longer capable of outsmarting digital criminals. One-time SMS codes can be re-routed and even the most novice hackers can easily identify the answer to your mother’s maiden name.
While fraudsters will always find a way to beat the system, there are still ways for companies to protect themselves and their customers.
THREE WAYS TO PROTECT YOUR BUSINESS FROM FRAUD:
- Remain agile: Financial institutions need to develop fraud-prevention strategies and tactics that enable them to respond quickly and evolve.
- Embrace innovation: Financial institutions and other fintech businesses need to invest in new digital security infrastructure that doesn’t compromise operational efficiency and customer satisfaction. Options available include biometric identity authentication measures – think fingerprint, eye and facial identification, or voice recognition. This technology is advancing rapidly and now extends to behavioral biometrics as well, like keystroke dynamics or the way objects are used.
- Leverage data: Compiling enough data to make a good decision takes more than payments data; companies also need to look at location ID data, digital identifier data, and unique customer data and cross-reference it to get the full picture and ultimately, stop fraudsters in their tracks. When financial institutions combine payments data with all known elements, it paints a more accurate picture of what’s normal and what’s fraudulent.
Bottom line: While cybercrime protection demands evolving solutions that require significant capital outlays, it’s worth the investment. The more traditional fraud prevention solutions are no longer a match for the growing sophistication of cybercriminals.
Ransomware at a glance
Ransomware skyrocketed in 2021, becoming a preferred cyber-weapon of choice for hackers. Here are the key stats you need to know:
- US$20 billion – The global cost of ransomware
- 37% of all organizations were hit by ransomware
- US$1.85 million – the average cost of recovering from a ransomware attack
- 57% of businesses are successful in recovering their data, using a backup
*based on info from 2021
Michael Kodari, CEO of KOSEC - Kodari Securities
Michael Kodari is the Founder and CEO of Kodari Securities (KOSEC), a leading provider of investment services to a substantial and diversified client base, including corporations and ultra high net worth individuals. With over a decade of experience in funds management and stockbroking, Michael has worked with some of the world’s leading value investors and financial institutions. A philanthropist and a prominent expert in the stock market, CNBC Asia has referred to him as “the brightest 21st century entrepreneur in wealth management”.
KOSEC – Kodari Securities is a leading provider of investment services to a substantial and diversified client base, including corporations and ultra high net worth individuals. Established in 2010, KOSEC exists to empower and equip investors with the best investment opportunities, knowledge, tools and resources, as well as providing the highest level of product/service offering to help them make better and more informed investment decisions.
Find out more at https://www.kosec.com.au/
Sree Menon is the CEO at Stealth Startup. A senior executive who drives expansion and scales businesses for start-ups and Fortune 500 companies by moving the organization from tactical, short-term opportunistic thinking to a long-term focused strategic vision.
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