Key strategies for financial institutions to combat fraud
The fraud landscape is rapidly evolving, driven by increasing cyber attacks, advances in artificial intelligence and increasingly sophisticated scams. Our latest Experian UK Fraud and Fincrime Report 2024 shows that fraud volume increased by 9.3% in the UK in 2023, with third-party fraud the most common. More than half of companies also reported increased fraud losses, and seven in ten companies expect their fraud management budget to grow.
This situation underlines the relentless pressure on fraud teams within companies and highlights the urgent need for robust fraud prevention strategies. A proactive and adaptive approach to combating fraud is essential. What can companies do to stay ahead in this challenging environment?
Grant McDonald is Director of FinCrime Market Engagement at Experian.
1. Adapt strategies to greater digital adoption by consumers
Recent research from Experian shows that digital transformation is accelerating at an unprecedented pace, with mobile wallet use increasing from 54% to 77%, retail app use increasing from 36% to 76% and more than 80% of shoppers now uses peer-to-peer payment apps. However, despite this shift to digital convenience, concerns about online fraud remain high. Identity theft, phishing and stolen credit card information are among the top concerns. Alarmingly, 66% of respondents are now concerned about identity theft, up from 58% in 2022.
To address these concerns, companies must improve security measures with multi-factor authentication, encryption and regular audits. It is critical that consumers are educated on how to recognize and avoid common fraud tactics. Using AI and machine learning can detect and prevent fraudulent activity in real time, while improving the user experience ensures security measures don’t compromise convenience. Additionally, businesses must continuously monitor and adapt to the latest fraud trends and technologies to stay one step ahead of fraudsters and ensure robust protection for their consumers.
2. Continue investing in and using AI for fraud prevention
AI technologies are becoming indispensable in modern fraud prevention. While investment in AI-powered measures is increasing, our fraud report shows that adoption of machine learning and generative AI tools remains modest. However, this trend is expected to change quickly as companies see the need to outpace fraudsters using advanced AI techniques by 2025.
Furthermore, businesses recognize the impact on overall growth and innovation in our latest report, the Experian TechUK GenAI Rating Momentum report, which highlights that generative AI could add up to £120 billion annually to the UK economy over the next decade. Interestingly, when we look at specific technologies, physical biometrics are gaining traction, with 84% of companies in our survey preferring methods such as facial recognition and fingerprint scanning. Yet behavioral biometrics, which analyze patterns such as typing speed and touch pressure, are underutilized despite their proven effectiveness. Currently, only 25% of companies are investing in behavioral biometrics, although 79% are very confident in its potential.
We believe that integrating behavioral biometrics can significantly reduce the number of false positives and improve the accuracy of fraud detection systems. Companies should therefore consider making it a crucial investment as soon as possible to future-proof security measures.
3. Tackling money mules and money laundering
Money laundering and money laundering remain significant challenges. Money mules, which transfer illegally obtained money, are crucial in financial crime networks. Our report shows that 42% of checking account fraud involves money muling, often committed by younger adults with poor credit scores, who may be complicit victims of mule herders. Losses from money laundering are increasing, with almost two-thirds of retail banks and 52% of companies reporting increases. More than 53% of companies plan to increase their anti-money laundering budgets by 2024, driven by regulatory changes and the need for stronger anti-fraud measures.
To tackle cash misuse and money laundering, companies must improve employee training, strengthen customer due diligence and invest in advanced technology to detect suspicious activity. Working with law enforcement agencies and increasing AML budgets are also critical. Regular audits and awareness campaigns can further reduce risks. These strategies will help companies comply with regulations and protect their financial integrity.
4. Future-proof fraud strategies
A uniform approach is fundamental in the fight against fraud. Integrating fraud and AML teams can increase efficiency and effectiveness. Sharing data and coordinating responses between units can significantly improve an organization’s ability to tackle financial crime. To achieve this, strengthening partnerships with industry stakeholders is crucial. Consumer education is also crucial; Increasing awareness about types of fraud can empower people to protect themselves.
Ultimately, it is abundantly clear that as fraud tactics evolve, companies must be proactive and vigilant, as well as adapt their fraud strategies. This includes investing in advanced technologies, educating consumers and promoting collaboration between fraud prevention units to help protect and navigate the ever-changing financial crime landscape. There is no time to lose, so companies must act without delay.
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