Bankers are challenged to safeguard against fraud from many directions

 As contributing writer Katie Kuehner-Hebert writes in the lead article of BAI’s January Executive Report “Safeguarding Against Fraud,” swindlers are on the march on a frightening number of fronts.  

Bad actors are using deep fakes, account takeovers, phishing texts and emails, application scams and check washing. They’re even robbing U.S. Postal Service letter carriers to get their hands on mail that could contain a check. It’s a federal crime, but the fraudsters are undeterred. And now there’s generative AI. As Rob Rendell, global head of fraud market strategy and fraud prevention for NICE Actimize, told Katie: “Generative AI, including ChatGPT, is fueling the fire for fraud. We’re anticipating deep fakes, voice cloning and manipulation of photos, as generative AI will be leveraged by fraudsters to carry out their attacks. The level of sophistication will only grow as fraudsters look to leverage these sophisticated tools.”  

I interviewed Ash Khan, head of enterprise fraud management for BMO Financial Group. AI and now generative AI, Khan told me, allow the bank to be more efficient and effective. “The more quickly we can address potential fraudulent transactions, the better we can get at reducing our false positive rates and improving our true detection rates.” But there’s generative AI’s dark side, which criminals can use for nefarious purposes. “They don’t need to understand complex IT systems or programming languages to create malware, to write malicious code or to create fraudulent websites,” Khan says.  

Contributing writer Dawn Wotapka looks at how the recent fraud rule changes by Early Warning Services LLC, owner of the popular money transfer app Zelle, will affect fraud losses and fraud claims investigations by banks. Zelle launched an advertising campaign to educate consumers on how to spot and avoid financial scams when a criminal pretends to be an authority figure – such as a bank representative, the government or even a business – to convince consumers to provide sensitive personal information or money.  

Also in this issue:  

» Key considerations for digital identity verification in an evolving landscape: IDology, a GBG Company’s Crystal Blythe writes that unprecedented digital adoption brings new potential for revenue growth, and, unfortunately, more opportunity for fraud. One effective strategy for deterring fraud is advanced identity verification. But not all solutions offer the same level of protection. A solutions platform that provides access to a consortium fraud network backed by adaptive human intelligence and real-time velocity alerts can empower institutions to prevent fraud in 2024.  

» Providing maximum fraud protection and an optimized customer experience: Dewald Nolte of Entersekt says that many financial services organizations seek new security solutions to keep up with continually evolving account takeover and card-not-present fraud attacks. He notes there is an alternative approach that can span multiple channels and considers the context of each digital banking and payment interaction. Context-based, or context-aware, authentication considers the originating channel, transaction context, available authentication options and customer preference to determine the most appropriate authentication option.  

» How banks should be responding to an increase in financial industry targeting: Alkami’s Jeff Chen discusses the fraud prevention efforts of banks as they strive to strike a balance between trust—providing account holders with a satisfactory user experience—and verification—protecting users and themselves from financial fraudsters. Given the ongoing global criminal interest in sophisticated financial fraud, banks will constantly be requiring new layers and levels of digital security. He addresses several key questions for banks to consider when navigating their fraud prevention efforts.  

» Why small and mid-market banks need real-time interdiction in the fight against fraud: Eric Tran-Le of NICE Actimize writes that credit unions, community banks and regional banks must establish greater resilience and agility to survive sweeping industry transformation and proactively safeguard their customers from accelerated, ubiquitous risk. While real-time fraud detection is a significant advantage against complex fraud in the burgeoning global instant payments environment, it’s useless without real-time interdiction, which is essential to identify potential threats as they occur. Mid-market institutions must implement a risk management solution that enables them to interdict suspicious transactions.  

We hope this Executive Report provides you with actionable insights on a variety of measures to safeguard against fraud. In this increasingly digital era, nothing undermines trust in a financial services organization more than a fraud incident—or the risk of fraud. We invite you to share your thoughts on fraud prevention and detection. 

Edmund Lawler is a contributing author for BAI.