Combatting fraud with online security

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Online banking is seen by many as the new and preferred way to bank and a potential replacement for physical banking structures around the globe. Not only is it sought after by technology-driven customers, but it is also an effective solution for banks to overcome present and future technological challenges. Moving to digital implies a significant cut in infrastructure and operational costs, allowing banks to reduce costs in payment processes, maximise resources and offer customer support 24/7.

Recently, HSBC UK has launched Kinetic, a banking app for small businesses to help them stay on top of their finances, enabling business owners to apply for an account in the app. Once approved, customers can order a debit card and manage their business payments through the app. The future of banking as a whole is online and digital, and the new players across financial services are almost universally establishing themselves as digital businesses.

However, while digitisation is enabling speedy, seamless and transparent transactions, with the deployment of new technologies new fraud risks emerge (see Fig 1).

Trade association UK Finance revealed that in 2020 Authorised Push Payment (APP) fraud losses amounted to £479m, up five percent compared to 2019. Banks and other financial providers returned £206.9m of the losses from APP fraud to victims, over three quarters more than the sum returned in 2019. As a result, UK Finance called for new legislation to make online platforms responsible for taking down fraudulent content and protect consumers from scams. A spokesperson from Barclays revealed that the British bank invested millions of pounds into multi-layered security systems to ensure that its online banking and app are secure. Also, as part of the bank’s work to protect customers, Barclays offers its clients information and tools to spot and stop fraud and scams, including TV advertising, its dedicated ‘Digisafe’ website and its ‘Digital Eagle’ online safety virtual sessions.

Mark Jenkinson, founder and COO of the UK-based digital financial services company Chetwood Financial, said that every interaction the company has with customers and applicants is digital, from applying for products to servicing them once opened and getting ad-hoc support. As such, Chetwood uses a wide range of tools to verify identities, guard against impersonation, and secure access to services.

Safety first approach
Barney Reynolds, Partner and Global Head of the Financial Services Industry Group at Shearman & Sterling, pointed out that while banks’ systems need to be audited for key checks, such as customer and seller identification and double-checking surprising transactions, customers also need to be careful of new purchasing techniques as technologies evolve. Reynolds suggested that the safest thing is to tell the public they should only rely on institutions that are listed on the FCA’s register.

Further, he revealed that the quicker the access through online apps, the more effort that banks need to put in to make their transactions safer. “Banks will have to find alternatives to make safety checks faster by using artificial intelligence to maintain market competitiveness. The most important thing is to find a balance: this will occur naturally as practices develop to catch up with consumers’ expectations. The most difficult period is the transition until those practices have developed,” he added.

Likewise, Carl Strempel, CFO and co-founder of Imburse, a cloud-based ‘payments as a service’ platform, said that online banking and new technologies will be highly beneficial additions to the existing regulatory banking systems in the long run, especially if there are effective fraud prevention approaches available, including multi-factor authentication, geo-location, and data collection. “Banks are still the quickest, easiest way to pay and get paid. Enhancing datasets gives banks the possibility to track customer behaviour with their consent and analyse this data to both prevent online fraud and better understand customers’ needs,” Strempel added.

Unique opportunity presented
By automating manual processes and using advanced analytics, banks can not only ensure scalability and optimise operations but also achieve significant cost savings while preventing cyber fraud too, according to Amit Dua, president of banking technology company Suntec. Also, Dua said that in offering services beyond traditional banking products and creating ecosystem partnerships, banks may drive the adoption of subscription-based models, which can prove hugely cost-effective. “We believe banks have a unique opportunity to become customer experience orchestrators and technology can aid in creating ecosystems that provide value-based engagement and hyper-personalised services. This will not only help empower customers but also meet their short and long-term needs – which will, in turn, enable banks to build and retain their loyalty in a cost-effective, secure way,” he concluded.