BioCatch, a frontrunner in the digital fraud detection domain, has recently shared a report named 2024 Digital Banking Fraud Trends in India led by its worldwide advisory team and threat analysts.  According to the report, 55 percent reported fraud sessions classed as ATO (i.e. they were executed by third parties). Furthermore, there were 13,530 cases of fraud which were reported within the banking system in the last financial year. Also, the report shows that there is a 49 percent increase in the volume of fraud cases in FY23.

Now let’s delve more into Digital Financial Frauds:

Today, there has been a significant rise in the numbers of fraudsters and scammers, plaguing the realm of Digital banking, especially with the advancements of technologies. Digital transformation is building strong security measures but has also opened the space for fraudulent activities. This has become increasingly prevalent in recent years, especially if we see it from an Indian context as these fraudsters are becoming more sophisticated in their techniques by leveraging advanced technologies and methodologies. Hence to detect and prevent fraudulent activity, it has become a cumbersome process to detect for banks and their customers.

In the Indian market, we can see fraudsters becoming more sophisticated in their methodologies to exploit vulnerabilities across online and mobile banking systems leading to cybercrime. This really calls for proactive and sturdy measures for financial institutions, banks, and as well as the individuals to safeguard assets and information.

So, let’s understand more on why individuals and financial services institutions can take robust steps to protect oneself from these threats so as to create a safer online banking environment:

Weak Links in Cybersecurity

If we want to understand one of the prevalent weaknesses, it is a weak online banking system that still relies on weak authentication protocols; these can be passwords or PINs, which are vulnerable against strongly wielded attacks and social engineering tactics. So to say, financial institutions must invest in stronger authentication methods, such as biometric authentication and multi-factor authentication (MFA), to secure online banking systems.

Also to note, Phishing attacks which are the use of fraudulent emails, texts, or phone calls to trick users into giving away their login credentials or other sensitive information have become prevalent in the subcontinent. These attacks can also be called a socially engineered attack which focuses on emotional exploitation of humans to gain access to sensitive information. Also, in a lot of cases, fraudsters utilize behavioural fraud analytics which are carried out to identify users based on their unique behavioural patterns. With the advancements in machine learning algorithms to identify patterns of suspicious activity and prevent fraudsters, it can really help players in the banking sector devise a blockage against attackers from accessing sensitive information.

“Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff” - Alan Greenspan, an American Economist

Failing to Consider Regulatory Compliance

As the world of finance is one of the most sensitive spaces, there are numerous regulatory compliances which are being enacted to mitigate the problems faced by both organizations and individuals. For instance, Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations are specifically designed to protect organizations/individuals against hovering frauds. However, there are many financial institutions who are still struggling to keep up with the ever-changing attacks fronts and must take precautionary measures to stay afloat of the changing attack surfaces.

Not only this, non-compliance with regulations can also lead to hefty fines being charged, reputational damage, and weakening of the overall business skeleton. Hence, it is recommended to leverage tools such as identity proofing and authentication products which can help businesses meet compliance requirements so as to avoid negative outcomes. In addition, there are lots of instances where fraudsters open accounts using fake identities or stolen information. This is due to inadequate customer identification and verification procedures. Therefore, weaknesses in security protocols, such as insufficient authentication measures must be overcomed.

As the world is reaping benefits out of Advanced Technology, it is also aiding the fraudsters in regulating their activities more cohesively. Disruptive technologies such as artificial intelligence and machine learning can launch sophisticated attacks which can be really difficult to detect. These attacks can lead to significant financial losses and reputational damage of a given businesses and financial institutions.  Furthermore, it is not just the organizations that are working cohesively to create a vanguard against the attacks but fraudsters are also increasingly partnering with each other, sharing information and resources to launch more sophisticated attacks. These practices are meticulously designed to evade banking fraud detection, thereby making it really difficult for financial institutions to detect and prevent them.

So to understand how we can put an end to this would be to leverage advanced analytics and machine learning algorithms that can detect and prevent fraudulent activities. Adding to it, real-time monitoring and analysis of user behavior can also help in unearthing different anomalies and suspicious patterns; thereby allow financial institutions to stay ahead of the curve when it comes to proactively detecting sophisticated attacks before they cause any damage.

Insider threats due to Employee Negligence

Another front which can lead  businesses to fraudulent activities is the accidental exposure of sensitive information or failure to follow security protocols due to negligence of employees. 

Hence, training employees with respect to proper security protocols and regularly conducting audits can greatly aid in preventing employee negligence which can reduce the risk of fraudulent activities. 

For instance, embezzlement is one form of employee negligence which can result in significant financial losses for financial institutions and their customers. So to say, financial institutions must implement strict internal controls and regular audits to detect any suspicious activity to prevent employee misconduct.

Partnering with Third-party

Third-party vendors, such as payment processors and data providers can also open businesses, financial institutions and individuals to fraudulent activities who fail to implement adequate security measures. Financial institutions must ensure that their vendors comply with security standards and protocols, and conduct regular audits to monitor their security practices.

Here are some noteworthy Indian startups which are pushing their boundaries to help businesses and financial institutions to subdue fraudulent activities:

• Newgen Payments provides merchants with Online Payments, Mobile Payments & a single reconciliation for all payment types; across the globe.

• FrauShield offers a comprehensive AI-based financial fraud detection and alerting solutions. The company was founded by Prakash Verma and Gaurav Virmani in the year 2016.

• IDfy is a people information company helping companies combat fraud by providing services such as background verifications. The founders Ashok Hariharan, Hatim Baheranwala, and Vineet Jawa have been strong evangelists in bringing solutions which can aid organizations tackle frauds.

• Thirdwatch, founded by Adarsh Jain and Shashank Agarwal, prevents fraud in digital, banking and e-commerce transactions in real time using AI.