Hero Image

October 19, 2023

Biggest Challenges in Fraud Detection: Banking & Finance

To take a look at the fraud methods that the banking and finance industry has been struggling with for years.

Fraud has become a major problem for the banking and finance industry, with cybercriminals exploiting weaknesses in digital fraud prevention systems to steal customer assets.

With technology driving a rise in new channel offerings and user interfaces to improve customer experience, new threats are challenging how banks fight fraud in this digital banking era. Credit card fraud, account opening, and phishing attacks are just some of the many threats that need to be addressed. With the emergence of synthetic identity fraud, it's clear that fraudsters are becoming more sophisticated in their tactics. As digital banking becomes more popular, fraudsters are becoming more sophisticated in their techniques, making it increasingly difficult for banks and their customers to identify and prevent fraudulent activities.

In this blog, we will take a look at the fraud methods that the banking and finance industry has been struggling with for years.

New Customer Fraud

New account fraud occurs during the onboarding process or during the initial 30 to 90 days of account opening. Fraudulent onboarding is of particular concern, but it’s also where financial institutions have their first and best opportunity to catch criminal activity in the bud. To prevent new account fraud, financial institutions need to implement rigorous prevention strategies to counteract criminals at the initial point of contact onboarding.

One of the most effective ways of preventing customer onboarding fraud is to implement a risk orchestration & fraud prevention platform, like Formica AI.

Credit Card Fraud

Credit card fraud is a major concern for financial institutions. Fraudsters can steal someone else's identity and use it to obtain a credit card or open an account. Identity theft can have disastrous effects on both the bank and the client. To prevent credit card fraud, financial institutions need to implement the highest security for these targets: customer onboarding, credit card, and account protection.

Account Protection

Fraudsters use various methods to fool banks during onboarding and account opening, including bots, false IDs, and 3D spoofing masks. To protect accounts, financial institutions need to integrate strong security measures within the onboarding process. This includes implementing regulations such as KYC (know your customer) and AML (anti-money laundering) to confirm user identities and ensure they will not commit financial crimes. By taking these measures, banks and other financial institutions can help protect their customers from identity fraud and prevent fraudulent account openings.

Challenges-in-Fraud-Detection

Account Opening

One of the most significant challenges in fraud detection within the banking and finance sector is the process of account opening. To protect accounts, financial institutions need to integrate strong security measures within the onboarding process, such as implementing regulations like KYC (know your customer) and AML (anti-money laundering) to confirm user identities and ensure they will not commit financial crimes. 

Formica AI offers identity verification technology that can help financial institutions to verify the identity of new customers and prevent fraudulent onboarding. By using these services, financial institutions can prevent fraud and protect their customers' accounts.

Phishing

Phishing is a major challenge in fraud detection for the banking and finance industry. Fraudsters use fake emails and websites to trick customers into revealing their personal and financial information, such as credit card numbers or passwords. These attacks can be difficult to detect, as they often appear to be legitimate communications from trusted sources. To combat phishing, financial institutions need to implement strong security measures, such as multi-factor authentication and real-time monitoring of customer transactions. 

Synthetic Identity Fraud

Synthetic identity fraud is a significant challenge in fraud detection for the banking and finance industry. In this type of fraud, criminals create new identities by combining real and fake information, making it difficult to detect. They then use these synthetic identities to open accounts, apply for loans, and commit other fraudulent activities. To combat synthetic identity fraud, financial institutions need to implement robust identity verification processes and data analytics tools. 

Real-Time and Faster Payments

Real-time and faster payments shorten financial transaction clearing times, raising the potential for security and fraud risks. With the rise of digital payments, fraudsters have more opportunities to commit fraudulent activities, such as account takeover and payment fraud. To combat these challenges, financial institutions need to implement real-time monitoring and fraud detection systems like Formica AI that can detect and prevent fraudulent transactions.

What do we offer?

Banks and financial institutions must stay one step ahead of fraudsters and protect their customers' assets and data in this digital banking era.

As we mentioned above, the biggest challenges in fraud for the banking and financial industry include new customer onboarding, credit card fraud, account opening, account protection, phishing, synthetic identity fraud, and real-time & faster payments.

But there’s a game-changer now!

Formica AI, provides a comprehensive suite of fraud detection and prevention services to help banks and financial institutions protect their assets, systems, and customers, while using advanced machine learning and artificial intelligence algorithms to analyze customer data and identify patterns that indicate fraudulent activity, allowing banks to take immediate action to prevent losses.