Fraudsters never take a break when it comes to devising better ways to hack banking systems to steal money and customer data. Leaving things to chance is the last thing banks and financial institutions should do, considering the volumes of data and the amount of hard-earned customer money they hold. Online and mobile banking increases the risks, necessitating more robust security measures.
The Federal Trade Commission received 2.8 million fraud reports, with the losses amounting to $5.8 billion USD in 2021 alone. While customers bear the brunt of these incidents, banks take a bigger blow because they lose their reputations. Statistics suggest that banks bear $4 in costs for every dollar lost to fraud.
The speed of Internet banking means that fraudsters can move a lot of money before anyone gets a hint. Prevention is the only way to avoid such incidents, but it seems easier said than done. Since digital fraud is on the rise, banks need to address the risk with timely implementation of proactive measures.
Here are a few actionable fraud prevention best practices banks and financial institutions can rely on:
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Know Your Customers
Knowing your customers is the first line of defense against fraud. After all, you don’t want unauthorized users to access your systems architecture, products, and services. KYC (Know Your Customer) standards can help prevent identity theft, financial fraud, and money laundering. AU10TIX notes that KYC compliance is essential for banks and financial institutions, as non-compliance can lead to penalties.
Fortunately, implementing a robust KYC process to safeguard your systems from unauthorized access is easier than you imagine. You can follow this checklist of tips to know your customer’s identity and stay on top of compliance guidelines.
- Embrace automation for collecting and analyzing customer data
- Prioritize data quality
- Monitor data for accuracy and completeness
- Implement robust due diligence measures
- Use electronic ID verification
Understand How Fraudsters Operate
Besides knowing your customers, you must understand how fraudsters operate. They can use many ways to bypass your defenses and get into your systems. In 2021, bank fraud related to electronic funds transfers, debit cards, and Automated Clearing Houses (ACH) increased by 8% compared to the previous year. New accounts were the hardest hit, with 84,000 Americans reporting new account bank fraud.
Knowing how thieves operate is the best way to build a strategy to fight them. A comprehensive risk assessment with the examination of security against their mode of operation is also crucial. Once you know the potential weaknesses, you can prioritize them in your fraud prevention strategy.
Educate Customers and Employees
According to Outseer’s 2022 report, 75% of fraudulent online banking activity originates from trusted accounts and devices. It indicates that fraudsters trick customers into making these transactions. They use means like phishing and social engineering schemes to dupe banking users who are hardly aware of cyber threats. Even employees may fall prey to such attacks.
Educating customers and employees is the best way to curb them. Ensure they know the perils of opening suspicious emails and clicking fishy links. After the initial safety training, follow up with frequent reminders. Social engineering scammers trick people through emotional tactics. Once again, education can keep them at bay.
Monitor Transactions in Real Time
Transaction monitoring in real time takes you the extra mile with fraud prevention because it enables you to detect anomalies sooner than later. It also helps with KYC and Anti-Money Laundering compliance. Considering that 44% of KYC and AML penalties affect the US accounts, paying attention to compliance makes sense.
Implementing real-time transaction monitoring requires creating behavioral profiles to set a baseline for each user’s normal activity. After creating such profiles, you can establish a process to monitor their transactions and proactively flag potentially fraudulent activities.
Develop Multi-Layered Systems
Another best practice for fraud prevention and detection is to develop multi-layered defense systems at physical, administrative, and technical levels. These include:
- Implementing tangible physical security measures to restrict access to specific areas, devices, programs, and data files
- Developing administrative procedures, policies, and guidelines that limit risk exposure, such as password management policies and awareness programs
- Integrating technical risk exposure features such as anti-virus software and AI-powered fraud monitoring programs into the banking system
The Bottom Line
Fraud prevention should be a priority for banks and financial institutions, considering the increasing risks and prevalence in the landscape. While hackers have sophisticated means to break through defenses, there are ways to keep them out of your systems. Implement these best practices, review them often, and improve your defenses to stay ahead of the evolving threats.
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