Here are four compelling reasons why banks and financial services institution need to spruce up real-time fraud detection.

Financial crime and fraud are recurring problems for both banks and intermediaries, causing losses worth billions every year.

One of the difficulties in keeping track of digital threat types is they are constantly evolving. Many of the scams that have been on the rise since the uptick in real-time payments, spurred by pandemic-related measures, are based on social engineering. These scams occur when the victim is unwittingly tricked into transferring funds into a fraudster’s account as they pose as a legitimate payee.

According to some studies, around 22% of data breaches involved social engineering, and 96% of these were executed through email.

Hence, banks have to constantly adapt to the rapid adoption of digital payments, including those on real-time rails. Identifying and preventing fraud promptly is imperative for all financial institutions. Here are four important considerations for financial institutions to consider when evaluating the urgency of tackling fraud in real time.

  1. Creating a smooth user experience
    With the accelerated adoption of real-time payment technologies in South-east Asia, payments modernization may present a huge opportunity for banks in terms of their business model and increasing profit margins. Simultaneously, this trend brings increased threats to consumer privacy and data security.

    As consumers begin to leave crumbs of their digital identity across the internet when making digital payments, or use public Wi-Fi while entering personal data online, they render themselves vulnerable to attack.

    With increasing demands from consumers for convenience, fraud management solutions need to be capable of identifying risk signals before fraud takes place—without being detrimental to the user experience.
  2. Real-time payment settlements require real-time vigilance
    Currently, social engineering scams are one of the top ways malicious fraudsters take advantage of real-time payments to target impressionable account holders.

    Current banking and cybersecurity regulations do not offer high hopes for victims of financial fraud, and given that real-time payments are settled instantly, if they are not stopped in real time, the money is lost.
  3. Focusing less on fraud and more on growth
    When fraud systems have a high false positive rate, financial institutions lose valuable revenue opportunity. This is where machine learning steps in: an indispensable weapon in the fight against fraud. In an increasingly real-time world, where fraudsters are becoming ever more sophisticated in their methods, banks and intermediaries need effective, reactive decision-making from their fraud management tools.

    Machine learning can limit false positives by clearing good transactions while denying the fraudulent ones, with the most reliable information in real time. In particular, incremental learning technology is a formidable contender for fraudsters. While traditional machine learning models need to be ‘re-trained’ as fraud patterns change, models using incremental learning make small adjustments on an ongoing basis, so as to adapt responses when new behavior patterns are detected.
  4. Reducing  fraud losses through collaboration
    Machine learning insights are only as strong as the data received. Systems must be supplied with the widest possible view of risk in real time, and today that requires access to internal and external data: essentially enabling machine learning to distribute, exchange and consume risk signals.

    Solutions involving proprietary network intelligence technology now allow banks, processors, acquirers and networks to securely share and consume industry-wide fraud signals to feed their machine learning models alongside proprietary data.

    This collaborative approach enables financial institutions to complement their machine learning with signals exchanged within the community and from third-party fraud intelligence sources. For example, this data could detect when a customer sends funds to an unusually dormant bank account.

    As real-time transactions are irreversible, cross-industry collaboration can help prevent funds being lost through social engineering scams by holding the transaction on the receiving end.

As the trend of digital payment adoption continues, security in digital payment systems must improve as well. Banks and financial institutions have a need to follow the latest technology-enabled security measures to combat fraud to turn the tide against rogue actors while keeping the payments process hassle-free for consumers.