Is fighting fraud an overbearing task for banks in APAC?

With the world’s highest mobile and internet penetration concentrated in Asia-Pacific (APAC), this has inadvertently contributed to the rise of fraudulent activities online. As reported in a poll conducted by AppsFlyer, company losses due to fraud has amounted to USD650 million across the financial sector in the APAC region.

This worrying increase in fraudulent transactions is spurring great concern for APAC banks as they run the risk of losing the trust of customers in addition to financial losses. In our previous article, it was highlighted that fear of fraud is one of the main reasons why many internet users in Asia have become wary of online transactions.

How is it like in a mature market like APAC?

In more mature economies like Hong Kong and Singapore, consumers are largely more aware of fraud risks. In a recent poll by FICO, 74% of banks in the APAC region that were surveyed, believe that cases of fraud in their country will continue to increase.

This is supported as fraud cases in APAC alone have increased to more than 50% since 2018, as reported by Carlos Testa, General Manager of Emailage, at the Seamless Conference 2019. In line with this, banks are taking more initiatives to prevent the occurrence of fraud.

• Singapore

In a report by PwC, business misconduct and asset misappropriation are the two most prevalent frauds in Singapore. The proportion of organisations reporting business misconduct in Singapore is at 41%, significantly higher than the global average of 28%.

This is potentially catalysed by the internationalisation of business activities carried out by Singapore based companies. Internationalisation has inadvertently brought in new risks and increased the inherent risk of corruption, as with the benefits of expanding its global footprint.

• Hong Kong

Over HKD2.6 billion from 30 victims of internet and phone scams have reportedly been transferred in and out of Hong Kong bank accounts during the first half of 2019.

Hong Kong’s Joint Financial Intelligence Unit also received 24,027 reports of suspicious financial transactions for the first half of 2019. There were 73,889 such reports in all of 2018 and 92% of the reports were lodged by banks.

OpenGovAsia reported that between January and June 2019, the anti-fraud squad received 829 requests to intercept payments of HKD2.61 billion from victims of scams in Hong Kong and around the world. Officers halted payments totalling HKD1.29 billion to fraudsters in 304 of the cases.

• Australia

Open Banking is considered an emerging challenge in fraud risk, with banks across the globe getting ready to open their doors to third parties to access their customer data.  KPMG reported high volume of scam attempts on Australians with 177,000 scam reports last year, costing almost half a billion dollars. Banks surveyed in the report also considered the most significant challenge in fraud risk to be cyber-attacks.

The impact of this is that fraudsters are becoming more sophisticated and can quickly change and adapt their approaches. Banks, in Australia and globally, need to be agile to respond to new threats and embrace new approaches and technologies to predict and prevent fraud.

• Japan

Unlike the rest of APAC, Japan only sees a small number of fraud cases compared to other countries in APAC. As reported by Nippon, fraud in Japan in 2018 fell by 9.6% from the previous year to ¥35 billion, down for the fourth straight year. Financial losses from fraud cases also fell by 21.4% in the same period, dropping from ¥4 billion to ¥14 billion.

However, people in Japan are still being scammed at least ¥80 million a day by such schemes, which remain a serious problem. Damage prevention measures via cooperation with financial institutions will be needed to step up crackdowns on fraud groups.

What are some of the ways to combat fraud?

• Use of fraud management tools

Optimising fraud strategies and detection tools, improving automated detection and sorting and streamlining manual review tasks can help reduce fraud risks.

• Enhanced authentication methods

Multi-factor authentication, which combines a password with other security measures such as a codes sent to phones or a biometric scans, is spreading quickly as a fraud prevention measure. In addition to the two-factor authentication, APAC has 3DS verification a risk-based authentication method that can assist data analysts examine more than 150 data points. By being able to do so, it can provide them greater visibility of transactions.

• Refining banks’ ‘digital identity’

Open banking is forcing banks to radically revisit their approach to not just payment authentication but also identification technologies. This is where Digital Identity (Digital ID) is implemented as ‘Identity frauds’ have become common-place seen by mid-sized to large financial firms that carry business online. Establishing a digital identity is where customers authenticate themselves digitally with service providers and this aims to help support authentication as well as verification issues.

This core digital ID can serve a number of purposes. It could prove that a customer is who they say they are and contain only static identifying fields such as biometric data.

Moving forward

Fraud management is increasingly crucial and job vacancies will continue to grow to fill in operational gaps in banks. In addition to the above initiatives, the onus is also on the consumers to be informed on the different types of online fraud, and take necessary measures to protect themselves.

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