Voice of the Industry

Taking on fraud: navigating the big financial services challenges

Tuesday 17 May 2022 09:20 CET | Editor: Claudia Pincovski | Voice of the industry

Janer Gorohhov from Veriff shares some practical ideas on how to address financial services challenges such as digitalisation, stopping bad actors, and complex regulations

The financial services industry has evolved dramatically throughout the COVID-19 pandemic as businesses shifted their digital strategies to meet changing consumer demands. In fact, 88% of finance and insurance executives increased the implementation of automation and AI-related tools within their organisations as part of the digitisation wave.

However, with financial services organisations rapidly expanding their digital services, increased reliance on fintech and digital banking has left room for bad actors to increasingly target these businesses and their customers. On top of this, financial services institutions face increasingly complex and stringent anti-money laundering (AML) and know your customer (KYC) regulations on a global scale as the need to navigate a range of regulations in order to reach compliance standards is greater than ever before. 

It’s never been more important for financial service institutions to be steps ahead of these bad actors and complex regulations.  Let’s dive further into these challenges and how they can be addressed.

Fintech & crypto fraud on the rise

Simply put, the rise in fraud rates speaks for itself - we’ve witnessed a 61% increase in fraud rates globally over the past year, with the US experiencing more fluctuation as the EU saw more consistent fraud growth. Fintechs took an especially heavy hit (50% increase over the year) despite large investments in security and prevention tools, as bad actors continued to advance their techniques and hone in on a growing variety of digital fraud strategies such as synthetic identities and deepfakes.

We see a similar story within the crypto industry. As the crypto industry continues to grow, so do the risks, causing concern for the sector at large. In 2021 we saw the first US exchange-traded fund tracking Bitcoin launch, forever changing the crypto space in the country and expanding its already massive reach. As a result, crypto became the most fraudulent industry compared to fintech and other industries.

These data points paint a frightening picture of the large hurdles many organisations face when it comes to fraud. Organisations are being attacked from all directions and every user must be vetted as financially motivated cybercriminals refuse to slow down.

Growing AML & KYC pressures

On top of the growing fraud threat, compliance departments are also navigating evolving AML and KYC regulations. AML fines reached USD 1.9 billion just in 2021, and growing digital banking challenges from the pandemic will only increase them as factors like outdated systems hinder organisations from keeping pace with quickly changing compliance guidelines. We’re also seeing regulatory bodies on a mission to address money laundering and terrorist financing within the historically anonymous crypto industry specifically, while not limiting the digital benefits of the service.

Crypto-asset service providers and other financial services institutions must take the time to fully understand the extent of their respective compliance programs and leverage the right tools to help businesses continue to build and evolve their programs to avoid being hit with large fines and reputational damage.

Turning to digital identity verification for help

With all of these challenges in play, organisations must be able to trust that their customers are who they claim to be from both a fraud and compliance perspective. This is where identity verification solutions come in.

As fraudsters become more advanced when it comes to infiltrating online financial and crypto services, the need for robust identity verification capabilities is critical to keeping users’ identities safe and protecting their financial well-being. Utilising tools like face match technology and a winning combination of network, device, document, video, biometric and behavioural data can be highly effective in providing speedy and accurate fraud prevention and real-time identification.

To address AML and KYC challenges, most compliance programs will need to include an identity verification solution to help businesses confirm the identity of their customers and deter fraudsters. Organisations must implement an effective identity verification system that is capable of verifying users based on ID documents to keep track of potentially high-risk customers and enable businesses to take action when needed. Certain full-stack AML and KYC solutions are available that offer PEP and sanctions list checks, adverse media screening, and ongoing monitoring to help organisations remain fully compliant with regulators and keep fintech businesses safe from bad actors.

What’s next?

Identity verification is absolutely essential for the financial services sector, and that need is only going to grow. But in today’s digital world, our identities are more complex than government-issued IDs. An identity can span everything from licenses to degrees, SIM cards to credit history, and is oftentimes scattered across the internet. Moving forward, identity verification solutions will need to span a full spectrum of identities to seamlessly and accurately confirm consumers are in fact who they say they are.

In an ideal world, an increase in online activity should not equate to more risk and fraud. Yet, we find ourselves in a situation where this is the case, and concepts like AI-based video editing and augmented video processing that were once obscure are easily accessed by bad actors to harness the power of deep learning and advanced AI to mask, anonymise, and alter images and videos. Amid the volatility of the financial and crypto markets, federal regulations, and an ever-changing economic picture, it is clear that having the proper identity verification tools will remain vital to keeping the finance industry afloat.

About Janer Gorohhov

Janer Gorohhov is the co-founder and Chief Product Officer of Veriff, the leading AI-driven verification platform, making sure its verification engine continues to evolve. A tech-savvy innovation enthusiast who started his career as a full-stack developer, Janer holds a degree in computer and information science from the University of Tartu.

About Veriff

Veriff is a global online identity verification company that enables organisations to build trust with their customers through accurate and automated online IDV. Veriff’s intelligent decision engine can analyse thousands of technological and behavioural variables in seconds, matching people to more than 10,000 government-issued IDs from over 190 countries.

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Keywords: fraud management, financial services, digitalisation, regulation, COVID-19, artificial intelligence, fintech, digital banking, AML, KYC
Categories: Fraud & Financial Crime
Companies: Veriff
Countries: World
This article is part of category

Fraud & Financial Crime


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