Fraud Monitoring – 3 Types of Banks
When we examine the current state of fraud monitoring in banks, there are three classes of banks. The first group comprises those that have realized and embraced the value in fraud protection and prevention. The second group is banks that put fraud management systems just to satisfy the regulatory requirements, without understanding the importance of fraud. Finally, we can classify in between people who have put in fraud prevention system with good intentions, but they tend to take a very narrow view of fraud. They look at fraud in the same compartments as their fraud applications. The ownership in many banks are structured in the same way and they do not have budgets for broader implementation. The cross-channels effect from other channels would help make their detection in their vertical more effective. In the third category, most banks concentrate on highly visible frauds like money laundering.
The growth of online and mobile channels can enrich the ability to detect money laundering. For examples, if you monitor the threshold movement of money, normally that satisfies the AML requirement, but if you combine that with tracing the movement of that money to an external bank and coming back, then you are detecting yet another scenario of AML. Another example is mule accounts, which can be a huge liability to a bank, because if your bank is the last in the chain of mules and something goes wrong in that chain, most likely every other bank, which was part of the transfer, is going to claim that value from you. So, there are some very high-profile mule cases, where the banks were left holding a bag of $50million in the commercial settlement channels.
People don’t realize that in this kind of scheme they still have a reputational risk. Experiences have shown that people are not moving away from traditional institutions, but if they lose confidence in their bank, especially in the commercial accounts, they move to other bigger institutions.
PROCESSES TO BE ADOPTED
When it comes to processes that banks should adopt for handling the second and third categories, the second category tends to be smaller banks. For instance, a large portfolio of the global FIS clients are credit unions and local banks with less than $1 billion assets. In India, the profile is little bit different, because banking licenses are nationwide. In the west, you buy a core banking system, then the core banking system provides you with a minimum of features, such as internal fraud, AML, cheque fraud and payments channel like ACH. They tend to buy the cheapest feature-based solution rather than stepping back a take a holistic view of realizing the value from fraud detection.
Since this tends to be a low-price sale, every anti-fraud vendor tends to take the least common denominator approach and what they provide is some generic scenarios which are covered by low cost tech part. In today’s world the fraudsters have moved beyond the bank will not detect a lot of activity at the lower end.
For the third category audience, you can expand the portfolio of universe of things that you are detecting just by looking at related activities. By looking at obvious places everyone knows today that banks have faults from insiders. Everyone knows that just the nature of the fraudsters changes. Today, you have less of loan fraudsters and more of fraud rings. Fraud rings are too intelligent to hit you in one channel. You really have to have a healthy respect for the fraudsters, otherwise they will beat you down.