With the recent advancement in technology, cases of financial fraud have significantly increased. Therefore, fraud mitigation is one of the major concerns for those in the financial services industry.
Banking and financial services are the most victimized. Every year, financial services organizations lose a percentage of their revenue to fraud. A recent report revealed that in 125 countries, organizations lost over $3.6 billion to fraud. According to the same report, organizations lose 5% of their revenue to fraud yearly. Some of these losses are detectable, while others aren’t.
Financial fraud hurts the reputation of organizations. Additionally, they damage customers’ confidence in the organization.
Financial regulators urge those working in financial services to be more intentional about combatting fraud. Managing financial risk is essential. Therefore, financial services organizations need to implement ways of combatting fraud without necessarily incurring high costs.
Here are a few effective methods of combatting fraud in financial services.
Have an effective ﬁnancial fraud management system in place
All financial services organizations should have an effective financial fraud management system. This way, the organization would be safe from financial, punitive, and reputational risk.
A good fraud management system should:
- Have the ability to detect fraud in customers’ accounts and transactions
- Integrate diversified data sources to improve the credibility of information
- Have an authorization system in place
- Have the ability to reveal hidden relationships, detect patterns, and predict future
- Assess all possible threats
Financial fraud management systems reduce the opportunity for fraud and restrict fraudsters from rationalizing their actions. Consequently, the organization does not make any losses and will continue being in business.
Have a multi-layered security structure.
All financial services should have a multi-layered security structure for risk mitigation. This involves having multi-factor authentication. This way, the organization can easily detect unusual transactions and follow up with the customer.
Note that intruders can easily put you out of business if you don’t have a multi-layered security structure when they get access.
Monitor all transactions
There is a need to monitor all transactions, including those under $9000, closely. The easiest way to do this is by setting a daily limit on every customer. If the customer/user makes a transaction that is out of the ordinary, the organization is alerted. Most fraudsters have resorted to making transactions under the $10,000 mark because they are confident financial institutions do not monitor small transactions.
Implement triple controls
Basically, this means that three people have to authorize one transaction before it goes through. So, for instance, one person creates the transaction, another person studies and approves it, and the last person sends the transaction.
Alternatively, you can set up an Automated Clearing House (ACH) network to process the said transactions.
Educate consumers about fraud
Financial service organizations need to educate customers about fraud. This way, customers will realize the financial risks they face and be willing to implement solutions that can mitigate the said risks.
Creating fraud awareness also helps organizations earn customers’ trust.
Have a fraud response plan.
Every financial services organization should have a plan for suspected or detected fraud cases for risk mitigation. In addition, every fraud response plan should have procedures for gathering evidence that would be admissible in court if the matter brings forth criminal or civil action.
There are several advantages of having a fraud response plan. For starters, it reduces the tendency to panic. The plan can also help an organization minimize losses and keep its customers’ confidence.
Since fraudsters are coming up with new ways to defraud organizations, you need to ensure your organization does not fall victim. Contact us today and be guided by our experts on the best ways to combat fraud in financial services.