Fraud Analytics: Salient Way of Detecting Financial Fraud in the Banking Industry

Turning a blind eye into fraud and financial crimes is no longer acceptable for business. With the latest technology at hand, fraud schemes are growing more sophisticated. When it comes to fraud in retail banking, to overcome these challenges, the banking industry has gradually started adopting new ways of fighting financial fraud by conducting fraud analytics. In order to assertively protect themselves and their customers, organizations are now taking the road less travelled and formulating a comprehensive counter fraud approach with the help of analytics.

A large number of business processes are now automated and depend on effective use of technology. While fraudsters are regularly exploiting flaws in security and controls to perpetuate their crimes, the good part is that the technological advancements can help combat fraud at a very early stage. Efficient use of fraud analytics software can help in understanding the organizations’ business data in a better way which in turn will allow identifying transactions that evince fraudulent activity.

To effectively test for fraud, transactions should first be analyzed at the source level so that the auditors can get a sense if the fraud is about to occur. A regular follow-on analysis helps auditors to understand data patterns and search for symptoms which can lead to fraudulent behavior. A wide spectrum of analysis can be conducted to detect different kinds of frauds. For example, a point-in-time analysis can prove useful for one-off fraud detection; a repetitive and continuous analysis is needed if the frequency of fraud is high and recurring.

In the process of carrying out fraud analytics, many a times, organizations end up wanting to dig deeper. Financial fraud happens in a variety of ways and the intensity of loss occurred also ranges accordingly. Corruption, cash on hand, billing, check tampering, skimming, larceny, financial statement fraud are some of the negative activities that regularly happen in banks. Any loophole in the business cycle is a window for crime to happen in a blink of an eye. Understanding customer behavior is thus a key ingredient that helps in analyzing fraudulent patterns. For example, high net worth individuals are likely to make rampant transactions at odds hours while small business owners might sometimes have unpredictable online banking activity for clearing payments. Such activities, though are not fraudulent, may be considered as negative. In such cases, timely verification is vital. Another important thing to be considered while detecting fraud is the workflow of the organization. A lot of hoops to make way through to rectify issues can sometimes prove cumbersome. A cohesive workflow allows auditors to improvise the remediation process.

With a rise in transaction volumes in future, such financial crimes are also expected to be elevated. Thus, rapidly evolving technology is dual-faced in nature, sometimes acting as an ally and sometimes as an enemy. On one hand, it offers fresh opportunities to the fraudsters and on the other hand also allows financial institutions to stay ahead and prevent fraud. In a fast-paced business environment, a computer and an internet connection is indeed a powerful weapon that can make or break the business. It’s time we leverage fraud analytics to detect and mitigate financial crimes. How is your organization handling financial fraud? Share your thoughts in the comments below.