Managing digital risk in banking sector

Over the years, the banking sector has been exposed to new levels of digital risks following the advancement in technology, which is, increasingly, changing the traditional banking business model.

Such risks include bank robbery, cheque fraud, online/internet fraud, mobile banking fraud, bullion van robbery and card fraud.

The fraud volume perpetrated through the use of cheques was 11 and the value – actual loss- stood at N18.74 billion in 2017, according to the data published in the annual report of the Nigeria Electronic Fraud Forum (NeFF).

The banking industry lost the sum of N12.30 billion to various frauds between 2014 to 2017. on mobile and payments related frauds the industry lost N6.22 billion in 2014 on attempted fraud value of N7.76 billion.

While fraud trend is generally on the decline, mobile fraud trend alone is on the increase. Ade Shonubi, managing director of Nigerian Inter-Bank Settlement System (NIBSS) who was represented by Olufemi Fadairo, head, Industry Security Services at a forum in Lagos recently, said, “while fraud trend is generally on the decline, mobile fraud trend alone is on the increase”.

He added that mobile fraud would overtake ATM fraud by 2020 with the rate of increasing fraud in the channel.

“The emergence of the desire to become a digitally led institution will expose us to unique challenges and opportunities that accompany digitalisation. With increasing digitalisation, the risk focus is changing to new areas”, Ade Bajomo, executive director, information, technology and operations, Access Bank plc.

Bajomo listed top six items that banks can keep at the fore in their digital journey. These are creating a digital culture, investing in experiments, investing in people, the need to understand that good robust value requires time, governance cannot be ignored and the understanding that agility is everything.

Predictive analytics is a useful tool for detecting fraud. Analytics can be used to recognize frauds that are not obvious and then predictive analytics can be implemented on them to analyse them further.

Predictive analytics in banking can help process huge volumes of applications, without excluding important variables, without delays or errors with regularity and steadiness.

“The results are usually accurate and authentic to be used”, Bajomo said, adding that predictive analytics helps help in the process for optimised targeting, making it easier for banks to instantly identify the high value customer segments most likely to respond. The customer base can further expand by acquiring the right type of customer.

He said predictive analytics can help banks track the past usage patterns and the daily coordination between the in -and out payments at their branches and ATM’s, hence predicting the future needs of their potential customers.

“Banking sector in financial system today is witnessing a lot of paradigm shift in how we do business and how we plan for the future. The future of banking, business, our economy, worldwide technology has disrupted positively a lot of ways and manners which we do business. Data is key. We have a lot of data in our hands”, said Uche Olowu, president/chairman of council, Chartered Institute of Bankers of Nigeria (CIBN).

With predictive analytics, banks can rapidly segregate various customer segments and replace it with highly relevant, individualised messages tailored to each customer’s profile resulting in a higher response rate.

“The fourth industry revolution is here. That fourth industrial revolution is digital revolution. If Nigeria misses digital revolution now, can we ever recover from it? We missed the first industrial revolution, the second revolution, the third, now we are in the fourth revolution”, Olowu added.