Outwitting criminal minds

Fraud may no longer have a definition. The known boundaries of fraud were mostly marked out of past occurrences and variants of same; however these perimeters are now constantly being blurred and expanded. This is purely driven by the technology disruptions and innovations in the world today. With every new and changing facet of technology, creative criminals are innovating in order to remain ahead of investigative processes and systems devised to catch them.

According to the World Economic Report 2014, Cyber-attacks represent one of the Top 10 most likely systemic risks to occur. Needless to say, the most central Industry to this menace is the Banking and Financial services Industry. Historically, banks all over the world have been the most victimised with different flavours of fraud cases ranging from simple cash larcenies to cheque tampering, unauthorised credit, ATM fraud and a host of sophisticated blends.

The new trends in fraudulent events are largely as a result of the shift in landscape of channels and methods of banking. In 2013, bank branch closures in the U.S hit the highest level on record – there was a net loss of approximately 1,500 branches. Since the financial crisis, U.S banks have been ramping up mobile and online services and moving away from physical locations.

This progression has been similar in the Nigerian Banking Industry; the CBN cashless policy (among other factors) triggered a new wave of interactivity between banks and customers, as well as amongst customers (whether banked or unbanked). Consequently, there has been a shift in the Nigerian payment landscape – previously non-existent online transactions as well as ATM, POS, Mobile transactions are now customary and still on the increase.

However growing in a parallel fashion, is the spate of fraudulent events involving the Nigerian Banking Institutions and related financial organisations. Though CBN has stated that only 20% of fraudulent transactions in the banking industry are reported, the equivalent value and volume making up the 20% is capable of eroding public confidence in the financial system. Hence, fraud detection and prevention technologies are no longer investments that financial institutions can afford to compromise on.

Traditionally, institutions have focused on looking for factors such as known bad IP addresses or unusual login times in detecting fraudulent acts. However the level of advancement in methods used by creative criminals has made it imperative for financial institutions to outwit them by leveraging their vast data sets.

Conceptually, the value proposition of the Big Data theme is customer insight – most organisations understand the idea and have enriched it by introducing deeper customer experience, increased customer loyalty and the resultant increase in customer’s wallet share. While this is accurate, the intrinsic beauty of big data is the new and expansive realms of possibilities that it presents.

Globally, Big Data is dramatically changing the approach of fraud detection and prevention with intelligent solutions that can leverage existing IT investments by applying real-time analytics to unprecedented amounts of structured, semi-structured and unstructured data, uncovering transaction anomalies in milliseconds in a non-disruptive manner.

One of the keys to accurate fraud detection and prevention is to implement emerging technologies that allows banks to gain a holistic view of customers. The view of fraud detection uses data available from a variety of sources — mobile data, web, historic transactions, along with social data from Facebook and Twitter — and uses it to distinguish fraudulent activity from normal activity.

Another relevant consideration is Machine Learning. Generally, fraud management solutions have a rules-based engine that enables an organisation set their own rules for determining whether transactions are fraudulent or not. However, a fraud management system driven by human-generated rules has lost its unique selling point already (maybe a decade ago actually) – human-generated rules simply cannot evolve fast enough.

Machine learning takes place when agile systems are configured to learn from one another. It discovers the patterns buried in data and learns from itself to deliver higher quality insights, helping detect fraud in real time and adapting its systems to more quickly identify fraud in the future.

Inevitably, technology will continue to advance and offer new strategies for optimizing fraud detection and prevention. However today, SAP provides a robust platform for advanced analytics and channel agnostic technology which compares current customer transactions to historical transactions, thereby teaching itself the customers’ transaction behaviour.

Nigerian financial services institutions and regulatory bodies need to ensure that awareness on trends and developments is not impaired. Additionally, financial institutions need to partner with fraud management solution experts who will effectively help them stay ahead of the technology curve.

Folusho Ade-Ogunrinde

Industry Value Advisor

Financial Services Industry, West Africa

SAP Nigeria