Insight & Analysis

Why fraud prevention requires a digital response

Published: May 2023

Fraud is now the most common crime in Britain, costing nearly £7bn annually and affecting one in 15 people. Over two thirds of that total (around £4.5bn) is a consequence of identity fraud. As the UK Government launches its national fraud strategy and a headline pledge to cut financial crime by 10% next year, one treasury expert argues AI needs to be part of an effective solution.

The UK Government’s recently released national fraud strategy aims to tackle spiralling levels of fraud, now the most common crime impacting the public and businesses in Britain. UK Finance, the trade body for the banking and finance industry, reported that in 2021 its members lost over £1.3bn to fraud, increasing costs for everyone who uses banking services. Elsewhere, the Economic Crime Survey found that in 2020 around one in five businesses were a victim of fraud in the previous three years.

The government’s new strategy includes steps like banning cold calls on all financial products, banning “SIM farms” where criminals send thousands of spam texts at once, and increasing the role of the intelligence community to identify fraudsters operating overseas. The new strategy, which received a cautious welcome from a leading consumer rights group, is backed by a new £30m public investment. The opposition Labour Party called the plan “too little, too late” and consumer groups welcomed the strategy, but criticised the government for not acting sooner. “The fight against fraud has progressed far too slowly in recent years and in particular more action is needed to guarantee t big tech platforms take serious action against fraud,” said Which? in a statement.

Although treasury experts welcome the policy, they also urge a concerted effort to ensure organisations are doing all they can to protect themselves, each other, and consumers in a cross-sector strategy. Colum Lyons, Founder and CEO at identity verification fintech ID-Pal, argues that financial crime prevention requires a cultural shift that embraces the benefits of AI-powered fraud prevention technology.

As fraudsters develop ever-increasing ways of committing fraud and financial crime, businesses should ensure they are using the most secure, advanced tools to verify their customers as part of their Know Your Customer (KYC) obligations and to safeguard their personal information, says Lyons.

He continues that targeted efforts to mitigate fraud in financial services specifically, such as the widespread adoption of Confirmation of Payee (CoP) by over 400 payments service providers and the introduction of the long-awaited Failure to Prevent Fraud (FTP) offence, are steps in the right direction.

CoP is a name checking service whereby payment providers can check the name of the person or organisation against the actual name held on the account. Earlier this year the UK Government published a draft ‘failure to prevent fraud’ corporate criminal offence rendering large companies liable for fraud committed by their associates. Making it easier for organisations to be prosecuted for fraud committed by employees or third parties, it will also require many organisations to make significant changes to fraud compliance programmes to prevent a wide range of fraud offences.

But Lyons also calls for a fundamental cultural shift across not just financially regulated sectors to prioritise how to securely capture, verify and store customer identity documents.

“The technology now exists to enable seamless biometric, document and database checks that don’t compromise user experience but actually enhance it. Solutions that are designed with security at their core, to prevent fraud at source. We need to embrace the benefits of a fully digital identity verification process. Otherwise, organisations will leave themselves with a fraud prevention strategy that is not fit for purpose. By not having a unified approach across all channels, sectors, and providers, we’re allowing fraudsters to win,” he says.

According to a recent AFP survey, amongst those who were victims of payments fraud in 2022, more than one-fourth of organisations (27%) were able to successfully recover at least 75% of funds lost. However, nearly half (44%) were unsuccessful in recouping any of the stolen funds. The AFP survey found instances of fraud via commercial card increased by ten percentage points, and instances of fraud via ACH credits and virtual cards increased by six percentage points each. When looking to report payments fraud, nearly 80% of organisations are most likely to seek assistance from their banking partners for guidance regarding the steps to take to minimise the impact of the fraud.

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