Preparing for the fraud pandemic

The accelerated shift to online banking and mobile transactions has pushed financial institutions (FIs) to re-evaluate the resilience of their fraud management strategies.

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In Australia, never before seen scenarios, such as fraudsters posing as the Australian Taxation Office (ATO) to provide JobKeeker payments, scam text messages impersonating the government conducting COVID-19 contract tracing and financial criminals intersecting transactions where Australians are trying to make early access to their superannuation, have become mainstream.

"Among rapid changes driven by the pandemic, pre-existing challenges for Australian financial institutions have also continued.”

Both businesses and consumers need to be more alert and proactive about their identity verification and fraud prevention approaches than ever.

Among these rapid changes driven by the pandemic, pre-existing challenges for Australian FIs have continued. The ongoing competition between Australia and its Asia Pacific counterparts to lead the region in fintech innovation has been brought to light again in this year’s federal budget, which re-surfaced conversations around the value of supporting research and development for local fintechs.

Consumers will be expecting the financial industry to adapt quickly to the macroeconomic changes and provide timely options for impacted communities.

How Australian FIs could lead the region in innovation and technology adoption will rely heavily on how they can balance two issues – the rising and increasingly complex fraud landscape and the growing expectations among consumers for agility and innovation.

GBG’s latest report, Future-proofing Fraud Prevention in Digital Channels, found five key areas where Australia stands out from its regional counterparts.

Australians prefer mobile and online banking more than any other region

Australians are the most likely consumers in Asia Pacific to completely say goodbye to in-branch banking, with only 16 per cent preferring this method. Mobile, online and app banking are much more popular, reflecting an overall shift towards a growing comfort with digital banking and transactions.

With 53 per cent of online adults already using their smartphones for banking and the ongoing impacts of the pandemic leading more consumers to transact online, Australians FIs will need to focus on ensuring their customers aren’t susceptible to the growing volume of threat of financial crime that comes with these shifts.

Targeting millennials will be key

Across Asia-Pacific, millennials have been an area of focus for more than a third (35 per cent) of FIs and this will continue over the next year. On the other hand, to date in Australia, millennials have been less of a focus, alongside the elderly. Retirees, white collar working professionals and blue collar working professionals have been of greater focus for new digital products.

However, Australian FIs are now looking to significantly change their strategy, with 33 per cent planning to target millennials (up from 19 per cent) and only 13 per cent planning to target retirees (down from 29 per cent).

The biggest shift among APAC FIs, meanwhile, is towards targeting the underbanked (31 per cent) and unbanked (32 per cent). 

New research from the National Centre for Vocational Education Research (NCVER) found millennials are less likely to be married, more likely to be living with their parents and significantly less likely to be owning or buying a home in comparison to 10 years ago. In the current economic downturn, any challenges millennials have had with finding stable, full-time work will continue or be exacerbated, leading to more money being saved than spent among this demographic this year.

A digitally savvy group, millennials present an opportunity for Australian FIs to become supportive financial partners and guides as this group spends the upcoming months building financial stability and planning their long-term financial investments.

While almost 50 per cent of adults in Southeast Asia remain “unbanked” and do not own a bank account, this is not a significant market segment for Australian FIs. Millennials’ changing banking behaviours during the pandemic, however, present countless opportunities for FIs to develop and deliver unique digital services to address their new needs.

Australian FIs are most fragmented

Integrating cybersecurity, fraud control and compliance functions across an organisation is a challenge for FIs across the region and Australia is particularly lagging behind. While 43 per cent of Asia Pacific FIs are operating these as independent functions, a concerning 58 per cent of Australian FIs have them operating in siloes.

As crime syndicates become more sophisticated in their approaches and more aggressive in their attacks, it will be critical for FIs to have data, teams and systems that are interconnected and operating collaboratively to ensure threats are detected and addressed.

Almost half (45 per cent) Australian FIs have their cybersecurity and compliance teams collaborating, while 65 per cent of Asia Pacific FIs see higher collaboration between cybersecurity and fraud departments. This reflects Australia’s highly regulated market, including the compulsory data breach notifications Australian businesses need to report. This report recently highlighted the finance industry as the second highest reporting sector, accounting for 14 per cent of all breaches.

With 36 per cent of Australian FIs seeing compliance management as a key challenge, it is clear that navigating and managing industry regulations requires proactive and dedicated resources.

Significant growth in financial fraud

First party identity fraud, social engineering attacks, money laundering and other threats grew in 2019 across the region but Australia stood out among its Asia Pacific counterparts with particular growth across multiple fraud typologies.

The greatest increased threats for Australian FIs were from synthetic identities, money mules, scams, and phishing attacks. In 2020, all FIs including those in Australia expect the fastest growing fraud typologies to be scams and stolen IDs. 

The introduction of the New Payments Platform (NPP) and growth of fintechs leveraging this real-time platform for digital transactions has provided speed and ease of financial services for business and consumers, while also providing immediacy for scammers and financial criminals looking to earn quickly from their crimes. This has shortened the window of opportunity for FIs to intervene during an online attack, making the need for technology-driven detection and prevention more severe.

At 20 per cent, Australia has a proportionately higher percentage of FIs with an existing implementation of an integrated end to end fraud and compliance platform solution, in comparison to the 6 per cent average for Asia Pacific FIs. A further 28 per cent have put this as a high priority investment for 2020-2021.

While this is a promising start, there is still much to be done on adequate technology adoption and at the rate at which threats are growing it will be a race against financial criminals that enterprises will need to ensure does not fall by the wayside.

Conservative technology spend

Despite the growing threats, countless opportunities for fintech innovation and the comparative lack of readiness for the upcoming fraud landscape due to siloed resources, Australians are far from leading the region in fraud prevention technology investments.

On average, Asia Pacific FIs will spend $A114.1 million on new fraud technology investments in 2020-2021, while Australian FIs will only spend $A104.3 million, significantly less than Thailand, China and Indonesia. 

The Australian financial services industry has historically been conservative when it comes to innovation, with some saying this has led to the significant and impressive rise of fintech startups locally.

This pattern seems likely to continue throughout the pandemic as enterprises continue to play it safe when it comes to technology budgets. However, the irony is that by being conservative on technology spend, FIs could be leaving the door open to the growing and increasingly well-funded international community of financial criminals and, in doing so, expose their organisation and customers to more risk at a time when Australians are most vulnerable and looking to businesses for financial support and guidance.

While many industries are unsure of what lies ahead for the next year, there are clear signs for the banking, superannuation, insurance, loans and financial services sectors that digital security and digital trust will be integral to keeping and growing their customer base through these uncertain times.

Those taking a proactive approach to protecting their assets and customer data will be best equipped to sustain business continuity into 2021 and forge ahead with innovative and timely digital offerings.

Carol Chris is Regional General Manager of Australia at GBG

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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