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The Importance of Bank Statement Analysis Software in Fraud Detection

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In terms of numbers, digital lending companies in India witnessed a compound annual growth rate of 39.5 % over the last 10 years. While this is an encouraging statistic, the digital lending industry is also witnessing more cases of fraud.

According to a report by the Reserve Bank of India, in the first half of the Financial Year 2023, loan-related frauds clocked the biggest share among all frauds, to the tune of ₹18,746 crore.

Hence, lenders urgently need to upgrade and optimise their fraud detection mechanisms to keep pace with fraud growth trends.

This is where the adoption of bank statement analysis software by lenders can transform operations, bring accuracy to outcomes, and expedite the underwriting process.

In this blog, let’s understand more about bank statement analysis software, the types of frauds it can prevent, and its impact on lending businesses.

Types of Lending Fraud A Bank Statement Analysis Software Should Detect

For optimised fraud detection, it is crucial to understand what exactly constitutes fraud.

For instance, fraud does not refer to cases where the borrower may have every intention to repay the loan but defaults due to unfortunate circumstances.

Lending fraud typically takes the following routes:

Identity Fraud 

This is a type of fraud where a borrower impersonates another individual to secure the loan. During the loan application process, an imposter will use another person’s identity documentation, bank account, and other details.

For instance, they may use the details of a person who may be deceased, whom they are related to, or sometimes a complete stranger.

In many cases, professionals may perpetrate such impersonations, and challenging to catch the human eye due to the sheer volume of loan applications.

Bank statement analysis software has the capability to weed out inconsistencies and minute errors, which exposes impersonation.

Documentation Fraud

This fraud is where the borrower attempts to furnish forged or altered documentation. The spectrum of forgery can range from minor changes to completely fake documents.

For instance, borrowers may download templates and manipulate them to look like legitimate bank statements.

Bank statement analysis software can be programmed to flag mistakes in font usage and other inconsistencies in formatting. Access to legitimate bank data makes it easier for AI algorithms to weed out other fraudulent documents.

Financial Fraud

Financial data analysis can also reveal anomalies in accounting. For instance, a business’s financial statements may look good on paper, but bank statement analysis software can detect anomalies and expose deficits.

It resembles an electronic audit, revealing when a business has cooked the books. Access to such data gives underwriters an accurate picture of a business’s financials and capabilities to repay loans.

Home Loan Fraud

One particular area, which is impacted by a unique type of fraud is home loans. Fraudsters may attempt to falsify home information to secure a loan or an even bigger one on an existing home loan.

For instance, they may provide incorrect information about the property’s appraised value.

Bank statement analysis software has ML capabilities to help train the software to recognise such inconsistencies.

Commercial Fraud

Business entities sometimes attempt to cover their tracks concerning various internal fraudulent activities.

Examples of commercial fraud include falsified statements of the business’s financial performance, kickbacks received from a third party, insider trading, and misappropriation of business funds.

Bank statement analysis software can detect such information by flagging inconsistencies and unique financial patterns that remain unexplained. Access to such information paints a realistic picture of a commercial borrower’s financial culture and performance.

Underwriters can review the applicant’s data from a compliance point of view and make a more informed decision. It puts lenders in a position to consider the impact of such borrowers from a long-term impact on their business’ credibility and sustainability.

So What Exactly Is Bank Statement Analysis Software?

Bank statement analysis software can process massive amounts of data connected to a borrower’s transactions, income information, financial activity, and loan payments.

A superior bank statement analysis software can scour through data in over 700 formats in a reduced time frame.

The software also leverages modern technology like Machine Learning (ML) and Artificial Intelligence (AI), which train, capture, and analyse critical data fields required to detect fraud, followed by the classification of documents effectively.

Underwriters can leverage this processed data to assess the authenticity of a potential borrower’s credentials and their ability to repay loans.

Benefits of Adopting Bank Statement Analysis Software 

Here is a snapshot of critical advantages:

  • Catches financial data patterns invisible to the human eye.
  • Underwriters can customise dashboards to create specific data they are interested in.
  • The entire financial statement analysis process is expedited compared to manual interventions by humans, no matter how qualified.
  • In the long run, lenders can cut labour costs, and team members can focus on higher-value tasks.
  • The number of errors and oversights will come down, reducing losses related to fraudulent loans and the number of non-performing assets.
  • Expedited and accurate processing of loans of a higher number and ticket size, thus increasing the potential of lenders to capture higher market share.

Final Takeaway

Loan fraud can have far-reaching consequences on lenders, investors, and customers if not detected promptly. Often it takes many years for fraud to be unearthed, and it may come to light due to ongoing compliance-related investigations.

Lenders making early investments in robust bank statement analysis software can consider it a strategic investment towards building a sustainable and profitable business.

Finezza offers comprehensive fintech tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive bank statement analysis software is geared to analyse bank statements quickly and accurately and detect potential fraud.

Book a demo to know more.

Mobile Banking Frauds: How Can Banks Help Prevent Them?

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Mobile banking is revolutionising ways for people to access their accounts, thanks to its ease of use and flexibility. Consumers can deposit cheques, pay bills, transfer funds between accounts, and even send money to persons or businesses anywhere in the world using virtually any device with an internet connection.

Unfortunately, this transformation in accessibility and convenience has opened up new opportunities for fraudsters aiming to take advantage of vulnerabilities in business and consumer accounts.

As banks open up more avenues for their clients to access their money more quickly, the likelihood of fraudsters using those channels increases.

That is why both customers and financial institutions want practical answers regarding fraud protection. Therefore, it is critical to adopt the core tactical methods that can provide the best protection from the beginning.

What is Mobile Banking Fraud?

The risks of mobile banking are similar to those of internet banking. Scammers have a range of techniques for obtaining customers’ personal and financial information, such as bank account information, via their phones. Smishing and third-party programs are used to do this (similar to phishing, but through text messages).

Types of Mobile Banking Fraud

Mobile banking fraud can be carried out in several ways. Among the most common methods are:

1. Network provider data breach

In this type of fraud, hackers gain access to telecom service providers’ systems and steal personal information from customers.  Mobile banking is based on data: sensitive, personal data that travels via public networks, bank servers, and personal devices, all of which have different levels of protection.

Data is highly susceptible; thus, secure storage, strong authentication, and restrictions are essential. Unfortunately, these safeguards and detectors can be bypassed, resulting in irreparable data and identity theft.

2. Call centre fraud

During phone banking, customer care employees perform tests to identify the consumer before revealing account information. If a fraudster obtains these details, they can simply access any individual’s account.

3. App security

While mobile banking apps are far more secure than browsers for accessing banking services, they are vulnerable to cyberattacks, fraud, and money laundering operations.

Many stolen credentials and unauthorised transactions could stem from inadequate security measures and technological tripwires.

4. Malware risk

Scammers employ malware or harmful software to disrupt user systems and steal information without the user’s awareness.

It works on being undetectable enough to steal data and credentials in the background of apps or as a hidden application. However, the scope and complexity continue to grow and become more concerning because of the new, focused approaches.

5. Mobile phone theft 

A stolen phone with no strong password or lock security is highly vulnerable to fraud, particularly if it has bank apps and all necessary financial information. Moreover, even a password-protected phone might be hacked and used for mobile banking scams.

What Can Banks Do to Prevent Mobile Banking?

Mobile devices now handle the majority of payment transactions.

As fraudsters become more adept and expand their scopes with mobile-specific and cross-channel attacks, mobile technologies have created complicated security concerns.

Here are six methods for detecting and preventing fraud in mobile banking:

1. Multi-factor authentication (MFA)

Implementing a robust multi-factor authentication mechanism during account registration is one of the simplest and most effective measures. Multi-factor authentication (MFA) that uses dynamic, one-time authentication codes significantly reduces the risk of account takeover.

Along with impersonating existing devices, the attackers can also activate new devices using the victims’ credentials in some situations.

Push notifications transmitted over an encrypted channel to a mobile app tightly linked to the user’s device during activation can prevent attackers from gathering and using SMS one-time passcodes to gain access to accounts or authorise payments.

Furthermore, using mobile devices’ hardware characteristics (e.g., Secure Enclave on iOS or Trusted Execution Environment / Secure Element on Android) makes stealing device identifiers much more difficult.

Biometric authentication (Touch and Face IDs or similar tech) combined with confirmation of a push notification would have added another layer of defence that can prevent these fraudsters.

2. Online activity logging and behavioural analysis

Normal behaviour can be identified, and anomalies such as access from foreign countries by monitoring the consumer’s mobile account access.

Monitoring internet behaviour is an effective fraud detection strategy that can be handled by AI fraud detection software. In addition, new fraud detection companies are also offering passive biometrics to tackle mobile fraud.

3. Monitoring for fraud and suspicious activities across many channels

The following are essential components of a fraud monitoring solution:

Enterprise view and fraud reporting is a feature that allows banks to combine data from different sources and channels to get a complete picture of a customer’s account and suspicious activities. Cheques, online account access, and electronic payments will all be included.

Machine learning, scores, rules, and alerts is a function that generates risk assessments for a customer account using advanced scoring models, customer profiling, and other fraud detection tools. Simility and IBM Safer Payments are two sophisticated transaction monitoring systems.

4. Consumer email and text alerts

One particularly effective fraud detection strategy alerts customers when their mobile device accounts have experienced unexpected activity.

If an electronic payment is made to a new payee, for example, the bank may send a text message to the consumer asking for confirmation that the transaction is authentic. This method has been shown to be beneficial in both preventing fraud and improving client trust.

5. Regular monitoring and cleaning of malware

Customers and even bank employees have been duped into clicking on websites that download harmful software onto their computers, allowing hackers to steal large sums of money.

This software infects a computer or mobile phone, allowing a hacker to watch keystrokes, see emails, grab screens, and steal valuable information that allows them to access finances. Therefore, banks must have the most recent security software to detect and remove this dangerous malware.

6. Using HTTPS for secure access

The HTTPS protocol allows for secure internet connections, assuring that users view the site they believe they are. It also encrypts all data to protect it from being stolen.

In addition, HTTPS protects users from ‘middle-man’ attacks that can lead to personal or financial information theft.

The Bottom Line

Finally, banks must take a layered approach to mobile banking fraud that includes:

  • Strong customer authentication
  • Server-side risk analytics
  • Advanced mobile app security
  • Mobile app shielding with runtime protection

All these protect their customers and institutions from adversaries’ continued evolution and innovations.

For fintechs and banks looking forward to strengthening their lending, Finezza provides top of the line loan cycle management technologies. With this, financial institutions stay one step ahead of the competition by optimising their lending lifecycles. Contact us today to know more!

How does FaaS Help with Fraud and Chargeback Prevention?

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The Indian Fintech market is currently the world’s third-largest Fintech ecosystem, behind only the United States and China.

India has 6,636 Fintech startups, making it one of the fastest-growing Fintech markets. The Indian Fintech business was worth $31 billion (INR 3100 crore) in 2021 and is expected to be $150 billion (INR 15000 crore) by 2025. At a CAGR of 20%, the value of Fintech transactions is expected to increase from US$ 66 (INR 6600 crore) billion in 2019 to US$ 138 billion (INR 13800 crore)  in 2023.

Fintech-as-a-Service (FaaS) enables any company to use Fintech APIs to integrate financial capabilities into their existing applications, services, and products.

With FaaS, the work of building the infrastructure, integrating multiple licensing and compliance, and disparate financial systems is managed by a third party.

Therefore,  businesses can speedily integrate and provide many financial services to customers that were once only available via traditional banking and legacy financial companies.

Merchants in various business niches can use the FaaS offering to access several payment options with just one integration. In addition, merchants can profit from such services, including fraud and chargeback prevention.

Fintech-as-a-Service (FaaS): The Key to Preventing Fraud

While Fintech-as-as-Service evolves, the threat of cybercrime evolves as well. Even in the most secure parts of the internet, cybercrime is a problem.

Today’s cybercrimes are more complex than ever before. Each year, there are an increasing number of data breaches. Personal data such as usernames, passwords, credit card information, and social security numbers are subject to fraud due to these breaches.

Critical information such as the ones mentioned above can drain bank accounts, fraudulently secure products and services, initiate account takeovers, and lead to other frauds.

Furthermore, it is the responsibility of Fintech companies to ensure that they are familiar with their customers and obtain the necessary regulatory information when they onboard.

This is accomplished through the use of secure verification mechanisms. As a result, fintech companies and traditional financial institutions that invest in and implement new technologies bear a significant responsibility to their customers to avoid fraud and maintain compliance.

Fraud and Chargebacks: A Growing Problem

Traditional authentication techniques are no longer sufficient. Criminals may easily guess passwords and bypass security questions using the internet and social media.

As a result, businesses are increasingly employing innovative technologies to combat cybercrime. However, as security measures become more advanced, cybercriminals become more sophisticated.

According to Cybersecurity Ventures, Global cybercrime expenses are expected to rise 15% each year over the next five years, reaching $10.5 trillion USD annually by 2025. That means Fintech firms must keep ahead of the curve by implementing cutting-edge security measures.

Friendly or chargeback fraud occurs when a cardholder contacts the issuer (instead of the merchant) to contest a legit charge to get a refund while keeping the item(s).

For example, a cardholder could claim that they never ordered the item in question or that it was never delivered. Whatever the claim, it is challenging for an issuer to establish anything other than what the cardholder is reporting; thus, the issuer will apply a chargeback to keep the cardholder pleased.

Sift, a leader in digital trust and safety, published its Q4 2021 Digital Trust & Safety Index, which found that nearly one-fifth (17%) of consumers who have filed a chargeback dispute have engaged in “friendly fraud”—knowingly filing false fraud claims on legit purchases—to recover their money.

According to the survey, one out of every ten chargeback filers admits to engaging in “friendly fraud“ to obtain money back on holiday purchases. Based on the data from Sift’s worldwide network of over 34,000 apps and sites and a survey of over 1000 US consumers, the report analyses how chargeback fraud has grown significantly over the past year along with the digital commerce surge.

More than half of the consumers (42%) said they filed a dispute because of genuine fraud, such as unauthorised purchases made with their card details.

Cancelling a subscription (23%), a product or service not being as specified (21%), a product or service coming late or not at all (19%), or a refund never being received are all common grounds for registering a dispute (18%).

While a subscription cancellation may appear innocuous, it can lead to significant chargeback losses for the merchant if customers opt to challenge the transaction with their financial institution rather than the company.

According to Sift’s findings, 65% of customers have questioned a purchase at some point, with 62% doing so in the last year and 86% saying they are more than likely to do so.

Consumers most regularly file disputes for items purchased with omnichannel stores and eCommerce merchants, with 26% and 24%, respectively, claiming to do so.

How Can Fintech-as-a-Service Overcome Fraud and Chargeback Fraud?

Although it is widely acknowledged that chargebacks cannot be avoided entirely, merchants should strive to build solutions that will help them avoid chargebacks while also automating the representation process. 

Chargeback resolution necessitates integrated tools and as much automation as feasible to collect and filter data properly.

Sifting through a sea of daily transaction data to spot chargeback red flags is beyond most businesses’ manual capacity. That is why chargeback systems must allow merchants to zero in on specific areas of concern and then provide quick access to evidence if they wish to respond to a dispute.

For instance, merchants can use a Fintech-as-a-Service platform that complies with stringent security standards, such as PCI DSS (Payment Card Industry Data Security Standard), instead of establishing their payment gateways and dealing with a lot of red tapes.

Visa and Mastercard developed authentication solutions like 3D Secure to improve the security of the card acquisition process and protect businesses from chargeback liability. Instead of chargebacks settling on the merchant’s shoulders, this authentication technique transfers the liability to the card issuer.

Merchants also need to keep up with new chargeback explanation codes to defend themselves if something goes wrong adequately. For example, if a customer claims the charge was fraudulent, but the retailer possesses evidence to the contrary, the merchant can dispute the customer’s claim and potentially overturn the chargeback.

Keeping track of chargeback reason codes can also help you figure out why customers are requesting chargebacks in the first place if there is a repeating theme for which you can find a solution.

Furthermore, when businesses invest in fraud protection technology, it helps identify chargeback frauds before they occur by identifying high-risk transactions.

It also enables the business to create custom rules for transactions it will and will not accept, whether it is concerned over blocked countries or specific IP addresses. Having always-on fraud protection can significantly minimise the overall risk of fraud-related disputes.

Signatures and receipts can provide some of the best evidence for challenging chargebacks. However, keeping detailed records of transactions, particularly when a business has physical records, will aid in the long run.

Unfortunately, physical documents or signatures are not always possible with the expanding volume of eCommerce-based transactions. In this situation, preserve records or use a technological solution to keep records around card-based transactions, including the transaction’s date and time and the IP address from which the transaction originated.

The Bottom Line

In today’s digital economy, many transactions occur without a card, increasing the risk of chargeback fraud.

Because merchants almost always receive favourable dispute resolution rulings, it is more crucial than ever for them to take control of the situation by preventing fraud from the outset.

Whether by protocol process training, developing more open channels of contact with customers, or investing in fraud prevention technologies, Merchants must be aware of this increasing threat to their bottom line.

Finezza assists lending firms in leveraging the latest technology to disburse loans and manage the entire lending lifecycle management. This FaaS platform provides a unique document recognition and data extraction module for its clients.

It automates the entire lending process, from origination to evaluation, allowing traditional lenders to process a massive volume of loans quickly.

Contact us today to find out more about our services!

Beware of the Fraudsters: How to Detect Document and Identity Fraud

Lending Lifecycle Management

In a world of biometrics, smart cards and digital security, is identity theft a setback? Lost passport, Online Shopping Fraud, Debit Card Theft, sound familiar, doesn’t it? With the onset of the digital paradigm, is technology holding us back or taking us forward? This is a question that has left all of us bewildered, for it is difficult to comprehend this vicious circle.

Whilst fraudsters now can commit identity theft and create forged documents through technology, technology has also become a way out of this world of imposters.

Identity Theft in a Nutshell

As cybercrime cases increase, our personal data and information seem jeopardized. With identity theft, the information isn’t “personal” anymore. What is privacy with identity theft and doxing?

To start with, identity theft is when someone steals an individual’s personal details for illegal purposes. This can be devastating for companies as well as the customers. Breaching someone’s identity and privacy is ethically and morally wrong and would mean losing the customer’s trust in the company.

You might have come across the recent Zoom incident wherein around 500,000 zoom accounts were being sold online. Although these incidents decrease the credibility of a company, most of the time the company is not even at fault. As a result, the cost is paid by the company as well as the customers.

2021 Norton Cyber Safety Insights Report says that as per the survey, out of 1000 Indian respondents, 36% of them have experienced identity theft.

One Step Ahead towards Detecting Fraud 

The best solution is prevention. How can we detect forged documents?

A customer, employer, or employee must be aware of fraudsters and imposters. Technology can turn things around, read further to know more about the 7 types of document and identity fraud, and how to detect them?

Modified Documents

As the name suggests, in these documents modification is carried out in the original document. Further classification comes in two forms:

  1. Forged Documents– In this, information is changed partially or completely resulting in modification of the identity. Fraudsters could change certain information, remove some information, add real pages from another document, apply fake stamps or digitally add information to an original document.
  2. Blank Stolen Documents– Fraudsters may leak the blank documents that are in the process of being original. After this, they fill in the false information.

Detection Method: Data Integrity Analytics 

  • Check if the data is consistent and make sure that all the valid information is present in the necessary areas. 
  • Few documents have specific data logic standards, check if the algorithm rules are being followed. 
  • Ensure that any hidden chip information aligns with relevant databases. 

Illegitimate Documents

Here, the fraudster is bold enough to create the entire document falsely. Further classification comes in three forms:

  1. Counterfeit Documents: These are emulations of an original document. In this, the fraudster gets a template and inputs fake information. Counterfeit documents are easily available illegally and are sold for a high price.
  2. Compromised or Sample Documents: You might have come across documents that are available to the public, or government-issued samples? Any document that is reported as stolen to the police or document shared on the web belongs to this category.
  3. Fantasy or Camouflage Documents: An unsophisticated type of fraud, Camouflaged documents have names written by issuing authorities that either does not exist or aren’t allowed to issue documents.

Detection Method: Visual Document Authenticity 

  • Look for minute differences in the ID. 
  • Compare it with the official templates and look for differences. 
  • You can check for modified digital ID photos, tampered pixels, font irregularity. 
  • Check watermarks, barcodes, and embossed text. 
  • If you find something anomalous, then those are illegitimate documents. 

Falsely Represented Documents 

Falsely Represented Documents do not belong to the person who is presenting them to you, however, the document is genuine. This is rather difficult to detect without sophisticated identity verification technology. Further classification comes in two forms:

  1. Fraudulently Obtained Documents: In this case, fraudsters use someone else’s photo or apply with a fake document, or use fake personal details. They are issued an original document with fake information.
  2. Imposter Documents: In this, the fraudster acts as an imposter and uses an authentic document of someone else’s and presents it to the authorities as their own.

Detection Method: Proof-of-ownership Verification 

  • Compare the digital image of the imposter with the image used in the ID. 
  • Live video verification can be done. 

Learning about Fraud Sophistication 

As we move ahead, along the way of combating fraud comes fraud sophistication. It is important to know the degree of sophistication that a business might have to face with identity theft.

Let us understand this via 4 tiers.

Tier 1– As the most sophisticated fraud, these documents include stolen blank documents, genuine documents that are obtained fraudulently, or sophisticated counterfeits. These are created via attacks on the supply chain of document issuers and manufacturers and are sold on the black market for hefty money. Since these documents can easily fool any expert or machine, one way to combat this fraud is by analyzing all the documents clearly, along with database and biometrics.

Tier 2– This includes forgeries and counterfeits. The document under this category seems correct and logically real. This can be detected by trained experts or highly advanced technology via detecting differences in fonts, layout, and other features.

Tier 3– Altered document templates and poorly manufactured documents fall into this category. By figuring out number formats and data inconsistencies, these documents can be detected.

Tier 4–  A fraudster in this category is at their amateur stage. Fantasy and Camouflage documents fall into this category and can be easily identified.

No more Imposters!

Where privacy and risk are involved, things can be daunting. With the right computerized software and identification technology, detecting and combating identity theft and any type of document fraudulency can be made easier.

To make customers’ experiences smooth and companies’ reputations healthy, cyberspace must be safe.

Tips to Identify Fake Documents for Fraud Prevention

Loan Origination System

Document fraud or document forgery has become a large source of criminal activities, costing the global economy billions of dollars every year. Documents are faked for countless reasons: to get a loan they wouldn’t otherwise be allowed to, to purchase a property, to sell a property, to buy a loan, to flee arrest, to stay in a country illegally, etc.

Even a few years ago, the number of identity frauds was less mainly because the customer onboarding usually happened in a physical location, mostly in the branches of the financial institutions. Now that almost all the industries support online onboarding of new customers, it has become easier for fraudsters to fake the documents to get through the door easily.

Prevent Frauds At The Root: Steps to Identify Fake Documents

The percentage of document fraud is more common in financial institutions like banks and NBFCs since they provide almost all core features like new customer onboarding, issuing loans, buying and selling financial products online, making it easier for the fraudsters to forge the documents. To counter the document fraud, financial institutions are now forced to invest in smarter technologies during the KYC and onboarding stages.

Below are important tips to detect and prevent document fraud.

1. Use Microscopic Scanners for texture analysis

Using microscopic scanners for texture and data inconsistency analysis will help in identifying forged documents and black stolen documents.

a. Forged Documents 

Forging documents includes making changes to existing documents. The changes may be simple like changing the date of birth or expiry date, etc, or complex like changing the total address of the holder including the country, including false watermarks, inserting real pages from another original document, etc. Fraudsters use special scrubbers to erase the information and include new information.

In the case of property documents or agreements, the fraudsters easily include new information or remove critical information. Including new information is typically done at the end of the document where there is any unused space. Typically, the new information would be like including new clauses favouring the document holder. Deleting the information is done using a special whitener and can be done at any part of the document.

Using an advanced microscopic scanner to do data integrity analysis will help in detecting the texture and density of the fonts throughout the document. If the texture and density of the ink used are inconsistent, it is evident that the document has been tampered with.

b. Blank Stolen Documents

All original documents start blank before they are personalised. Fraudsters attach the supply chain of the document, procure the blank documents and fill in false information. These kinds of fraud involve heavy coordination among the fraudster network and are very difficult to identify at the first sight. However, fraudsters cannot replicate every single piece of information including specific security marks, watermarks, stamps that are unique to every document. Using such a technique fraudsters can even prepare a bank statement.

Advanced microscopic scanners can be used for any text inconsistency. As soon as any inconsistency is spotted, the document can be investigated further for any data inconsistencies like the placement of specific text like date of birth, date of expiry, date of origin, etc in the document.

2. Use Advanced Visual Authentication techniques

Advanced visual authentication techniques to scan specific security features, stamps, watermarks will help in identifying counterfeit documents, compromised or sample documents, and camouflaged documents.

a. Counterfeiting Original Identity

While modified documents are false original, illegitimate documents may be false creations. Counterfeiting identity is one of the most common document frauds. In this, the fraudsters use a template of the original document and fill the details as they need, making the final document resemble almost original. To the naked eye, the documents look original. Though on further investigation, most of these fake documents lack the security features unique to those ID documents.

Usually counterfeiting original identity is done during the KYC stage of the customer onboarding. So, instead of rushing up the onboarding, if the onboarding software has a provision for scanning all the documents for specific security features, it will be easily revealed that these documents are fake.

b. Compromised or Sample Documents Misused

These are a lot of government-issued identities and other legal documents that are available as samples in public spaces like the internet, presentations, etc. Fraudsters steal these documents and insert specific information to make them look like the original.

Looking for specific security information using visual document authenticity techniques can help identify font anomalies, digital tamperings like modified ID photos or tampered pixels, etc.

c. Camouflage Documents or Fantasy document

If you see any unknown places like Utopia, misspelt places like Griece, etc. in a document, it is clear that the document is camouflaged. Fraudsters use such tricky words which are very close to the original to tag false issuing authorities in the document. It is very easy to slip these obvious fake entries.

Using advanced visual document authentication techniques and comparing with an authorised list of countries, states, issuing authorities, etc. will help in identifying these frauds.

3. Live Identity Verification

Live identity verification techniques like selfie photos or live video chat will help in preventing frauds committed using fraudulently obtained documents and imposter documents.

a. Fraudulently Obtained Document

This is a tricky category of fraud in which the fraudsters use somebody else’s stolen photo and use it in their original document. The only way to verify this kind of fraud is to use proof of ownership techniques like making the document holder take a live photo in the verification device and then compare it with the photo in the document.

b. Imposter Document

This category of fraud is exactly as it sounds like. A fraudster steals somebody else’s identity document and uses it as it is. If the KYC process is not strong, the imposters can easily get through the gates without any difficulty. The best way to prevent these kinds of frauds is to make the document holder get into a live video chat and let the document collector take a photo of the application and verify against the image in the application form.

Finezza’s suite of lending and onboarding solutions combined with a bank statement analyser can help your institution identify fraud or fake documents and take the right proactive measures. The document identification framework provided by Finezza can enable you to validate documents like Aadhar cards, bank statements, GST returns, cheques, photos, balance sheet, etc. and tag all data points. Besides, it also facilitates automated extraction of data without the need for any manual intervention to speed up the entire process.

Don’t let ID and document fraud prevent you from delivering a faster turnaround and a streamlined onboarding experience. Learn more by contacting us at Finezza about how you can prevent the submission of fake documents and validate your loan applicant’s lending profile.

Fraud Detection and Prevention in the Fintech Space

Updates

The Fintech industry is leading the digital transformation among all the industries. Gone are the days when customers visited physical branches of banks or NBFCs for every operational and transaction need. Today, almost all banks and NBFCs provide online services through multi-channels like web, mobile, tab, pos machines, ATMs, smartwatches, smart voice assistants, etc. 

However, with an increase in digital adoption by consumers, the number of financial frauds has also increased proportionately.

As per the RBI Report for the Financial year 2019-20, the number of bank frauds has jumped more than two-fold for the year ending June-2020. The combined worth of these reported bank frauds was around 1.85 Lakh Crores.

Unfortunately, the technology available to banks and customers is available to fraudsters and cybercriminals as well. Since the financial industry is now connected globally, the complexity in tracking fraud has also increased.

Understanding Banking Frauds and Preventing Them

Below are some of the top areas in the Fintech space where fraudulent activities are on the rise.

  • Forging documents and credit scores to avail big loans.
  • Purchases using stolen credit cards, debit cards, passwords, etc.
  • Telephone Call Scams to steal account details.
  • Fraudulent Payment transactions.
  • Money Laundering.
  • Forging account statements for tax and loan benefits.

Whenever fraud is committed, the loss is not only born by the victim who was exploited, but the reputation of the financial institution involved in the fraudulent transaction also takes a hit. There is also a hefty penalty charged on the banks and NBFCs by financial regulators for allowing their platform to be used for fraud. 

This has forced the Fintech firms to come up with solutions using advanced technologies like Artificial Intelligence (MI), Machine Learning (ML), Robotic Process Automation (RPA), etc.

Below are the top areas in which Fintech firms are coming up with advanced solutions to detect and prevent frauds.

1. Automated Bank Statement Analysers during KYC

The best time to prevent fraudsters from exploiting the platform is to screen them well during onboarding itself. Most of the banks and NBFCs ask for bank statements of the potential borrowers at the time of onboarding. Analysing the bank statement in detail gives a lot of information about the customer’s financial behaviour.

Traditionally banks employ hundreds of employees to assess a borrower’s income and spending patterns based on the transactions available in their bank statements. But manually going through pages of bank statements is tedious and prone to human errors or, at times, even subjective biases. 

This is where the automated bank statement analysers, called BSA engines, come to the rescue. A lot of Fintechs are now involved in creating intuitive and dynamic rule-based automated BSA solutions.

Below are some of the parameters an automated BSA can look for in the bank statements. All these are characters of fraudsters that need to be analysed further by the banks and NBFCs.

  • Cheque Returns
  • Charges and Penalties
  • Circular Transactions
  • Multiple smaller credits
  • Frequent Cash Deposits
  • Frequent Cash Withdrawals
  • Equal Debits and Credits
  • Disproportionate Foreign Transactions

2. Leverage Digital Footprint data during customer screening

Traditionally, the products used by banks and NBFCs for customer screening check the creditworthiness of the potential borrower by accessing a person’s CIBIL score from the credit bureaus. When a borrower has a good financial record or CIBIL score, that can be used as a reliable indicator of one’s creditworthiness.

But there is a massive unbanked population in India, who do not have much financial history. New borrowers can leverage digital footprint data as almost everyone carries a smartphone today and carries out digital transactions.

Fintech products used for customer screening can use enhanced technologies like data mining, analysis, and machine learning to use the digital footprint data and compare it with a fraudster’s behaviour to arrive at a more accurate creditworthiness score.

3. Prevent payment frauds using multi-factor authentication and biometrics

Is-Biometrics-the-Key-to-Future-proof-Customer-Identity-Management

With the wide variety of banking channels like physical, telephonic, online, mobile, ATM, POS, etc., banks can no longer have a simple user id and password as the authentication technique. 

Making payments and purchases using stolen credit cards, debit cards, or online banking credentials is getting popular. Even though most payment systems use additional authentication like One Time Password (OTP) for every debit transaction, it is not always fraud-proof.

In case the mobile phone is also stolen, it becomes easy for the fraudster to commit a financial crime. This is where digital payments are playing the role of a game-changer. With digital wallets, there is no need to expose one’s credit and debit cards to anybody. Digital payment systems can also use advanced biometrics that cannot be forged to authorise the transactions in addition to the regular authentication methods.

4. Advanced Transaction Monitoring and Instant Notification

Banks and NBFCs can use Fintech products built using AI and Machine Learning algorithms to trace customers’ transactional behaviour. If any transaction is abnormal, the transaction is to be allowed only after additional authorisation from the customer. 

This way, even if a fraudster uses a customer’s stolen identity to do a transaction, based on the nature of the transaction, geography, time, and the amount involved, the transaction engine can trigger additional authorisation before allowing the transaction.

5. Balance Sheets and Tax Statement Analysers for SMEs and Corporates

When corporates and SMEs seek business expansion loans, the main documents any bank or NBFC seeks are the balance sheet and tax filing documents. Since the balance sheet formats are almost the same for all registered firms, Fintech can build smart products in lines of BSAs, scan through the balance sheet, tax filing, and look for any anomalies.

Since this process needs meticulous analysis, this can be done flawlessly and efficiently by an automated tool. This way, banks can identify any forged balance sheets quickly.

6. Avert Phishing Attacks by Building Firewalls in email and text servers

Phishing attacks (using fraudulent communications through emails, text messages, etc.) are commonly used by fraudsters to steal customers’ financial information. Fintechs can build advanced firewalls that can be integrated with email inboxes and text message boxes. They scan through emails and alert the customers whenever they click on a link from the emails.

In conclusion, fraud detection and prevention is a continuous process. Like how the fraudsters keep coming up with newer ways to outsmart the financial products, the Fintech industry is also evolving with the introduction of newer products using advanced technologies like Artificial Intelligence, RPA, etc., to prevent and detect frauds.

As technologies evolve, financial products that consume these technologies are also expected to improve and become more efficient to the financial industry to build a digital fortress that is safe and secure from fraudsters.

Finezza assists lending firms in leveraging the latest technology to disburse loans and manage the entire lending lifecycle management. We have a team of tech and product veterans who have the domain knowledge and understand what matters for the financial inclusions, providing financial solutions to all fintech companies looking for AI-driven growth.

Contact us today to find out more about our services!