August 2015 Issue

Our 'Newsletter on Financial Fraud' is your monthly insight into the various new fraud types and methods used by fraudsters globally in the banking space. 

In this issue, we bring to light the effect of banking fraud creeping in and making banks lose millions to this plaguing menace.

Cyber Fraud On Rise With Increase In Digital Banking


With the increase in banking on mobile phones and the internet, financial frauds in the system have also seen an uptick, says a survey on financial frauds in the financial sector by Assocham and PwC. The report said that financial frauds led to approximately $20 billion (Rs 1.26 lakh crore) in direct losses annually.

“Financial fraud is big business, contributing to an estimated $20 billion in direct losses annually. Industry experts suspect that this figure is actually much higher, as firms cannot accurately identify and measure losses due to fraud. The worst effect of financial frauds is on FDI (foreign direct investment) inflows into India,” said D S Rawat, secretary-general, Assocham.

With the rise in smartphones and younger and more digitally savvy populations, banks have been vying to get a larger share of the customer’s digital wallet. However, in this process, the banking applications by lenders are becoming increasingly vulnerable to risks such as phishing, identity theft, card skimming, etc.

The report states that currently, 74 per cent of the population has mobile phones and this has led to a steady rise in banking on the go. According to Reserve Bank of India data, the volume of mobile banking transactions has risen from around Rs 1,819 crore in 2011–12 to approximately Rs 1,01,851 crore in 2014-15. “Whether it’s financial transactions, customer experience, marketing of new products or channel distribution, technology has become the biggest driver of change in the financial services sector. Most financial institutions are therefore insisting on cashless and paperless transactions,” the report said.

The most common types of frauds in the banking sector as of now includes identity thefts, internet banking related frauds such as hacking and online fraud, siphoning of funds by taking the customer’s data etc.

Source: Business Standard

Contactless Card Fraud Is Too Easy, Says Which?


Consumers who use contactless debit and credit cards to buy goods or services could be unwittingly opening their bank account up to fraudsters, according to an investigation by Which?

Researchers bought cheap, widely available card scanners from a mainstream website to see if they could “steal” key details from a contactless card.

They tested 10 different credit and debit cards, that were meant to be coded to “mask” personal data, and were able to read crucial data that was meant to be hidden.

“By touching volunteers’ cards to our card reader, we got enough details to allow us to go on an internet shopping spree,” a Which? spokesman said. “With these card details, the contactless transaction limit is irrelevant, because online transactions aren’t contactless.”

Contactless payments are booming. There are now 58m contactless cards in circulation and UK householders spent £2.32bn on them last year.

There are no statistics to show the scale of theft attributable to contactless technology fraud and if householders are not negligent with their card they should not be liable for any losses.

However, card fraud can be upsetting for the victim and time-consuming to resolve, and some industry experts believe more could be done to tackle it.

Source: The Guardian

ATM Skimmers Enjoy Last Hurrah Before EMV Cramps Their Style


Card skimming attacks, the No. 1 ATM fraud that has long plagued financial institutions, are increasing in frequency all across the U.S., according to ATM manufacturers.

NCR Corp. issued a security alert to draw attention to the growing problem in America and in Mexico. Rival Diebold also said it has observed a steady increase in skimming attacks in the U.S. for the last couple of years. Operators lose $50,000 per attack, according to industry members.

These findings come on top of a report in May that debit card compromises at ATMs on bank property were 174% higher in January to April of this year, compared to the same period last year. Sure, not all of those attacks are skimming; but the vast majority of them are.

Operators in America have yet to deploy as many anti-skimming technologies and techniques as other countries have. And many operators have yet to implement EMV chip technology at ATMs with the liability shift still at least a year away.

Skimming the magnetic stripe data at the ATM has long challenged banks but some of the attacks are getting harder to detect because the devices are smaller, while the criminals are becoming more sophisticated.

So others view the inevitable shift to EMV as another way to tackle the growing threat head on. Nearer-term solutions can include deploying anti-skimming devices into the machines and making sure branch employees are regularly inspecting the ATM for skimming devices, say observers.

Source: American Banker

Starfish Banks- Road to Nowhere


Starfish like ideology of the banks handling risks is no longer acceptable. Starfish Banks are no longer thought as the most important and profitable economic factors: they are more seen as potential danger to stability of the organization. As banking regulation is developing and in future it will be in a manner similar to other industries such as the chemicals industry. Banks will be no longer able to do analyze their own data and submit standard periodical reports.

Starfish Banks manage risks separately in silos through various departments and operational entities across their organization called the risk functions. This silo based approach is very similar to the way a starfish behaves. A starfish lacks a centralized brain function; it has a complex nervous system with a nerve ring around the mouth and a radial nerve running along the each arm. The starfish does not have the capacity to plan its actions.  If one arm detects an attractive odor, it becomes dominant and temporarily over-rides the other arms to initiate movement towards the prey. The starfish not only loses out on potential food but also endangers its own existence. Therefore giving a central brain to the starfish will not only make it more perceptive and agile as seen in higher forms of organisms but also give a better chance of surviving.

The Enterprise wide Fraud Management solution gives decision makers the opportunity with an organization-wide view, of the information and analytics. Using an integrated approach can open a new world of relational information on functions and facilitate better analysis of the main issue in the system, avoiding resolution of the issue at the wrong position or solving of the wrong problems. All the while the improved efficiency of the organization by active measurement, monitoring, and management of the risk function exposure creates standards throughout the organization and maximizing return on the enterprise-wide risk management investments. It is less costly to recognize and solve the issue before any further damage is caused. A full organization level enterprise risk management system is adaptive with the organization, evolving along with the needs of the business.

Creating a futuristic preventive risk management culture allows Starfish Banks to get ahead of the competition, actively knowing the challenges and opportunities posed to it along the path of evolution. The focus on managing risk at organization level not only increases transparency across the organization but also increases the value and competence of external stakeholders. Pre-emptive detection of issues and enterprise-wide decision making will improve the internal efficiency and strengthen an organization’s bottom line. It will reduce the risk to reputation and promote confidence among the shareholder and strengthen relationships with regulators and external auditors. A better Enterprise-wide Fraud Management program tests how efficiently the business is managed and risk is taken care of.

Source: CustomerXPs

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