Fighting fraud in financial services—can you keep up?

Associate Partner, Strategy and Analytics, Fraud, for IBM Global Business Services, IBM

Facing up to the fraud monster

When I meet directly with representatives of global financial institutions, they invariably report feeling the strain of financial crimes, whether actual or threatened. True, some tout their ability to fend off financial crimes as a “competitive differentiator,” but even these organizations face the constant threat of headline-grabbing incidents, transformation projects gone out of control or restriction to a subsistence-level counterfraud budget when the latest promising product begins asking for more than its share of funding.

And what about the organizations that already feel themselves behind the leaders in their counterfraud capabilities and thereby woefully underpowered in the fight against increasingly sophisticated technology-enabled international crime syndicates? Such organizations are wondering not only what to do and how to do it but also how to convince the board to make the investment required for them to be able to do so.

Arming yourself for the fight against fraud

The face of fraud has changed significantly since the turn of the millennium as electronic banking, mobile payments and instant settlements have opened broad channels for exploitation by sophisticated and ever more organized cyber criminals. Even so, conventional wisdom holds that the costs of the fraud that modern financial services make possible are dwarfed by the profits that such services help generate. But when astute financial institutions measure the true costs of fraud, considering not only chargeoffs but also the operating costs required to prevent them and to recover lost funds—as well as the detrimental effect on customer loyalty—they might find that some innovative services have become loss leaders.

But modern innovations in ultra-high-speed processing, big data and robust analytics, once only the province of the laboratory, are helping financial transaction processing applications detect nefarious activity in real time. Indeed, 16 percent of banks already have the capability to use such technologies to detect fraud before near-instantaneous transactions have actually moved money. Detecting fraud at an early stage offers significant operating savings, obviating the need for the hugely expensive investigation and recovery process. Yet, even so, few financial institutions operate in this manner, and the rest are struggling to keep the lid on a growing problem.

Bringing the battle to fraud

In late 2015, the IBM Institute for Business Value (IBV) conducted a survey of 500 executive heads of fraud in financial institutions of various sizes in commercial regions from around the globe—not to discover how bad the financial crime problem is but rather to discover what industry leaders are doing to overcome it. How are they convincing their boards to invest in ground-breaking technologies and operating methods? What key capabilities help them differentiate themselves as market leaders?

Watch the replay of the American Banker discussion I had with my colleague David Dixon of what the IBV discovered through its study, as well as what actions it recommends. If you’re interested, check out this demo of the IBM Multi-Channel Fraud Analytics for Banking solution to learn more about how you can predict, detect and mitigate fraud and financial crimes.