As a business owner, your number one priority is for the company you manage to record a steady but predictable growth in profitability and differentiate itself from other organizations active in your field of activity.
However, to do so, a good part of the administrative budget of your venture will have to be redirected toward product research and service improvements. This will have a positive effect on brand reputation and improve market ranking. However, the downside of a stretched budget is that it will make you vulnerable to fraud effects. What is bank fraud?
In a nutshell, it is the process by which bad actors can attempt to obtain money or assets from your company via fraudulent means. The fraudsters who try to abuse your company’s security systems could attempt to collect funds via illegal data breaches or impersonate your customers’ identities.
Either way, bank fraud is a growing problem, which could significantly affect the reputation of your business and put you in conflict with regulatory bodies. So, what is bank fraud? It’s many things, but one of them is a potential stain on your corporate reputation.
Bank fraud is different from money laundering, as in the latter, the end goal is to deposit money in separate accounts till their trace is eventually lost. Bank fraud, however, encompasses various techniques whose sophistication may differ. Nevertheless, the effect on your venture will remain the same.
Online fraud can lead to significant financial losses, affect the trust your target audience places in your brand, bring you the attention of regulatory bodies, and lead to operational disruptions and potential class action lawsuits.
How Many Types of Bank Fraud Are There?
“What is bank fraud?” remains a question most SME owners ask. However, although the way bank fraud works internationally is straightforward to understand, the main problem is given by the sheer complexity of the techniques that fraudsters have at their disposal to affect the financial integrity of your venture.
What are the main types of bank fraud that could affect your organization? For one thing, there is wire fraud, a process through which fraudsters can access customers’ confidential banking data via interception of communications or phishing techniques.
In wire fraud, bad actors utilize electronic methods of communication and stolen credentials to trick businesses into transferring sums into external separate accounts or allow the withdrawal of significant sums. In wire fraud, the principal vulnerability is typically the account owner.
However, if, for any reason, your company has not taken the necessary protective measures to ensure the security of customers’ confidential data and you have been the target of a data attack, then you could be liable to fines. One example in this case? The 2019 Capital One data breach.
Another widely used technique that affects national or private financial institutions is loan fraud, which involves using specialized software to alter the official documentation necessary for credit applications.
Loan fraud is complex; it can entail the use of synthetic indemnities, and it’s usually employed simultaneously against multiple lenders. Other techniques that can be utilized in fraud techniques are counterfeiting checks, carding, and social engineering, the latter of which is probably the most widely used tool for accessing confidential bank data of online customers.
How Can AI-Based Tools Prevent Fraud?
Do you ever wonder what is bank fraud? You are not the only one. However, while we can analyze the common fraudulent tactics employed by malicious individuals, devising effective countermeasures against them remains a complex challenge.
The main problem with financial fraud is that it cannot realistically be stopped manually, so you either have to use fraud prevention tools with set ruled-based systems or use AI-based applications capable of self-improvement.
In the case of wire fraud, AI-based applications can detect patterns and deviations in normal transactional behavior with an accuracy of more than 95% and trigger real-time alerts, which can stop fraudulent transactions before they can affect the finances of your firm.
For loan fraud, AI can utilize natural language processing models to detect irregularities in the submitted document, as well as pattern recognition to spot fake signatures and fraudulent income reports.
No less, for credit card fraud, the ruled-based system utilized by AI-based fraud identification tools is flexible and can automatically detect, flag, or reject transactions based on factors like geographical location and historical transactional behaviors.
The FPR of AI-based tools is up to five times lower than in the case of conventional fraud prevention applications. Moreover, AI applications can be utilized alongside biometric authentication tools, which can prevent identity theft or account impersonation.
What Regulation Can You Breach by Ignoring Financial Fraud?
Successful fraud attempts can be a disaster for the long-term expansion prospects of your venture, as they will impact both your finances and the brand’s reputation. However, the thing you should be most worried about is the breaching of regulations. Have your financial company’s accounts been used as a front for money laundering?
Are you based in Europe and have failed to take immediate action? If that’s the case, you could be in breach of the EU’s Fourth Anti-Money Laundering Directive. Are you a private company, and has a successful fraud attempt affected the integrity of your customers’ confidential data? In that case, you could face troubles with the GDPR.
Are you a publicly traded organization, and have you failed to report a data breach of your financial systems in a timely manner? Then, you might violate the Sarbanes-Oxley Act.
Moreover, if you didn’t take the necessary precautions to minimize the impact of credit card fraud, then you could be in breach of the Payment Card Industry Data Security regulations. Failure to adhere to regulatory compliances will usually result in significant fines and operational disruptions.
Furthermore, over a more extended period, the reputational losses caused by these sanctions could make it impossible to find future business partners or retain the loyalty of target demographics.
The Correct Choice for Ambitious Businesses
What is bank fraud? Above all else, it is a plague on your reputation and finances that you must strive to eliminate. Using AI-assisted fraud prevention tools is the most cost-effective method for eliminating the long-term damage of fraud attempts.
Plus, AI-based tools are constantly evolving; they do not require constant human intervention, and they can adapt to the developments happening in the international markets.
AI fraud detection tools can streamline the internal processes implemented by your workers; they can identify complex patterns in analyzed data with an accuracy significantly greater than conventional rule-based systems, and they can analyze texts, which non-NLP tools are unable to do.
Bank fraud encompasses various techniques whose sophistication ranking may differ. Nevertheless, the effect on your venture will remain the same. Online fraud can lead to significant financial losses, affect the trust your target audience places in your brand, bring you to the attention of regulatory bodies, and lead to operational disruptions and potential class action lawsuits.
Do you want your business to develop predictably? To gain an advantage over rivals and retain operational efficiency? If that’s the case, using an AI-based fraud prevention tool can be one of your most thoughtful business decisions.