Fraud Protection & Compliance
It’s an understatement to say that we are living is a very different world than a year ago. Many predictions made last January have come true, but for reasons we never could have imagined. It is true that the pandemic has accelerated the majority of digital trends and challenges this past year; I believe the “COVID effect” will persist strongly into 2021, which brings me to three broad predictions:
- Consumer spending patterns will remain in flux, requiring financial institutions to keep their guard up as fraud patterns change quickly.
- Digital transformation, including the convergence of fraud and financial crimes compliance infrastructure, will accelerate even more.
- New ways of doing business will make KYV (Know Your Vendor) a top priority for compliance organizations.
Change Creates Opportunity for Banks to Thwart Fraudsters
One of the basic concepts of fraud protection is to determine what’s normal, what’s not, and how consumer behaviors are changing both of those definitions. I believe 2021 will be a year of continued change in consumer spending patterns — which requires banks to quickly interpret these behaviors in the aggregate and at the individual level, and account for changes in their fraud and financial crime defenses.
We already know that “the pandemic has driven a chaotic scattering on customer behaviors that is unique in modern consumer history,” against a backdrop of fear, economic uncertainty and doubt. Thankfully, mass vaccinations are imminent, but it will take some time for many consumers to recover financially.
Until then, criminals always find ways to take advantage of change. One only needs to look at the colossal amount of fraud that criminals whipped up to take advantage of an influx of pandemic stimulus funds, a decidedly global phenomenon. But any time there’s a systemic change in the consumer financial ecosystem, especially fast-paced changes in transactional behavior, the door is opened to fraudsters to take advantage of unfamiliar territory. Rather than predicting that fraud rates will rise, I say that banks are rapidly improving their ability to detect and defend against emerging fraud schemes — which will be a big theme in the coming year. A platform approach is catalytic, which leads me to Prediction #2 ….
Digital Transformation Powered by the Cloud Will Accelerate
One of the ways that banks are using to stay on top of fraud patterns is their embrace of an integrated cloud-based software platform to manage a unified/wholistic view of fraud. We recently launched FICO® Falcon® X, our cloud-based converged platform for fraud, customer identity management, and financial crimes, and, as I blogged: “FICO customers gain access to product updates and the latest improvements of the software stack. FICO will manage the process of updating models as they are released — which is important with fraud, where the goal is to always stay one step ahead of the fraudsters, who are trying to stay one step ahead of you.”
Architecturally, FICO converges the functionality of fraud and compliance systems, catalyzing the replacement of back-office “backplane” technology. Overall, in 2020 the pandemic accelerated banks’ digital transformation as consumers flocked to mobile banking; in the coming year these new, distanced methods of interacting will remain, kicking off another iteration of transformation and its attendant backplane overhaul.
Obviously, banks aren’t just interacting with customers remotely — their own employees are working from home. When the pandemic struck, millions of companies deployed new remote access capabilities so their people could work at home — but at least 1.2 million of these companies misconfigured their newly deployed remote access services upon launching them, creating significant security vulnerabilities!
The moral of the story: Just as new consumer spending habits create opportunities for fraudsters, changes to infrastructure technologies such as remote access do, too.
The Know Your Vendor Imperative in 2021
The pandemic and the associated acceleration of digital transformation caused business of all sorts, including banks, to have new requirements and to seek new supply chain partners. The pandemic also initiated new, unexpected shortages and supply chain disruptions that created additional — and often urgent — needs for banks to find replacement suppliers for key services. Finally, supply chain partners themselves are experiencing changing customer patterns, a rush to digitization and accelerated cloud outsourcing.
All of these factors — not to mention the near-disappearance of face-to-face meetings with suppliers — disrupt the supply chain and (again) create opportunities for criminals. In 2021, I predict we will see more emphasis on supply chain risk management at banks, including a more structured Know Your Vendor process.
For example, in today’s rapidly transforming environment, banks may have new business partners for back office services, new fraud technology suppliers, new website designers, new customer relationship management software and more. Because banks are highly regulated, they must have active vendor management programs — but can no longer send auditors around the country to meet with new vendors and check out their facilities. These tasks will need to be done virtually, putting stress on vendor management organizations and their vetting processes.
In 2021 I believe that rigorous Know Your Vendor practices, similar to the customer KYC processes banks execute when establishing new customer relationships, will become a part of a robust compliance regime. FICO offers robust capabilities to vet vendors against embargo and sanctions lists.
Change Will Still Reign
I think we’re all ready to close the books and move on from 2020. But as the world moves on to a post-pandemic “new normal,” change will still reign in 2021. I hope my predictions will help you get ready for it. Follow me on Twitter @dougoclare.
