The cost of convenience: Managing fraud in APAC’s growing digital-first economy

The digital era we live in today has brought a level of convenience to our everyday lives which consumers have now grown accustomed to. Consumers now prize convenience above all, leading many businesses to offer even more personalised and frictionless user experiences to monetise on this demand. On the flip side of the ecosystem, financial institutes (FIs) are prioritising ways to secure personal data and payment gateways to manage the burgeoning online transactions landscape. 

As competition for consumer attention intensifies, the relationship between consumers and their financial services providers is set to become more dynamic. However, where retailers, and now FIs, are trying to outperform one another in providing seamless user experiences, what are the trade-offs and gaps that have surfaced as consumers prioritise convenience? 

Heightened concerns around fraud

Complemented by a boom in the digital population – 40 million new internet users in Southeast Asia joined the digital sphere in 2020 – businesses also reported a significant increase in mobile account sign-ups. UnaFinancial data predicts that across emerging markets of India, Indonesia, the Philippines and Vietnam, the number of mobile banking users is set to grow by 75 per cent, or approximately 209 million consumers, through 2023.

However, with a larger digital footprint, fraud risks in Southeast Asia have also escalated – the region’s rate of attempted fraud is up to 12 times greater than the global average. In Singapore alone, fraud rates more than doubled between 2005 and 2020.

As malicious actors invent new and “innovative” ways to launch fraud campaigns, account take-overs and social engineering attacks remain as two key attack vectors being used against consumers and corporate banks in Asia.   

While new technologies and platforms bring undeniable convenience, the cost of these financial crimes is a growing cause of concern amongst FIs and regulators. As financial crimes grow in sophistication and volume, FIs will need to integrate technology solutions to ensure security is not being compromised at the expense of speed-to-market or enhanced user experiences – ultimately minimising the cost of falling victim to these crimes.  

Strengthening lines of fraud defence

As consumer needs evolve, the top three financial services that FIs are planning to roll out are e-wallet/mobile wallet, instant loans and instant bank account applications. This is a clear indication of growing demand for instant, digital services, especially in the last year. Beyond providing accessible online banking services to consumers, FIs are also looking inward and focusing on their operational efficiency by streamlining resources and automating tasks, such as lending processes, through digitalisation.  

Coupled with an unbanked population of 290 million in Southeast Asia and the rising popularity of digital-only banks, FIs need to redesign their digital banking strategies to hone their fraud management tools and mitigate fraud. Already in the Philippines, regulators are actively looking for more ways to lower barriers to make banking more inclusive of its unbanked population. Beyond basic transactions and services, what added layers of verification, data points or security needs to be in place? FIs will need to leverage solutions and technology, ranging from big data analytics to device intelligence to secure their base.

In APAC, GBG found that more than half of the FIs are now prioritising the ingestion of new data outputs. This includes malware detection data, alternative credit scoring data, geolocation, and bot detection to improve their fraud-management readiness. While data will continue to enable threat detections systems, the growing transaction volume and threat sophistication also mean that FIs need to invest in increasing infrastructure capacity to analyse data and present actionable insights in real-time.

For instance, through collaboration and cross-vertical data-sharing model, a Malaysia-based financial institution, was able to acquire non-traditional consumers data points to help with the validation process. The bank leveraged data intelligence to expedite traditional processes for consumers while keeping a watchful eye on any fraudulent activities. By leveraging alternative sources of datasets, it presented a safe and secure way of bringing the unbanked into the financial services ecosystem.

The cost of convenience

The demand for greater convenience is expected to rise as the digital economy becomes more established, and there is a need to further secure the customer journey and detect financial crimes before they even happen. GBG revealed that across Southeast Asia, money-mulling (36 per cent) and stolen IDs (41 per cent) have also emerged as prevalent forms of fraud. On top of that, almost half of the FIs in Southeast Asia believe scams will drive spikes in fraud in 2021, with social engineering attacks expected to be the most recurring type of fraud. 

Just as technology is embedded in our lives now, it will also have to be at the centre of fraud and risk management. One key emerging conversation around fraud management solutions is the tussle between building or buying, especially amongst FIs in developing countries. With different schools of thought and cost-benefits, how can FIs make the right decision?

If anything, the pandemic has exposed gaps in existing infrastructures. Firstly, with a global tech talent crunch, building and upkeeping an adaptive system will prove to be an organisation’s biggest challenge. Fraudsters’ modus operandi is constantly shifting, and it will take more than conventional, rule-based solutions to outsmart these new tactics. Secondly, most systems developed “in-house” are not built and optimised to scale and are often unable to detect new fraud behaviours and patterns. To holistically monitor anomalies across the entire customer journey from origination to ongoing transaction, we have noticed an uptick in FIs leaning towards end-to-end fraud solutions. These solutions create higher operational efficiency and empower FIs in customer fraud management better. 

Consumers today crave for higher convenience and FIs have a huge responsibility of keeping consumers safe while delivering on “frictionless user experiences”. Technology has grown to a level of sophistication to reshape the definition of convenience today. Similarly, FIs would need to harness upgraded fraud, risk and compliance technology, which has progressed at pace, to deliver convenience and upkeep digital trust.