Banks: Prepare for the New Faces of Fraud

About 60% of financial institutions are first notified of fraud when a customer notifies them, according to the 2016 Faces of Fraud survey conducted by Easy Solutions and ISMG Media Group. The survey polled more than 200 professionals from financial institutions of all sizes.

Kaufman Rossin recently co-hosted a panel discussion with Easy Solutions who shared the survey findings and discussed the impact of retail breaches and the future of payments security. My colleague Jason Chorlins, risk advisory services principal, moderated the discussion, and I had the opportunity to serve as a panelist along with other financial services and fraud specialists:

• Marshall Martin, EVP of Enterprise Risk, City National Bank
• Heidy Duarte, SVP of BSA/AML/OFAC & Financial Fraud Officer, Total Bank
• Michael Lopez, Director of Operations, Easy Solutions

Several topics came up in conversation, including the rollout of the EMV (Europay, MasterCard, and Visa) chip card standard, the impact of fraud on businesses and banks, fraud trends for 2016 including the use of mobile banking, phishing, and synthetic IDs.

EMV chip card rollout

More than 50% of survey respondents indicated bigger investments in EMV as a way to prevent fraud; however, it may take some time before a decrease in credit cards fraud is shown.

“We’re not seeing much of a difference,” said Martin, regarding the use of EMV chip cards. He said there is still a large loss in debit cards, even with the chip installment. The losses are not only affecting customers but businesses as well.

Credit card companies are hoping the EMV technology will help to prevent fraud cases like the high-profile breaches at Home Depot and Target, which continue to have a ripple effect on financial institutions. Banks have had to reissue payment cards, defend against related fraud incidents, and experience productivity losses because of incident response time related to retail breaches.

“One of the biggest effects from retail breaches is reputational,” said Duarte. “It’s important to create a lot of awareness as a financial institution. We need to not only have the right system but also the right people taking care of this.”

Banks can play a significant role in fraud protection. However, smaller community banks may not have the expertise or resources that bigger banks might have to tackle fraud. For example, Lopez said community banks are not yet seeing the pain from fraud via the mobile channel because “they don’t know how to correlate it to mobile apps.”

Although bigger banks may feel more confident in some areas, there is still much more they can do to improve authentication and anomaly detection, and stay on top of emerging threats, according to the survey.

Fraud is going digital

“With more than 50% of the population under the age of 30, financial institutions need to understand that demand for digital transactions with continue to grow,” Easy Solutions CTO Daniel Ingevaldson said in the survey report.

Mobile payment apps may be convenient for consumers, but their growing adoption raises concerns. The innovative payment solutions have become targets for hackers trying to take over customers’ accounts. Lopez predicts that mobile fraud and synthetic identity fraud will be emerging threats in the coming year.

Another big issue mentioned was phishing emails. More than 50% of survey respondents said the number of targeted phishing attacks against employees has grown. The panelists all agreed that implementing training programs to educate employees about social engineering attacks and other data security threats is important in helping prevent fraud.

Contact me or another member of Kaufman Rossin’s risk advisory services group to learn more about protecting your institution from fraud.