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Fraud prevention in financial services guide

BLOG POST     JUL 19, 2023   |  12 MIN

JUL 19, 2023   |  12 MIN


Financial organizations must constantly keep their fingers on the pulse as criminals take advantage of technological progress. With neobanks on the rise and virtually all client transactions moving to the online realm, vigilance has never been so critical.


Technological advancement is showing no sign of slowing down. The COVID-19 pandemic also heightened an already booming technological takeover. The switch to remote living meant organizations were left with little choice but to focus on digital operations. 

Meanwhile, financial organizations must constantly keep their fingers on the pulse as criminals take advantage of technological progress. With neobanks on the rise and virtually all client transactions moving to the online realm, vigilance has never been so critical. Without technological adaptation, your institution may have an insecure system in place, making hacking and financial damage more likely. 

Financial institutions must provide a great level of trust to their clients. However, when PWC’s 2022 Global Economic and Crimes Report Survey declared the second highest external source of fraud was customers. This highlights how criminals are getting better at deceiving fintech institutions.

Why are these organizations so vulnerable? It can be easy to blame technology as an entity and to put the blame on how fast it develops and changes. This is incorrectly placed blame since technology is critical for modern-day client satisfaction and successful operations. 

Instead, financial institutions should prepare to adapt and implement the necessary tools to protect against fraud. if your organization struggles to do this, you might be unintentionally opening the door to fraudulent activity. 

The key is to embrace technology and use it to expand your client base while following critical steps to protect your institution from fraud.

Best practices for fraud prevention

  • Improve your customer onboarding process: Successful onboarding is critical for landing a loyal client, as most want quick communication and convenience when you familiarize them with your products and services. Furthermore, poor onboarding processes can cause organizations to lose clients and create gaps in the system. A 2022 ABBYY survey found that 84% of organizations experience an abandonment rate of up to 40%. The global banking and financial sector reported the highest abandonment rate at 23%, with government entities close behind at 20%.

Using manual processes when automation is possible, is one of the main reasons why organizations lose potential clients. More specifically, financial institution clients are less likely to switch providers if they’re satisfied with their mobile banking experience. Institutions can drastically shorten onboarding time by switching to mobile-friendly, automated/electronic processes while abandoning paper-based processes, such as having to manually sign.

There are additional onboarding mistakes that stem from poor communication with the client. When clients sign up for your financial services, they want to know critical details such as:

  • What steps are involved before a client’s account is accessible
  • When their new account or accounts will be accessible 
  • If their sign-up process was successful (for instance, receiving a welcoming email)

Failing to perform fast and proper risk assessments is another common onboarding mistake observed among financial organizations. Complicating the ID collection and verification process by taking too long can push clients towards abandoning onboarding because the average customer attention span is only 8 seconds.

In other words, clients want results, and they want them quickly. One way to meet those expectations is with a streamlined onboarding process and clear communication during the ID verification process.

  • Know your customers: The Know-Your-Customer (KYC) verification process can prevent suspicious activity on your platforms. The objective is to ensure your customer’s identity and gain insight into their financial activities and whether or not they pose a threat. KYC is important because it protects financial institutions from illegal corruption schemes, terrorism financing, money laundering, and other financial crimes. KYC is also a critical practice because it helps financial institutions avoid severe financial penalties often imposed by regulators.

You should ask yourself, how well do you know your customers? There are several ways companies can improve their KYC procedures by expanding upon basic KYC protocols.

Customer identification Program (CIP)

Organizations must quickly verify a user’s identity to acquire their business and protect against fraud. Your institution must implement a plan that requires the following:

  • Email verification: Verify if a client’s email address is associated with fraud risk and check if they are on another institution’s blacklist.
  • Phone number verification: Verify if a client’s phone number is associated with fraud risk and check if they are on another institution’s blacklist.
  • Face ComparisonClients verify their identity using biometrics by comparing a photo taken on a mobile device to the photo on their ID. 
  • ID document verification: Your client will provide a valid (non-expired) photo ID card, which should include valid information, match age threshold filters and pass a duplication check. 
  • Additional documentation: Business accounts should provide more information than individual accounts to comply with an institution’s CIP. This may include a valid proof of a company registration number, proof of business address, and the date a corporation was established.

Customer due diligence

You can assess the different types of due diligence to know your customer as well as possible:

  • Basic Customer Due Diligence: This simply refers to all the information you must collect from a customer to verify their identity. 
  • Simplified Due Diligence:  This is a good route to take if your client is low-risk. For instance, they’re opening a low-value, simplistic account. 
  • Enhanced Due Diligence: This is for higher-risk customers. Examples include clients linked to high-risk countries and business sectors, as well as politically exposed persons (PEPs) or clients with a lack of clear economic intent. For these clients, you should go beyond basic information to get to know the client’s intent as much as possible. Try to look for confirmation that their financial activities follow the law.

CDD must be a thorough process. If your institution is too lax, you may experience a loss of revenue, fewer customers, and irrevocable damage to your institution’s reputation. Not only that but neglecting a thorough procedure can put your institution in a precarious position if you cannot assist law enforcement if they call upon you for information about criminal activity. 

You can assess risk by performing the following procedures:

  • Global watchlist screening: Ensure a new client is not listed on global watchlists, sanction lists, and politically exposed person (PEP) lists. 
  • Bank account verification: Confirm the legitimacy of the user’s bank account number and ownership. 
  • Criminal and legal records check: Confirm whether or not a client has a criminal record by consulting with global court records. 
  • Income verification: Check if a client is honest about their annual income by analyzing payroll transactions and additional income data.

Ongoing monitoring

You cannot simply perform CDD once. Financial institutions must conduct due diligence “refreshers,” as clients can shift from low-risk to high-risk. 

To assess a client’s trustworthiness, keep tabs on their transactions via periodic customer activity monitoring. For example, a noticeable shift in spending behavior, such as making larger purchases or sending money to unrecognizable entities, can be a fraud risk. 

Organizations must decide how often to conduct CDD. A good rule of thumb is to conduct follow-up CDD after 12 months for low-risk clients and after six months for medium-risk clients.

Strengthening your AML compliance program

Despite global efforts, the United Nations Office on Drugs and Crime reported that 2-5% of the global GDB was laundered money, which equates to approximately $800 billion. This grim fact showcases how necessary it is to strengthen your Anti-Money Laundering Compliance Program (also called the Money Laundering Prevention program in Brazil) to protect against fraud.

Here are some procedures to implement within your organization: 

  • Design and follow policies that protect against fraud
  • Perform periodic reviews and audits of suspicious customers
  • Regularly check in on your country’s AML standards and updates from regulators
  • Ensure someone within your company has the role of designated AML officer
  • Train employees on understanding AML and recognizing fraudulent activity 
  • Keep tabs on customer transactions and profiles
  • Create and consult Suspicious Activity Reports (SARs)

Do digital the right way

Digitization can breed fraudulent activity on your platforms. It’s critical to be careful and thorough with your digitization to protect your institution’s integrity. In 2022, financial institutions saw an increase in fraudulent activities compared to 2021. And regardless of the institution size, from $5bn to more than $500bn, they all identified maintaining crime and fraud in the digital age as a challenge. As a result, implementing tools to prevent financial crimes is now more essential than ever.

In 2022 62% of financial institutions saw an increase in fraudulent activities compared to 2021.

The first step towards leveraging digitization, instead of fighting it, is recognizing the types of digital fraud criminals are fine-tuning. Here are the most commonly used:

  • Phishing: Criminals may formulate emails, text messages, and web pages to extract sensitive data. For example, clicking on a disingenuous email can give a criminal access to a bank account. 
  • Identity Theft: Fraudsters create phony IDs to gain access to financial services. 
  • Theft of End-User Information: Criminals convince unsuspecting victims to provide them with their passwords. This gives them a way to steal credit card information or expand further and attack social media accounts and other online platforms.

But hackers get stuck when you stay alert, and we want to show you how to do that. 

We already know that digital fraud attempts start when a criminal has access to your platform. Your KYC verification efforts should help you weed out disingenuous users before they even have a glimpse of your products and services. This means document and ID verification should be top priorities. 

You should also understand the importance of having automated tools that keep the same pace as a hacker. Cyber attacks work fast, and hackers breeze through the steps of infiltrating financial institutions. If possible, you should abandon manual verification, as it can take far too long to pick up on suspicious actions. 

The way your users log in to use your services can also block criminal activity. Biometric authentication, such as face recognition and fingerprint logins, have seriously frazzled criminals in recent years. You should implement it if you can — there is no way for them to outfox simple biology. 

Lastly, you can turn your KYC verification up a notch. Compare GPS locations to IP addresses if you have to, and go one step further by checking if a customer has a criminal record.

How technology can help you prevent fraud and find new opportunities

The inevitability of digitization should be viewed through a pragmatic lens. Embracing technology can make your fraud prevention systems more effective. 

A 2022 article from McKinsey & Company notes that countless institutions struggle to balance client experience and fraud control resulting from rapid, post-pandemic digitization. More specifically, the report notes that fraud threat vectors are becoming more sophisticated, with nation-state actors, organized criminals, cyber terrorists, insiders, and fraud rings trying to infiltrate global markets. This sophistication led to fraud losses for fintech institutions. 

Furthermore, executives may be concerned with meeting their targets while criminals wait to pounce. However, shying away from the threat only worsens the issue. You have the power to combat criminal activity, and you can also adopt business practices that benefit the financial ecosystem as a whole. 

Financial institutions need a comprehensive plan that simultaneously addresses customer experience enhancement and fraud. It’s impractical to focus on issues individually and neglect authentication, fraud management, or customer experience. Prioritizing only customer experience or only fraud can be detrimental, leading to a loss of customers or increased criminal activity. 

More specifically, forgetting to consider client experience while implementing tighter fraud prevention measures can add friction to the customer service experience. Being overly cautious with fraud controls (without a multi-purposeful system) can hurt consumers by narrowing a company’s possible market. You can attempt to control fraud on your own or seek assistance and save on the following:

  • Cost
  • Risk
  • Development
  • Compliance

A fraud strategy should directly link to overall company performance and success. This is known as an “end-to-end fraud strategy,” which includes flexible features that reduce the threat of fraud from the moment the client signs up for their account to the complete of all transactions. 

To enact the most successful fraud prevention protocol for your institution, you need a trusted partner.

How MetaMap can help you combat financial fraud while accessing new markets

When maintaining customer satisfaction and fighting off security threats simultaneously, there are one-size-fits-all solutions. But they aren’t effective. Every company has different needs and going beyond that and looking for customizable services can build a more risk-aware organization. 

At MetaMap, we create solutions based on your needs. Available in over 50 countries, we pride ourselves on offering the most powerful tools against fraudulent activity. Whether it’s verifying users, guaranteeing KYC compliance, or onboarding new customers, over 400 companies put their faith in our hands. 

Using workflows and customizable merit blocks, we ensure verification, onboarding, and learning about your customers takes little to no time. We also know that fraud prevention is one of your main goals. MetaMap’s ID Card fraud detection, ID validation, biometrics implementation, and more all create a strong risk management system. 

Merit blocks are standardized data blocks that make up the entirety of your unique workflow. You can think of them as countries on a world map, each offering different validated user information that contributes to the whole verification operation. Every time you add a merit block to your workflow, users and potential customers have a new way to prove they’re trustworthy. Clients curate workflows using a user-friend drag-and-drop builder. You can also use it to toggle the countries and regulations you must comply with. 

All MetaMap templates accommodate the financial services industry. You can also operate more than one workflow, which can be useful for companies with locations in different countries with varying compliance laws. 

MetaMap has access to countless sources all over the globe that validate the information users share with you. Our top priority is customer authentication and growing your company with optimal efficiency. 

Some notable MetaMap merits include:

  • ID document fraud detection: MetaMap’s ID verification uses highly advanced software to read the entirety of a document and extract the relevant data. It can also immediately pinpoint duplicate users and uses age threshold filters. This standard KYC process also checks expiration data and detects altercations within seconds. 
    This merit can scan trickier documents like proof of residence, bank statements, and utility bills in real time. It looks over the full name, address, emission date, and document age to prove legitimacy. 
    We also compare documents. Our document reading webhooks can compare standard photo identification with supporting documents, like proof of residence. It can detect any discrepancies in real time.
  • AML watchlist: Potential clients don’t even need an ID to be assessed by this merit. Before you onboard them, MetaMap can run a watchlist and AMI validation by simply using a full name and date of birth.
    Your users are compared to over 1,200 international watch lists, plus sanction lists and politically exposed persons lists (PEP). This is one of the most efficient and speedy ways of recognizing serious criminals, like terrorists and fraudsters.
  • Government check: This MetaMap service ensures all data submitted during the onboarding process checks out. MetaMap has connections with official government sources like population registries, tax agencies, criminal records, and electoral institutes in North, South, and Central America.
    The merits in the government check include:
    – Government ID verification
    – Criminal records check
    – Driving license verification
    – Professional license verification
    – Business verification
    – Tax number verification
    MetaMap will instantly match documents with user-provided data, giving you the green light to continue onboarding. However, we label documents as “Review Needed” if it is expired or invalid.
  • Bank account data: MetaMap’s bank account data service gives you instant access to account history. You can see day-to-day transactions within 3-12 months, as well as a potential customer’s balance, number of accounts, and basic ID information.
    This isn’t a total invasion of privacy. Users know that you can access this and have to either upload bank statements from their bank or give permission to use their bank login details.
  • Client Uses: Several fintech organizations have already credited MetaMap for reducing fraud and increasing high-trust interactions. For example, Mercado Bitcoin significantly decreased its manual review operations. With speedy customer verification, they also boosted account creation speeds. Furthermore, PDAX also abandoned tedious manual revisions while improving the conversions of their onboarding process.

Taking fraud prevention to a new level

A new verification method means you’ll immediately be able to authenticate a whole new sector of users through different merits. 

This opens up a new world of opportunities for your financial institution. Knowing that clients are genuinely interested in your services and don’t want to take advantage of them allows you to be more lucrative and successful. Of course, it’s impossible to eliminate fraudulent activity, but MetaMap can help you reduce it as much as possible. 

Now, let’s get to know you! 

No one wants to drive head-first into a new system without careful consideration. That’s why one of our experts will pinpoint your company’s needs and implement the best metamap template and merits for you. 

Let us help you prevent digital fraud today. Try a free trial product with a MetaMap to learn more!

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