Trends and Technology Every Bank Should Know in Fraud and AML

The rise of sophisticated cybercriminals and the exponential growth of online transactions mean that banks face daunting challenges in fraud and AML. As financial institutions navigate this intricate web of innovation and risk, they must be aware of the latest trends and technology in banking. In this blog, we’ll explore key technology trends that every bank should be aware of to navigate AML and fraud in an increasingly digitized world and share some of the recent findings from the State of Fraud & AML that support these insights.

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Trends and Technology in Banking: The Scam Surge

Scams are becoming one of the fastest-growing fraud and AML threats, particularly in North America. What’s driving this surge? The reason is simple: scammers are looking for regions where the defenses are weakest, and in North America, both public and private sectors have not yet developed a cohesive strategy to combat these threats.

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For example, investment scams are not just phishing emails or romance scams. Fraudsters are creating incredibly professional-looking fake websites and solicitations, preying on unsuspecting investors. What’s particularly alarming is how fast these scams are spreading. There’s some movement from the Securities and Exchange Commission (SEC) to address this, but until we have a comprehensive, organized effort to quickly identify and dismantle these fraudulent operations, the problem will persist.

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The Law of Large Numbers: What It Means for Scams

Fraudsters today aren’t just looking for easy marks; they’re running organized crime syndicates. They focus on brands with the largest market shares because it’s the most economically efficient way to operate. Imagine a fraudster crafting a fake One-Time Password (OTP) for a major bank like Chase. With a single scheme, they can potentially reach tens of millions of customers. The bigger the brand, the bigger the potential payoff.

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On the flip side, targeting a smaller institution, like a regional credit union, doesn’t have the same appeal. The economics don’t make sense for fraudsters when they can target the big fish with much higher success rates.

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This is where the law of large numbers comes into play. The bigger a company's market share, the more likely it is to become a target. Even more worrying is the increase in what I call "bad hygiene" scams, where fraudsters pose as legitimate entities like banks or government agencies, coercing victims with threats of severe consequences unless they take immediate action.

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Trends and Technology in Banking: The Resurgence of Check Fraud

For years, checks were believed to be on the decline, and as a result, many financial institutions treated check fraud as an "acceptable loss." Banks thought, “Why invest heavily here when the losses are pretty steady?” It’s not like banks are simply dusting off old codes; they’re facing the challenge of figuring out new strategies. 

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With all the recent trends and technology in banking, especially with machine learning and artificial intelligence (AI), we’re seeing a renewed appetite for investment in anti-fraud tools as the economics change. The question remains: how long will this shift last? We need to rethink our strategies as we reduce the volume of good checks in the system. 

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Leveraging Modern Technology to Combat Old Threats

Historically, a check fraud analyst would have to sift through items manually, running some algorithms to detect anomalies based on number sequences or unusual dollar amounts. The process involved a lot of guesswork and visual comparisons of past items. But modern bank technology trends change that game completely. Now, the algorithms can highlight anomalies before they even hit the analyst's desk. They circle the items needing attention, making it far more efficient.

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Don’t get me wrong—this advanced technology for AML and fraud detection isn’t cheap. It requires a lot of computational power, and we see its application in check and deposit fraud detection. Banks have to consider not just the checks clearing but also the exposure of first deposits.

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It’s also important to note that remediation efforts are equally time-consuming. When fraud occurs, re-establishing a consumer’s credentials involves multiple touch points—think of all the direct deposits and auto-payments we rely on. This isn’t just a technical issue; it’s about maintaining customer trust and ease of use.

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So, if your bank isn’t actively staying up to date on the latest check fraud detection, now is the time. And if you’re not investing in the tools to address it, you’re falling behind in protecting your institution and customers. The return on investment (ROI) isn’t always immediate, but the cost of inaction can be far greater.

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Trends and Technology in Banking: Real-Time Monitoring

Back in 2016, when I was part of building one of the first real-time payment rails in the U.S., the infrastructure needed to support something like Zelle was massive. We had to build it from the ground up, ensuring everything could operate in real-time. So you might wonder, if we did this eight years ago, why isn't everyone doing it by now?

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Well, it boils down to risk management and trade-offs. When Automated Clearing House (ACH) systems operated with multiple daily windows, there was time for transactions to be processed, and banks could afford to take things slow. But as we’ve shifted toward real-time payments, the need for real-time monitoring has become critical. Once money leaves your account, it’s gone; there’s no reversing that transaction.

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Things to Consider in Implementing Real-Time Monitoring for Fraud and AML

If I were talking to a bank that hasn’t yet implemented real-time monitoring, I would advise knowing your business case inside and out. What’s the impact of profit and loss (P&L)? Is there a revenue opportunity here? Are you reducing friction for your customers? What kind of losses are you seeing because of delayed fraud detection? You have to look at it from both customer retention and operational cost perspectives.

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It makes a compelling case when you can articulate how improving these metrics will enhance your ROI. You’re not just presenting a cost but highlighting a significant opportunity for immediate impact. Fraud is typically written off within 90 days of detection. This creates an opportunity for in-year payback, which means that any investment you make in real-time monitoring can translate into quick benefits for your finance team.

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Trends and Technology in Banking: Operational Efficiency

When it comes to operational efficiency in AML and fraud detection, speed is the name of the game. The idea that you can take five business days to implement a new fraud rule is just unacceptable. We’re in a world where you need to be able to implement a rule within hours, if not minutes.

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Now, I’m not dismissing the need for checks and balances. There must be discipline around the urgency of the rule changes you’re implementing. That’s why we created a structured approach that requires teams to review proposed rules within a tight timeframe. You have to consider who your audience is, your contact center staff, and your product and marketing teams. If a new rule is going to generate a high volume of false positives, it’s essential to communicate that with your team. If your communication is broad and everyone understands the urgency, you can react much faster when attacks occur.

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When it comes to alert management, the expectation for productivity shouldn’t be less than one minute per alert. Yes, I know there’s complexity involved when you start engaging with consumers to validate transactions. But we have to strive for efficiency here. Every second counts, and the faster you can address alerts, the better your chances of mitigating fraud losses.

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So, let’s keep our eyes on operational efficiency. Streamlining our processes and focusing on rapid implementation can reduce fraud and AML attack rates and enhance our overall security posture. 

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Stay Ahead of the Trends and Technology in Banking for Fraud and AML!

Don’t let your organization fall behind in the battle against fraud and AML compliance. I recently joins a Unit21 panel discussion on these topics and the supporting data that's been recently uncovered. Watch the recording now where we discussed the latest trends and technology in banking that can help you effectively combat fraud and AML challenges. Gain valuable insights into cutting-edge solutions and proactive strategies to protect your institution!

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