4 Ways FinTech Firms are Preventing and Detecting Financial Frauds

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4 Ways FinTech Firms are Preventing and Detecting Financial Frauds

The FinTech sector has seen unprecedented growth over the last few years in India and across the world. Laden with opportunities, this trend has grabbed the attention of stakeholders as well as that of fraudsters who keep unearthing innovative and cunning ways to break into the system and make a quick buck.

The Reserve Bank of India (RBI) annual report for the FY 2019-20 has revealed that the number of bank frauds has surged over 2X in the year ended June 2020.

The total worth of these reported bank frauds was about Rs. 1.85 lakh crores.
Such statistics have compelled the FinTech companies to equip their existing strategies with advanced technologies such as robotic process automation (RPA), artificial intelligence (MI), machine learning (ML), to name a few.

Here are the key areas wherein FinTech companies are gearing up to detect and prevent fraudulent activities with advanced solutions.

1) Advanced Transaction Monitoring and Instant Notification

Banks and non-banking financial companies (NBFC) are using FinTech products equipped with AI and ML algorithms to monitor customers’ transactional patterns. If any transaction seems unusual, it will be allowed only after further authorization from the customer. 

Doing so, even if an imposter exploits customers’ stolen identity to transact some money – based on the geography, kind of the transaction, time, and the amount involved – the BSAs will trigger additional authorization before enabling the transaction.  


2) Digital Footprint Data during Customer Screening

Conventionally, the products used by financial institutions to screen a customer check the creditworthiness of the prospective borrower by getting one’s CIBIL score from the credit agencies.

But India is home to a massive unbanked populace, who do not have much financial history. New borrowers can use digital footprint data as nearly everybody has a smartphone and performs online transactions. 

FinTech products utilized for customer screening are leveraging data analytics, data mining, and ML to utilize the digital footprint data and compare it with a fraudster’s approach to calculate a more precise creditworthiness score.


3) Avoid Payment Frauds with Biometrics and Multi-factor Authentication

Doing purchases and payments with stolen debit/credit cards or digital banking credentials is becoming prevalent. Although many payment systems utilize additional authentication such as a one-time password (OTP) for all card transactions, it is not always risk-free.

Also, when the mobile phone is stolen, it becomes easy for the conmen to commit financial fraud. This is where online payments come into play as a game-changer.

With online wallets, there is no need to expose one’s debit/credit cards to anyone. Also, online payment systems can utilize advanced biometrics that cannot be forged to authorize the transactions besides the usual authentication methods.

4) Automated Bank Statement Analyzers during KYC

Manually going through the pages of bank statements of potential borrowers is monotonous and liable to human errors or, often, even subjective biases. For this, many FinTechs are creating dynamic rule-based automated bank statement analyzers (BSA) solutions.

Some of the parameters where automated BSAs can look for in the bank statements include cheque returns, charges and penalties, circular transactions, and equal debits and credits, among others.

Change is the Only Constant

Fraud detection is an ongoing process. Like how the fraudsters keep showing up with newer ways to outwit the financial services, the FinTech realm is also maturing with the advent of innovative solutions using advanced technologies including RPA, AI, and analytics to avoid and detect frauds.

As technologies advance, financial services that bank on them will also level up and become more effective to the financial sector to create a digital fortress that is secure and safe from fraudsters.

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To know more and to apply for the course, visit Miles Education today.

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