A three-tiered approach for a customer centric view on fraud

21 July 2016 Consultancy.uk

Criminals target financial institutions because that’s where the money is, writes Hugo Löwinger, consultant at Innopay, in an article in collaboration with The Paypers, a platform specialised in the payments domain.

When asked in the 1930’s why he robbed banks Willie ‘Slick’ Sutton replied: “because that’s where the money is”. Sure, banking has since then largely moved online, and so have criminals. However, what was true then remains as true today: criminals target financial institutions because that’s where the money is. As a result, both the top- and bottom line suffer. 

Fraud: an inevitable surprise
We know that at some point we will be confronted with fraud, we just don’t know exactly when and in which form. We are in a constant balancing act between customer convenience, fraud control and cost containment. The top line suffers as customer journeys are cut short for being overly burdensome because of security measures. Think of prospects having to come to the branch, or getting stuck in paper heavy processes during onboarding, hampering conversion rates. The bottom line hurts because implementing and maintaining anti-fraud measures can have serious (opportunity) costs that come on top of actual fraud loss- and repair cost.

Online fraud

Fundamentally, fraud is a business issue so let’s treat it as such
So, why is it that something with as much impact on both the organisation and its customers as fraud is often treated like an afterthought, and is still frequently offloaded to risk managers, security officers and fraud advisors outside the primary process? 

Don’t get me wrong: we desperately need these experts, today more than ever! However, just as we would do not rely exclusively on the finance department to be profitable, we cannot expect the risk-, security, or fraud department to, by themselves, keep our customers’ data and money safe, especially not from within the ‘second line’. How then do we close this gap? 

It starts with an integrated, customer centric view. At Innopay we use a three-tiered approach called “360-degrees fraud management” which consists of a comprehensive set of tools enabling organisations to come to grips with the wicked-problem that fraud is. Below you will find a primer.

Tier 1: Mission control
It is important to define clear roles and responsibilities that are as integrated with ‘regular’ governance as possible to avoid unnecessary cost and preserve organisational agility. 

Proper orchestration will allow the organisation to take action when a new M.O. (modus operandi or specific fraud pattern) emerges, before fraudsters get a chance to ramp-up and/or branch-out their operation. It will also help the organisation identify consolidation opportunities for fraud measures, which is important given the ongoing commoditization of available solutions.

Tier 2: Customer journey
The customer journey is at the heart of the approach, because ultimately this is what the organisation is all about: providing convenient, secure and cost effective service to their customers. It is paramount that we strike the right balance and make sure that the most convenient options are secure. There is nothing like a burdensome security measure to make customers look for easier, and often less secure alternatives, sometimes at the competition.

Innopay - Customer Journey

Customer authentication (during login and transaction signing) and fraud detection are the key ingredients of this defence layer. Today we see new technologies being implemented such as mobile centric authentication, fingerprint-, behavioural- and voice recognition resulting in an easier and truly omnichannel customer experience if and when properly designed.

Tier 3: Knowledge position
Last but certainly not least is the knowledge position of the organisation which is essential in taking well informed decisions and action. Many organisations are exchanging fraud intelligence, both quid-pro-quo and commercially. This intelligence ranges from stolen credentials (e.g. usernames, passwords) retrieved from underground forums, to suspicious IP addresses, skimmed cards and sometimes even alerts from risk engines.

Not only should knowledge be shared with peers. It is also important we do not shun our customers out of fear of spooking them. As a result of high profile fraud incidents and security breaches, customers are much more aware of potential risks. We should acknowledge their concern by providing them with actionable information.

Knowledge can be a true multiplier of defence effectiveness

When applied the right way, knowledge can be a true multiplier of defence effectiveness.

Putting it all together: a 360-degree approach to business driven defence-in-depth fraud management
To meet customer expectations in a secure manner, organisations make fraud management a natural part of the design, continuous development and management of their customer journeys. This takes tools and methods that business owners feel comfortable applying and is exactly where the 360-degrees approach can help.

When asked: “why is fraud managed driven from within the business” at Innopay we reply: “because that’s where the solutions are”!

Hugo Löwinger brings over a decade of experience in business driven fraud and authentication strategy at large financial institutions. Hugo leads the digital identity practice at Innopay and previously fulfilled positions at among others ING Bank and Capgemini Consulting.

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Boards of top UK firms must do more on cyber-awareness

06 March 2019 Consultancy.uk

A new report released by the UK Government has found that UK businesses need to do more to build awareness in their firms, if they are to fend off cyber-attackers. The study found that an all-time high of 72% of businesses now see cyber-threats as a top risk, but just less than half of UK boards do not have a comprehensive understanding of the critical assets at risk from cyber-attacks.

Digital technology has revolutionised modern business, with a rate of innovation present in many companies that arguably eclipses that of the industrial revolution. The huge opportunities presented by technology mean that many firms have rushed to digitalise their offerings; but while this means they are able to take advantage  of the latest trends, it has also opened innumerable doors for cyber-criminals looking to use technology to loot corporations from across the globe.

Illustrating the extent to which cyber-crime has boomed in the last decade, in the final quarter of 2018, a study commissioned by Bromium and presented by Dr. Michael McGuire at RSA found that the cyber-crime economy has grown to an estimated $1.5 trillion dollars annually. That is only a conservative estimate – but that conservative figure alone is so large that if it constituted a national GDP, instead of a collection of digital frauds, it would be the world’s 13th largest economy.

Amid this state of play, it is easy to see why cyber-security has become one of the key watchwords of any board room in the 21st century. The cyber-security consulting segment has boomed, with the world’s 10 largest operators in the segment bringing in more than $11 billion in related fees, as businesses tap external expertise to help find areas where they can improve their defences. As noted by a new UK Government report, the legacy of this spike in consulting activity is that almost all UK businesses now have a cyber-security strategy, with only 4% admitting otherwise. 

Cyber threats are increasingly seen as high risk in comparison to other risks that businesses face

This comes at the end of a sea-change in attitudes toward cyber-security over the last five years. According to the 2018 FTSE 350 Cyber Governance Health Check, in 2013, the largest minority of businesses felt cyber-threats represented a low operational risk, at 38%, compared to just 25% who saw it as a very high group risk. Now, the two opinions have seen a dramatic reversal, with only 6% seeing cyber-security as a low threat, compared to a huge 72% of businesses which see it as a very high risk. Considering the high profile hacks that occurred in the interim, this is perhaps not that surprising.

However, while cyber-awareness in general is at an all-time high, this is where the positive news ends. According to the study, while the vast majority of firms in the UK have a cyber-security plan in place, only 46% have a dedicated budget to enact that strategy. Should their financial positions change rapidly in the near future – something increasingly likely with the prospect of a No Deal Brexit still looming over the horizon – then that plan could fall by the wayside, with the funding shortfall exposing firms to even greater financial damage in the near future.

The study, released by the Department for Digital, Culture, Media & Sport (DCMS) in March 2019, was undertaken in partnership with Winning Moves and support from EY, KPMGPwC and Deloitte, working with their FTSE 350 clients to participate in the survey. The study also found that while most businesses have incident response plans, most are not testing them: 95% of FTSE 350 businesses have an incident response, but a mere 57% test their crisis incident response plans regularly. With companies facing the consistently evolving threat of cyber-attacks, that could leave major chinks in their armour undiscovered until it is too late.

Board understanding of business-critical assets

Similarly, many firms also seem oblivious to the threat posed by their wider supply chains, which if left unchecked, provide hackers with a blank cheque to access company data. A majority of boards do not recognise supply chain risks beyond the first tier, as 77% of FTSE 350 businesses told researchers they did not recognise the risks associated with businesses in the supply chain with whom they have no direct contact.

Meanwhile, almost half of UK boards do not understand the critical assets at risk from cyber-attacks. 54% of businesses in 2018 rated the board’s understanding of critical information, data assets and systems as comprehensive, while of that, only 12% said understanding was the best it could be. This compares to 43% of boards in 2017 and 32% in 2015/16 stating they had a clear understanding, suggesting that key progress is being made, but also that there is a great deal of room for improvement.

Commenting on the findings, Digital Minister Margot James said, “We know that companies are well aware of the risks, but more needs to be done by boards to make sure that they don’t fall victim to a cyber-attack. This report shows that we still have a long way to go but I am also encouraged to see that some improvements are being made. Cyber-security should never be an add-on for businesses and I would urge all executives to work with the National Cyber Security Centre and take up the government’s advice and training that’s available.”