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‘Fraud Risk’, specifically also in Pakistani banking industry becomes a key component of Risk in last decade due to fast dynamic changings in business natures and transformations in digital era from traditional banking of last century.

Consumers overall changing behaviors globally and locally according to their needs and technological alignments and on contrary, fraudsters are usually one step ahead of the change like an evolution theory of Darwin to survive at least on minimum cost of existing for stealing, cheating & corruptions through wrongdoings, manipulating facts and cheating, especially a common man, to avail undue benefits of Weaknesses, loopholes and lack of litigations in ecosystem of financial industry largely.

Banks on a larger canvas have developed well-organized and patterned models of risk in systematic ways to align themselves according to the state regulations for securing public and investment capitals paid as an ingredient in economy.

Having an updated organogram, fraud risk in coming days is expected to be an active control approaches in advanced models of risk like ERM (Enterprise Risk Management).

The writer of this article based on his experience of decades in ‘Fraud Risk’ has met with multiple experts and leaders of fraud in local Industry to extract rationally their expert opinions on combatting an expected threat of fraud risk in new starting era of digitalization and bulk of information without authentications.

A renowned CFE (Certified Fraud Examiner) Adnan Sherazi having diversified experience in the fraud industry and working since 2003 was sharing his thoughts on ‘Fraud Risk’ in the horizon of ERM.

He clearly stated that banks and fraud forums are seriously catering to the risk of fraud and conducting trainings to banking staff and implementing updated controls across the board to unify their safeguarding approaches to common threat to not even business only but to an entire picture of economic ecosystem to some extent.

Adnan Sherazi was insisting to call upon the government bodies to implement a robust plan for national awareness through electronic and print media, including national radio stations so as to equip the general public with sufficient knowledge to deal with the challenges of Ponzi schemes and social engineering, including other cheat-frauds, in an effective and meaningful manner.

However, this transformation has birthed a quicksilver threat: fraud risk. Just as finance has transcended physical boundaries, so too have the methods of those who exploit its vulnerabilities. Gone are the days of the clumsy forger.

Today’s fraudsters are Darwinian shapeshifters, constantly adapting and evolving to exploit the ever-shifting digital terrain. They capitalize on the evolving needs of consumers, their growing comfort with technology, and the inevitable gaps that arise during any period of rapid change.

The nature of the threat: from bumbling forgers to digital phantoms

The landscape of financial fraud has undergone a dramatic transformation in the digital age. Traditional methods, like cheque forgery and physical theft, are giving way to sophisticated cyberattacks, identity theft, and social engineering tactics.

Fraudsters leverage readily available information online to target unsuspecting victims. They exploit loopholes in systems, manipulate weaknesses in authentication processes, and prey on the lack of digital literacy among new users.

Specific examples of fraud in Pakistani financial consumer & fintech industry

  • Account Takeover (ATO): Fraudsters gain unauthorized access to user accounts through phishing attacks, malware, or stolen credentials. They then use these accounts to conduct unauthorized transactions or steal sensitive financial information.

  • Mobile Wallet Fraud: Interception of SMS one-time passwords (OTPs) or exploiting vulnerabilities in mobile wallet applications allows fraudsters to steal funds.

  • Social Engineering: Fraudsters impersonate legitimate entities, such as bank representatives or customer service personnel, to trick victims into revealing personal information or transferring funds.

  • Payment Fraud: Fraudulent use of stolen credit or debit cards to make online purchases.

The impact of fraud: beyond financial losses

The consequences of fraud extend far beyond financial losses for fintech companies and consumers. It erodes trust in the financial system, discourages adoption of fintech services, and hinders the overall growth of the digital economy. Additionally, successful fraud attempts can damage the reputation of fintech companies, leading to customer churn and decreased investor confidence.

Building a fortified wall: mitigating fraud risk

Combating fraud risk in the Pakistani fintech sector necessitates a multi-pronged approach. Here are some key strategies:

  • Advanced Data Analytics: Utilizing data analytics tools to identify suspicious patterns in user behavior and transactions can help flag potential fraudulent activity before it occurs.

  • Machine Learning and Artificial Intelli-gence: Implementing machine learning algorithms can automate fraud detection and prevention, allowing for more efficient and real-time monitoring.

  • Encryption Technologies: Employing robust encryption technologies like two-factor authentication and strong password policies can significantly enhance account security.

  • Customer awareness campaigns: Educating consumers about common fraud tactics and best practices for securing their financial information is crucial to empower them to identify and resist fraudulent attempts.

  • Collaboration between fintech companies and regulators: Establishing clear regulations and fostering collaboration between Fintech companies and regulatory bodies like the State Bank of Pakistan can create a more secure and robust financial ecosystem.

The role of law enforcement and regulatory bodies

Law enforcement agencies need to stay abreast of evolving fraud trends and develop investigative techniques to track down and apprehend perpetrators. This requires strong collaboration with international law enforcement agencies, as cybercrime has often transcended national borders. Additionally, regulatory bodies like the State Bank of Pakistan (SBP) play a critical role in establishing clear guidelines and regulations for Fintech companies. These regulations should focus on data security, customer protection, and robust Know Your Customer (KYC) and Anti-Money Laundering (AML) practices.

Case studies: learning from global best practices

To further enrich the discussion, consider including case studies of successful fraud mitigation strategies from established Fintech companies in developed economies. Analyzing how these companies leverage technology, collaborate with law enforcement, and empower their customers can provide valuable insights for Pakistani Fintech players.

The human element: building a culture of security awareness

Beyond technological solutions, building a culture of security awareness is paramount. This involves educating not only customers but also employees of fintech companies on best practices for data protection and fraud prevention. Regular training programmes can equip staff with the knowledge and skills to identify red flags and prevent fraudulent activity.

The road ahead: a collaborative effort

Securing Pakistan’s fintech revolution requires a collective effort from all stakeholders. Fintech companies must prioritize robust security.

Copyright Business Recorder, 2024

Syed Yousuf Raza

The writer is Fraud Examination (ACAMS) Certified


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