Finance News

Banking And Trading Industry Fraud – What Is The Way Out?

Many of us loved the 2013 movie The Wolf of Wall Street and praised Leonardo DiCaprio for his portrayal of Jordan Belfort, the stockbroker, who was hunted down by FBI for indulging in corruption and committing fraud.

Well, we all love frauds when they are on the screen, not when they rob our hard earned money that is kept in the supposed to be safest places – banks and stock markets.

Unfortunately, banking and trading fraud is a global issue that spares no country.

In 2018, India was rocked by the PNB scam and the SBI fraud case. The $65 billion Ponzi scheme committed by Bernard Madoff’s in 2008 is the largest fraud ever committed by an individual in the history of the US.

More than £500 million were stolen from banks in the UK in the first half of 2018. Of this £145 million were stolen through authorized push payment (APP) scams while £358 million were lost through unauthorized fraudulent transactions.

In most cases, victims get a full refund from the bank but in the case of APP frauds, victims have no legal protection and the money lost is gone for good.

Common Types Of Bank Fraud To Watch Out For

There are many different scams and fraud schemes through which people may lose their money. The three most common APP scams amongst them are:

  • Purchase Scams Purchase scams refer to incidents where victims pay for a product or service in advance but do not receive the said product or service. Almost two-thirds of all APP scams reported in the UK were purchase scams. In many cases, the product or service did not exist, to begin with. These are very common online and may take place on social media sites or through auction websites.

  • Impersonation – In 2018, the UK saw over 3,866 impersonation scams. These scams happen in many different ways. Sometimes, the victim is tricked into transferring money by a criminal disguised as a bank or police official. On an average, such impersonation scams have led to a loss of about £11,402.
  • Card Detail Duplication – Fraudsters can duplicate debit and credit card information in many ways ranging from using carbon copies from old mechanical card imprint machines to tampering with debit/ credit card readers to copy the information stored in them. Some criminals also tamper with ATM machines to get access to people’s card details without them realizing. This data is then used to create duplicate cards that may be used to make ATM withdrawals, online purchases, transactions etc.

Prevention and Management Of Bank Frauds

In the first half of 2018, banks in the UK were able to prevent two-thirds of the attempted fraud transactions. The banking industry is constantly evolving to design better ways of tackling this issue by investing in cyber defence systems and security systems. This includes investing in Data Analysis Software, stronger customer authorization programs and Artificial Intelligence or AI.

Data Analysis Software

Data analysis software is used by bank examiners to analyze data and detect transactions with a high risk of being fraudulent. The most effective techniques used by them include:

  • Classification of data to search for patterns
  • Number stratification to detect abnormally high or low entries
  • Comparing information from diverse sources to match values such as names, addresses, etc.
  • Phone and Email Verification systems to check authenticity
  • Duplicate testing for payments, claims, or finance reports
  • Validation of entry dates in cases of suspicious transactions
  • Gap testing to find missing serial data

Many banks also use special transaction monitoring and Identity verification systems to detect fraudulent activity.

Customer Authorization Programs

Given that a large number of transactions are performed today with contactless debit or credit cards, banks are working hard to design systems to ensure that the card transactions are made only by authorized people. This includes using biometrics and unique one-time passwords for each transaction or online purchase.


The financial world is no exception when it comes to the incorporation of Artificial Intelligence or AI. Artificial Intelligence has been adopted across many banks and financial institutions to set new standards of security. Some of the most common AI technologies in use by banks include voice recognition, predictive analysis and recommendation engines.

AI is also being used to detect fraud in real time and address complex issues in cybercrime. It is now capable of identifying and responding to new fraud techniques as they occur. AI can detect fraudulent transactions made with debit/ credit cards within 0.3 seconds.

Even with all these checks in place, criminals still find a way to commit fraud and steal money from unwary victims. As Marc Goodman explains in his book, Future Crimes, “Criminals are often the first to exploit emergent technologies and turn their complexity against their users”. Thus, fraud management for banks is not a one-time task but rather an ongoing operation.

About Melissa

Customer data is the lifeblood of your organization. But it goes bad (up to 25% per year). Much of it is incorrect, outdated, or unstructured and fragmented across multiple systems – preventing operational efficiency, successful marketing and sales efforts, and a rewarding customer experience.

For more than thirty years, Melissa has been a leading provider of global identity verification and data quality solutions. Using cutting-edge technology and multi-sourced global reference data, we provide the solutions to support your Know Your Customer (KYC) initiatives, prevent fraud, reduce costs and improve fulfilment – at every point of the data chain.

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