How Fintech Is Opening The Gateway To Fraud
The Financial Technology and the Risks That Come With It
There is no doubt that the progression of fintech has changed the landscape of many industries. However, the introduction of financial technology has also exposed a giant susceptibility amongst them all: an increased chance of fraud.
In Experian's Global Identity and Fraud Report, 55 percent of businesses reported increased fraudulent activity and losses. This shows us that, while businesses are finding new and innovative ways to conduct their business and become digitally savvy, so are fraudsters. The worry of potential credit card fraud for consumers has now been replaced (or expanded) by new, more innovative scams. As a result, there is clearly an increased urgency for businesses and fintech companies alike to address these gaps and protect the consumers these businesses serve.
Automated Investment Options Offering Too Good To be True
The rise of automation in the financial services sector means consumers can access services in real-time without ever stepping foot in a financial institution or meeting their financial professor. This is particularly the case for investors. The rise of automated/digitally managed investment and wealth portfolios has been a notable area thanks to the appealing benefits of the Robo advisor concept, such as smaller fees (typically 0.25 to 0.30 percent of assets). By 2022, assets managed under Robo advisor platforms are predicted to hit $4.1 trillion, according to recent from Juniper Research's study.
However, there is also a flip side to this: the lack of verification and concern of authenticity, thanks to electronic-only relationships. With identity fraud being relatively common in the world of fraud, it is not difficult to see fraudulent individuals or companies applying the same tactics to lure consumers with investment opportunities offering 'promising' returns.
As a result, national regulators recognize the need for compliance laws. Now they are turning their attention to closely monitoring the activities of these companies and establishing working regulations for their conduct towards customers. Most recently, Waterfront faced settlement consequences from the SEC (Securities and Exchange Commission) to the tune of $250,000 for misleading customers.
The Popularity Of Mobile Banking Means More Opportunities For Data Theft And Replication
The embracing of financial technology has meant there are more doors for fraud. Around 63 percent of smartphone users have at least one financial app on their device, according to Bankrate's consumer survey in 2018.
Of that proportion, 40 percent of them are peer to peer payment platforms, and 55 percent of them are full-service banking apps. These tools are prime examples of tools that require consumers to divulge personal information such as personal details and, of course, financial details. At the same time, mobile fraud is increasing by 24 percent each year. With mobile transactions accounting for 58 percent of all traffic for 2018, mobile users are now more susceptible than ever to mobile financial fraud or identity theft.
With The Primary Storage Of Data Being Digital, Consumer Compromisation Stakes Are Elevated
Finally, if banks want to remain competitive, they need to be technologically led. A part of this has meant exploring new ways to exploit and store data, particularly digitally. Yet, with methods such as cloud storage or the use of blockchain, network security remains a concern. As more companies store an increased amount of data online, and with the help of technology, they are providing more chances (and more data) for leaks and theft. There are also new options being opened up to use the stolen information, thanks to fintech.
For example, information secured using identity theft can further be used to purchase cryptocurrency and transferred to another bank account, with minimal trace evidence. These fraudsters tend to target vulnerable consumers like the technologically ignorant and offer high returns after victims send sums of money using bitcoin. In 2019, the occurrence of cryptocurrency scams has increased. Over 21 incidents of fraud using cryptocurrency payments have been reported so far.
That being said, the application of financial technology still has its merits for financial institutions, including its agility of adaptability to meet new security threats. Establishing rigorous identification protocols and monitoring strategies are a good start, while advanced technology such as biometric verification can be implemented to bolster the process. Coupled with a continuous commitment to improve and reinvent its security measures, businesses and consumers alike can rest assured that their information and finances are safe.
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