By 2026, the global market is expected to reach over $324billion, growing at an annual rate of 23.41%. As such, the financial sector’s need for strong security has become more necessary than ever, as fraudsters have become bolder and more technically savvy at the same rate as companies using fintechs to improve their cybersecurity.
Janer Gorohhov is CPO and Co-Founder of Veriff. He is a tech-savvy innovation enthusiast who started his career as a full-stack developer. Before joining Veriff, he gained experience in project management, and worked with fundraising and finance. He holds a degree in computer and information science from the University of Tartu.
Speaking to The Fintech Times Gorohhov explains how traditional authentication methods are outdated and no longer sufficient to protect important data. He explains how weakness must be found by security teams before fraudsters do, or they will be exposed over and over again:
Fraud rates within financial technology organisations continue to grow despite heavy investment in security and prevention tools. Even the most impenetrable fortresses have weaknesses, and too often in this day and age, fintech companies can mistake themselves for unbreakable castles. Every day, new schemes continue to pop up and bad actors show no signs of slowing down their fraud efforts. With the sharp increase in fraud continuing to have an impact on overall business resilience on a global scale, how can businesses within the fintech space prepare themselves to navigate the dynamic, jagged cybersecurity world?
Our H1 2021 Fraud Report dives into identity verification fraud across the sectors of fintech, mobility and cryptocurrency. Over the first half of this year, the net fraud rate increased by 15% compared to H1 2020, with specific schemes such as identity fraud rising by as much as 19% year-over-year. The general fraud level across all industries rose to 7% compared to 6% a year ago, but no industry is more vulnerable than fintech.
The financial sector has been in flux with questions about the future of digital banking and cryptocurrency. Financial technology companies are increasingly leaving themselves exposed to higher risks of fraud. Unfortunately, as enhanced technology solutions continue to improve the financial sector, the same strides are being made by bad actors. It’s not enough to match their progress; instead, the fintech industry needs to stay two steps ahead with their digital security solutions in order to protect themselves and their customers.
This issue is an urgent one – the longer financial technology companies take to adopt new security measures, the fewer options they will have to solve their incoming fraud concerns. Over the past year, 45% of fintech firms have invested in valuable artificial intelligence and machine learning technology. Once the true risk is properly understood, reluctance to adopt new technologies will inevitably subside – but this requires admitting your institution is vulnerable to fraud.
Especially in the midst of a global pandemic, fintech has become a necessary and powerful industry, as the global market is expected to reach over $324billion by 2026, growing at an annual rate of 23.41%. Businesses and consumers alike rely heavily on these breakthrough technologies, but the more we open the door with our data, the more our walls are left defenceless to fraudsters. It’s no surprise that as demand for fintech services rise, so too does their attractiveness for bad actors. The most prevalent and aggressive method of fraud plaguing the fintech sector is recurring, pattern-based attacks. After seeing a slight dip in the first half of 2020, the fintech sector saw a dramatic 99% increase in recurring fraud during the first half of 2021.
One of the primary methods used in this type of fraud is velocity abuse. Once a fraudster has broken through and infiltrated the system, they will abuse this weakness over and over, committing identity fraud with numerous different users, fake identities or documents without being detected. When battling this complex problem, it’s important to know where to look. Identity fraud is the most common method of fraud in fintech, representing 52% of recording fraud attacks, with fraudsters using ID cards the most (58%) for their illicit verifications, followed by driver’s licenses (23.81%), and passports (16.82%).
Let’s face it – common authentication methods like single verification or one-time passwords are no longer sufficient to combat these dynamic and sophisticated schemes. In order to minimise fraudulent account takeover, we need to address the source. Incorporating more comprehensive solutions such as face-matching are the best methods for securing accounts easily and efficiently the first time. The emerging technological advancements in AI can also be utilised to analyse ID photos and crosslink incoming sessions with previous attempts, which can help track fraudsters impersonating real people.
Vigilance is paramount for the fintech industry when it comes to identifying and ultimately combating fraud. As long as weaknesses are present, individuals seeking to do harm will exploit them. The tallest, strongest towers are worthless if one does not anticipate they can be toppled. In order to build a castle truly immune to fraudulent attacks, fintech business leaders must arm themselves with the knowledge of their vulnerabilities and the proper identification weapons to hold down the fort.