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How do we combat fraud effectively?

Banking and insurance are the main sectors concerned with KYC procedures, but they are far from the only ones.

Fraud on the rise? 

The widespread use of teleworking, the proliferation of online shopping, the rise of neobanks, and the advent of cryptocurrencies: in recent years, our working and consumer habits have changed dramatically… much to the delight of fraudsters! For them, the COVID-19 health crisis has multiplied the loopholes and, therefore, the opportunities: from distracted employees to weakened companies, they have taken advantage of the insecurity generated by the pandemic. 

Because employees working outside the company’s secure networks were not the only targets of fraudsters, observers noted an increase in the theft of synthetic identities during the same period, i.e., identities created from a mixture of real and false personally identifiable information. Fraud is everywhere, sparing no one and no sector.

A business open 24 hours a day 

This feeling is all the stronger as there seems to be no respite. Before the health crisis, attacks peaked at the beginning of the week, then declined until reaching their lowest levels at the weekend. Since then, the habits of fraudsters, like our own, have changed. Tuesday, Thursday, Saturday, …: weekdays are no longer necessary to them. They even operate at weekends, all day long, aided by the hyperconnectivity of our societies. 

But fraudsters still need to adapt their opening hours. Their methods, too, have adjusted. Fraudsters now prefer quantity to quality, massive attacks on computer systems to targeted blows. The problem? This flood of less sophisticated attacks diverts attention from the rarer but more ingenious fraud. That’s why it’s so essential for companies to automate fraud detection. Otherwise, they risk needing to be sufficiently protected against large-scale and more sophisticated attacks. 

Fact of the day: 46% of companies reported having been victims of fraud in the last 24 months. 

Fraudsters are as inventive as ever

This is all the more important as fraudsters are not lacking in imagination. Identity fraud is a case in point. Fraudsters could stick to creating hybrid identities. To do this, nothing could be “simpler”: take the elements of a genuine identity, such as name or social security number, and modify them enough to give the impression that it is indeed a real identity. The problem? Hybrid identity fraud is easy to spot. They’re even more accessible to spot when they contain a large amount of accurate data. This makes it easier to cross-check with the real identity. 

Another type of identity theft is synthetic identity fraud. With these, detection by simple data cross-checking is more complex. Which doesn’t mean we have to give up! However, identity verification processes that meet the requirements of KYC regulations prevent them from falling through the cracks. How do they do this? By combining identity document verification and biometric testing. 

The cost of fraud

Getting punished

Above all, they prevent companies and organizations from being penalized. In some sectors, KYC remains a legal obligation. This is particularly true of the financial, insurance, and mutual insurance sectors. European and national regulations oblige players in these sectors to check the identity of their customers and the traceability of their transactions. And if they fail to do so? The regulator is uncompromising. In 2022 alone, the sanctions committee of the French banking regulator, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), fined financial institutions over 14 million euros for failing to meet their regulatory obligations. Of the 39 grievances, more than a third concerned the KYC process. The fines can be substantial. A major insurance company can testify to this. It was fined 3.5 million euros for shortcomings in the fight against money laundering and the financing of terrorism. 

However, fraud and identity theft are not problems unique to the finance or insurance sectors. Real estate, cryptocurrencies, and telecommunications are also affected by this issue. Moreover, all these sectors, as well as energy, mobility, insurance, and online gaming, are not immune to potential fraudsters who would involve their customers in contentious actions. 

Paying a high price

They are just as exposed to another type of penalty. Fraud costs companies dearly. According to the International Monetary Fund (IMF), the volume of money laundering worldwide is between 2% and 5% of the Gross Domestic Product (GDP), or around 233 billion euros. That’s twice the size of France’s budget… It’s easy to see why the fight against money laundering is essential to corporate strategy. 

UK Finance, the trade association for the British banking and financial services sector, estimates that fraudsters will have embezzled more than 700 million euros in the first half of 2022 alone. As for identity theft, the figures are no more reassuring: synthetic identity fraud is estimated to have cost $20 billion! Therefore, not opting for a KYC process would be tantamount to exposing yourself to a double penalty – paying twice! 

Tools to combat fraud effectively

Prevention rather than cure 

However, solutions do exist to combat fraud effectively. The first line of defense? Onboarding, because this is where fraud detection must begin. For a potential customer, onboarding represents the first contact with a company. That’s why it’s essential to associate an identification interface with this stage and, if possible, one that’s as accessible. 

Another tip: don’t rely on a single approach to detecting and preventing fraud. As we have seen, fraudsters redouble their ingenuity to circumvent defense systems and invent new means of action. Companies make themselves more vulnerable by relying on a single form of verification. Hence, it is essential to adopt a multi-layered approach to fraud detection. 

Check who you’re dealing with

This is all the more true given that fraudsters now prefer quantity to quality. That’s why it’s so essential for companies to rely on a trusted third party to integrate an automated KYC process. Solutions such as those we offer enable the capture of identity documents in real-time. The benefits? There are many! These include direct analysis of document security features and automatic recognition of the type of document transmitted. 

Once the information has been automatically extracted, it is checked for veracity and authenticity. At be ys, we do it twice! Our AI carries out an initial analysis in just a few seconds. If this analysis proves incomplete, our experts can take over to ensure all the guarantees of an effective fight against fraud and 100% identity recognition. We can guarantee this because we verify identity using facial recognition tools based on selfies and videos. And, I’m sure you’ll agree, it’s a real asset to verify in real-time that the person behind the screen is whom they claim to be! Particularly in a context of digitalization and the omnipresence of distance, such as the one in which we live and work. 

To go further

n addition to the penalties they risk exposing themselves to by failing to implement KYC processes, companies pay a high price for fraud. Annually, an estimated 233 billion euros go up in smoke due to money laundering. 

Which stage of the business relationship represents the most significant fraud risk for companies? 

There's no single recipe for stopping fraud. But a well-deployed, automated identity verification process is a solid bulwark against fraud and identity theft for companies and customers. 

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