How digital banking is transforming fraud detection?

Updated On : May 2018

The new Digital Banking may be observed as acceptance of various prevailing and developing technologies by the banks, in concern with related changes in internal operations as well as external interactions for providing greater customer services and experiences efficiently and professionally.

The newer technologies incorporated by financial institutions are making them increasingly vulnerable to numerous risks such as phishing, card skimming, SMSishing, spyware and adware, Loan loss, identity theft, social engineering, website cloning and cyber stalking, viruses and Trojans, Money laundering, Black money and Cybercrime.

Recent innovative financial services such as mobile wallets have also been targeted by fraudsters. Likewise, money management tools are becoming more and more vulnerable to cyber threats and related frauds.

Current Scenario

Regulations and laws governing the financial services sector in India are continuously evolving. For any emergent organisation, it is critical to keep up with the changing laws in order to mitigate risk and stay ahead. By taking short-term footsteps to acclimate to the regulatory amendments, we can elude long-term consequences which will impact the business future of a financial institution.

Financial institutions are augmenting their processes, controls and fraud risk management frameworks to minimise the chances for fraud as well as decrease the time taken in their detection.

Funding for fraud control initiatives, however, continues to compete with other business initiatives and is mostly challenged on a cost–benefit basis.

Several FIs are thus implementing their fraud control and reporting frameworks to generate information in a way that the level of fraud recognized, prevented and actual losses incurred are identified. This methodology has enabled the benefits of skilled resources and automated tools to be measured more accurately.

The Role of Regulators

Regulators and investigative agencies are trying to gear up for the transformed environment. In 2012, the Central Bureau of Investigation (CBI) proclaimed that it is developing a Bank Case Information System (BCIS) to control banking frauds. The RBI has released a new framework to check loan frauds by way of early warning indications for banks and red flagging of accounts where defaulters shall have no access to further banking finance.

It also strategies to set up a Central Fraud Registry which can be accessed by all Indian banks. The process of setting up a fraud repository will be practiced in order to reduce monitoring costs, using unconventional detection and prevention systems deployed at the industry level. The initiative is projected to identify fraudulent claims right at the processing stage, before the payment occurs, and is intended to ensure enhanced screening of proposals at the underwriting stage.

This project aims at starting an industrywide single fraud database that will eradicate the need for individual insurers to do the same, and targets to guarantee better flow of data. SEBI is in the process of getting its existing business intelligence gathering software, which is used for identifying fraudulent activities in capital markets.


Financial services industry is undergoing a big digital revolution. As there is an increase in the competition the consumers have many options, hence to deliver a world class & full proof seamless user experience is the key to owning & maintaining the customer relationship. This space of ever changing technology is motivating the banks to build & serve their customers with a strong & user-friendly fraud protection system. Finding a niche between the opportunities and risks will only require a new approach to fraud detection that leverages machine learning and advanced analytics to minimize risks and hence can prove to be the winning strategy.

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