A Deep Dive Into Wire Fraud and Business Email Compromise

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Consumers demand for fast and convenient payments channels has increased opportunities for fraudsters to target financial institutions and their customers.

With wire fraud and business email compromise (BEC) attacks increasing, it is critical that banks remain vigilant to prevent fraud losses and reputational risks. We are sharing unparalleled data-driven insights into the current fraud landscape that we uncovered through the Verafin Cloud, with a deep dive into wire fraud and BEC. The Verafin Cloud contains an immense set of anonymized data from over 3,000 financial institutions, comprising $4 trillion in assets. Importing core, ancillary, open-source, third-party and consortium data, and analyzing over a billion transactions a week in the Verafin Cloud, we can accurately identify emerging fraud trends and create a substantial set of labeled fraud data to train machine learning analytics for fraud detection.

The Main Target for Wire Fraud
Criminals are constantly searching for weaknesses in banks’ wire fraud controls and will shift tactics to target points of least resistance – often your own customers. Criminals have refocused their efforts to leverage your customers as an attack vector, targeting them with known fraud scams. Statistics from the Verafin Cloud show that nearly three-quarters (74%) of all wire fraud cases targeted individuals, with elderly persons accounting for 63% of all people victimized by wire fraud.

BEC Behind Majority of Loss
While individuals were more frequently targeted by wire fraudsters, data in the Verafin Cloud shows that businesses sustained 73% of all financial losses to date, driven largely by BEC schemes. While most BEC attempts in our analysis involved wire transactions, 24% of BEC occurrences involved ACH transfers, demonstrating this channel is not immune to attack. A high value, high speed, and widespread scheme, BEC has become the No. 1 reported crime to the FBI, and is an ever-increasing threat to all banks.

Payee Risk Analysis
At many banks, a wire sent to a first-time beneficiary is automatically considered high risk. This assumption creates undue friction for your customers, as well as massive alert volumes — especially when a large proportion of wires from banks are destined for new recipients. This figure was substantial in our data: 23% of wire transfers were directed towards new payees for a customer. Banks should consider technology that provides visibility into the transaction counterparty in real time to ascertain whether a wire recipient is truly suspicious or has a trusted history of activity at other institutions.

A Step Ahead
Wire fraud is a growing threat for financial institutions. As fraud schemes evolve and become more sophisticated, wire transfers —which can be high value and irrevocable — are the perfect target for fraudsters. As criminals increasingly target your customers with a variety of fraud scams and schemes, banks must remain vigilant and ensure that holistic fraud detection and management solutions are in place to prevent loss and stay a step ahead of financial crime.

Six Ways to Grow Treasury Department Revenue

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retail-6-6-19.pngBankers looking to grow revenue from their treasury departments will need the support of branch staff to drive the effort.

Banks large and small sometimes struggle to maximize the lucrative opportunity of their treasury departments. To increase revenue, it is vital that employees in the branch discuss treasury products with new and existing customers. Here are six steps to get started.

Step 1: Create a Top-Down Directive
Everyone from the bank president to newly hired employees should understand the importance that treasury revenue plays in overall operations. Banks should not rely on branch staff to execute this initiative. Leadership must prioritize discussing and promoting treasury products if they hope to see a pickup in demand and improvement in revenue. All employees should be on board, and there should be a top-down directive from upper management on the importance of cross-selling treasury products.

Step 2: Set Goals and Metrics for Employees
After bank leadership has discussed the importance of treasury products and how they can serve customers’ needs, they should set measurable and attainable goals for branches and staff.

Banks should monitor and track the actual performance against the set goals over time and follow up on them. Recognize bank employees that meet or exceed expectations, which will boost motivation.

Step 3: Run an ACH Report
Tap into existing customers by mining Automated Clearing House data. Merchant services providers can provide a list of ACH descriptors that allows banks to identify customers who are using processing services outside the bank. From there, executives will need to determine what other products their existing customers are using. These leads are invaluable, and this is an easy way to identify cross-selling opportunities for existing customers who already have a trusted relationship with the bank. Banks should assign an employee to follow up with all the customers on these reports.

Step 4: Incentivize Referral Activity
Executives should incentivize their employees to promote treasury products through referral bonuses, commissions, referral campaigns and recognition. Use these campaigns regularly, but change them so they remain enticing for employees. One place to start could be with a quarterly referral campaign partnered with the current merchant services provider, which can be mutually beneficial and bolster excitement about treasury department offerings.

Step 5: Require Treasury Products with New Business Loans
Banks can also require customers to add certain treasury products as a loan covenant on new business loans. However, they should take pains to consider the needs of the prospective customer before requiring a product.

Adding this requirement means it will be vital to have treasury management specialists involved in initial meetings with prospective customers. After a proper needs assessment, they can craft a customized proposal that includes treasury products that will be of most use to the customer.

Step 6: Educate Staff
Bank employees will always be hesitant to bring up products that they do not fully understand, and may be concerned about asking questions. Education is central to combatting this, and the success of any effort to promote a bank’s treasury department.

Banks should implement cross-training seminars to educate all employees about product offerings. It should also be ongoing to keep employees engaged, and can include webinars, lunch-and-learns and new employee boot camps, among other approaches.

The Great Payments Opportunity

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payments-5-20-19.pngBanks have an opportunity to deepen relationships with their corporate customers facing payment challenges. One promising product could be integrated receivables solutions.

While most business-to-business payments are still done through paper check, electronic payments are growing rapidly. Paper checks remain at about 50 percent of business-to-business payments, according to the 2016 Electronic Payments Survey by the Association for Financial Professionals. But Automated Clearing House payments grew 9.4 percent in 2018, according to the National Automated Clearinghouse Association — a trend that is forcing businesses with high receivables volumes to look for ways to process electronic payments more efficiently.

Electronic payments create unique challenges for bank corporate customers. While the deposit is received electronically at the bank, the remittance and detailed payment information are typically sent separately in an email, document or spreadsheet. The corporate treasurer must manually connect, or re-associate, the remittance information to the deposit, which creates delays in crediting the customers’ account. As electronic ACH volumes increase, treasurers solve this problem by hiring more accounting staff to reconcile these payments.

Corporates also face added complexity from payment networks, which are becoming a more common way for large companies to pay their suppliers. While more efficient for the payer, this process requires treasury staff to log onto multiple payment network aggregation sites and download the remittance information. These downloaded files require manual re-association to the payment in order to credit the customer’s account, which requires adding more staff.

Corporates are also using mobile to accept field payments, like collecting payment on the delivery of goods or services, new customer orders or credit holds and collections. However, mobile payments again force treasurers to manually reconcile them. Moreover, most commercial banking mobile applications are designed for the treasurer of the business, with features such as balances, history and transfers. Collecting field payments needs to be configured so that field representative can simply collect the payments and remittance.

The corporate treasurer needs increased levels of automation to solve these challenges and problems. Traditional bank lockbox processing was designed for checks and relies on manual entry of the corporate’s payments and delivery of a reconciled file. This paper-based approach will be insufficient as more payments become electronic.

Treasurers should consider integrated receivables systems that match all payments types from all payment channels using artificial intelligence. A consolidated payment file updates the corporate’s enterprise resource planning system once these payments are processed. The integrated receivable solution then provides the corporate with a single archive of all their payments, rather than just a lockbox.

Right now, corporate customers are looking to financial technology firms for integrated receivable solutions because banks are moving too slowly. This disintermediates corporate customers from the banks they do business with. But almost 73 percent of corporate treasurers believe it is important or very important for their bank to provide integrated receivables, according to Aite.

This is an opportunity for bankers. The integrated receivable market offers many software solutions for banks so they can quickly ramp up and meet the needs of their corporate customers.

Bankers have a wide range of fintech partners to choose from for integrated receivables software and should look for one with expertise and knowledge of the corporate market. The solutions should leverage artificial intelligence and robotic process automation to process payments from any channel, include security with high availability and be easy for the bank and corporate customers to use.

How And Where Blockchain Fits in Traditional Banking

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blockchain-12-26-18.pngMany banks haven’t found an efficient way to deal with issues like payment clearing inefficiencies, consumer fraud, and the general limitations of fiat currencies.

Blockchain, however, may be the go-to solution for many of these challenges.

Issues Traditional Banks Face Today
Traditional banks and financial institutions have faced some challenges for decades, but we have yet to see the technical innovations to mitigate or eliminate them, including inefficient payment clearing processes, fraud and currency options.

Inefficient Payment Clearing Processes
One of the biggest roadblocks that banks face today is how to quickly clear payments while complying with regulatory procedures. The number of payment clearing options available in 2018, is not different from the options available in 2008 – a decade ago.

In the U.S., for example, same-day ACH is likely considered to be the biggest improvement during this decade. Only in recent years have cross-border fintech applications emerged that reduce payment clearing costs and wait times. For the most part, we are still stuck with old architectures that lack innovation, efficiency and the data to make a meaningful impact on money laundering and fraud reduction.

Inability to Stop Fraud
Fraud has always been notoriously difficult to stop. Unfortunately, this remains the case even today. Fraud costs are so high in the US, that interchange fees paid by merchants are some of the highest in the world. Despite an increase of available identity fraud detection systems, banks are still unable to make a material improvement in fraud reduction.

For banks, this leads to financial losses in cases where funds are paid to the fraud victim. For customers, this can reduce trust in the bank. For merchants, it means higher fees for facilities, which creates higher costs for customers. Additionally, customers often wait to receive a new bank card. In 2017 alone, the cost the data lost to identity theft totaled $16.8 billion.

Limited Number of Currency Options
Fiat currencies are limited by geography and slim competition.

When we think about fiat currency around the globe, we have seen a steady move towards standardization. This presents risks for banks and consumers. For example, a heavy reliance upon a single national currency relies upon factors like economic growth and monetary policy.

Twenty-eight nations have experienced hyperinflation during the past 25 years. Not only did banks fail in some cases, but entire economies collapsed. Because there were no currency choices, the problem could not be easily avoided.

This process continues to happen in many locations globally.

Benefits of Blockchain Over Traditional Systems
There are ways blockchain can reduce or eliminate these issues for financial institutions.

More Efficient Approval Systems
When compared to traditional payment approval processes, many blockchains are already more efficient. Instead of waiting days for payments to go through clearinghouses, a well-designed blockchain can complete the verification process in minutes or seconds. More importantly, blockchain also offers a more transparent and immutable option.

With innovations like KYC (Know Your Customer) and KYT (Know Your Transaction) transactions conducted via blockchain, banks can be more capable of preventing finance-related crimes. This means traditional finance can more effectively comply with laws for AML (Anti-Money Laundering), ATF and more.

In addition, legitimate transactions can be approved at a lower cost.

No More Fraud
While fraud seems like a pervasive issue in society, this can be reduced using technology. Blockchain can change how people prove identity and access services.

Instead of having to wait to stop a case of fraud, blockchain can stop transactions before they ever occur. The Ivy Network will have smart contracts which will allow banks and financial institutions to review a transaction and supporting KYC and KYT before accepting the deposit. Because blockchain transactions are immutable, we could see a reduction in counterfeiting of paper currency and consumer products.

Increased Digital Payment Options
While blockchain has many use cases, this is one example of how technology can change finance and the global economy. In the early days of cryptocurrency, there was really only bitcoin. Now, there is a range of coins and tokens like Ivy that serve important purposes within existing regulatory and legislative frameworks.

One of the biggest misconceptions is crypto and fiat payment systems have to be direct competitors. By creating a blockchain protocol that links fiat and cryptocurrency, businesses and consumers can have more, better market choices and use cases for cryptocurrency.

At the same time, financial institutions can serve an important role in the future of digital payments and fiat-crypto currency conversions.

As financial institutions look to solve many challenges they face around payment clearing inefficiencies, consumer fraud, and the limitations of fiat currencies, blockchain is a viable solution. Financial institutions that fail to embrace blockchain’s potential will face heightened monetary and reputational risks, and miss opportunities for growth and innovation.