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WHITE PAPERFighting Fraud in FinancialServices: A Guide toChoosing the RightTechnology SolutionAbstractFraud detection and prevention pose a bigchallenge to the nancial services industry.Banks and nancial institutions typicallyinvest signi cant time and resources oncombating fraud and nancial crime. A keycomponent of these programs is the softwaresolution used to monitor, detect, and reportsuspicious or fraudulent activity within nancial institutions. This paper highlightsthe critical factors that must be considered inselecting the right fraud solution for fraudcontrol.
WHITE PAPERThe Evolving Fraud LandscapeIn response to the rising customer demand, banks and nancialinstitutions are investing heavily in enabling digital servicesthrough multiple channels. This has expanded the attack surfaceand created new vulnerabilities that fraudsters exploit byemploying sophisticated fraud tactics.Banks’ fraud detection and prevention solutions, on the otherhand, are unable to keep pace with fraudsters’ shiftingtechniques as evidenced by the rapid rise in cybercrime in the nancial services industry. In addition, enforcing properbusiness conduct and ensuring adequate internal supervisoryprocedures and systems to control fraud are key imperatives forbanks, failing which they are liable to be ned heavily (somesuch instances have been listed below).nThe Citigroup was ned over 10 million by the Securitiesand Exchange Commission (SEC) over inaccurate books andrecords, inadequate trader supervision, and poor internalaccounting controls. Lack of adequate controls to verifyinvoices and documents submitted by a borrower resulted in1Citigroup losing around 475 million.nThe US Department of Justice has charged 15 individuals in amulti-million dollar international money laundering and fraudscheme. Bank accounts opened in the names of shellcorporations were used to perpetrate the fraud ofapproximately 94 million.2nThe US Department of Justice has imposed a civil penalty of 2.09 billion on Wells Fargo under the Financial Institutions,Reform, Recovery, and Enforcement Act for originating andselling mortgage loans containing misstated income.3Clearly, nancial institutions must make a step change in theway they approach fraud detection and prevention. What isrequired is a change in the mindset – to embrace risk byadopting next-gen solutions based on Big Data and analytics,arti cial intelligence (AI), and machine learning (ML) algorithmsbesides establishing and enforcing strong supervisory controls.Equipped with real-time detection capabilities, such solutionswill enable banks to respond quickly to suspicious activities,proactively prevent fraud, and control and manage nancial riskmore ef ciently. However, not all solutions available in themarket incorporate out-of-band (OOB) capability or utilize MLand AI technologies.
WHITE PAPEREmerging Trends in Fraud Detection andPreventionBanks are moving away from standalone fraud detection andprevention systems to enterprise-wide predictive riskassessment frameworks that incorporate analytics and real-timedetection capabilities. Some emerging trends driving next-genapproaches to fraud detection and prevention include:Centralized data repositoryBanks are establishing centralized data repositories with dataspanning customer accounts and transaction data from multiplechannels and product systems as well as external sources suchas social data. By leveraging high performance computingtechnologies, banks are analyzing massive amounts of data inreal time and building comprehensive pro les of customers thatcan be utilized for investigation of money laundering and fraudas well as for surveillance operations.Real-time detectionAdoption of fraud solutions that enable in depth analysis ofinternal and external data for real time fraud identi cation isgaining traction. Entity analytics and graph visualizationtechniques are used to detect underlying patterns andanomalies that exist in data.Predictive fraud modelsRule based fraud identi cation is being augmented bysophisticated predictive fraud models fueled by analytics onenormous amounts of data. To enhance the predictivecapabilities of the model, advanced analytical techniques suchas pattern analysis to identify anomalous behavior and linkanalysis to detect hidden frauds are being leveraged.Enterprise case managementBanks are leveraging enterprise case management to improvethe ef ciency of investigation work ows. Data visualization toolsfor faster decision-making and robotic automation for optimalbusiness processes are other common trends being seen.Next-gen authentication mechanismsInnovative, secure authentication mechanisms that do notimpact customer experience are being adopted. Banks areemploying a variety of authentication mechanisms thatseamlessly verify customers’ identity through multipletechniques such as voice and speech analytics, desktopanalytics, and so on.
WHITE PAPERMaking the Right Choice: EvaluatingSolution OptionsImplementing the right solution is key to nancial crimeprevention. The core solution engine is a key enabler inensuring effective detection and reporting of fraudulent activitiesto regulators. Thus choosing the right fraud solution vendorafter a thorough evaluation of critical organizational factors andbusiness requirements assumes importance. Based on ourexperience of working with multiple global clients, we haveidenti ed some key capabilities that must be part of a futuristicfraud detection and prevention solution (see Table 1).CategorySub-CategoryMarket potentialIndustry experienceCustomer support and professional servicesPricing modelTechnology coverageSecurity and controlsScalability and performanceInfrastructure compatibilityProduct and services coverageAdvanced analyticsData and analytics platformFunctional coverageScenario coverageHistorical data migrationUpgrade methodologyReporting coverageMulti-geography supportTable 1: Capabilities of an Effective Fraud SolutionEvaluation methodologyIn our view, a holistic assessment must map vendors’capabilities to the capabilities listed in Table 1 and evaluatethem against the key criteria shown in Table 2. In addition,based on multiple consulting assignments, we have assignedweightages to demonstrations (proofs of concept) basis the rstfour criteria in Table 2. However, these criteria and theweightages can be customized to suit individual bank’spriorities.
WHITE PAPERCriteriaRationaleMode of ity of the organization and its strategies,policies and systems to the bank's landscapeDemonstration andquestionnaire10Requirement tmentAbility to support key functional areas and meet theidenti ed capability requirementsDemonstration andquestionnaire30User experienceQuality and consistency of the user experienceDemonstration andquestionnaire10Technical tmentTechnical capabilities spanning infrastructurearchitecture, security and compliance, as well as theef cacy of service levels and supportDemonstration andquestionnaire20Total cost ofownershipTotal investment needed for the software, hardware,hosting, support, maintenance and updates over a ve-year period.Questionnaire20Insights from client referencesCalls to clients10Clientreferences/track recordTable 1: Capabilities of an Effective Fraud SolutionIndividual banks must de ne the criteria for selecting the rightvendor based on their speci c organizational priorities.Assigning weightages to important product features andfunctionalities ensures a holistic assessment of vendors’capabilities. Quantitative scoring of qualitative information helpsbanks rank different vendors’ products and facilitates theselection of the right product.The Bottom LineThe implementation of a next generation fraud solution willdeliver myriad bene ts such as reduced total cost of ownership,enhanced staff productivity, and visibility into fraud exposure,besides helping rms to protect their reputation and brand.Fraudsters, however, will always nd new ways to commit fraud;selecting the right fraud solution thus becomes a criticalcomponent of the larger nancial crime compliance program.Choosing the right vendor will require banks to undertake acomprehensive evaluation process spanning current stateassessment and demonstrations from vendors based onoperational, domain, and technical requirements to helpevaluate and identify the vendor to partner with. Financialinstitutions must therefore adopt solutions capable of handlingemerging fraud trends to reap substantial returns oninvestment.
WHITE PAPERReferences1. US Securities and Exchange Commission, Citigroup to Pay More Than 10 Million forBooks and Records Violations and Inadequate Controls, Aug 2018, Nov 55-02. US Department of Justice, Fifteen Individuals Charged in Multi-Million DollarInternational Money Laundering and Fraud Scheme, Oct 2017, Nov 2018,https://www.justice.gov/usao-sd /pr/ rnational-money-laundering-and3. US Department of Justice, Wells Fargo Agrees to Pay 2.09 Billion Penalty forAllegedly Misrepresenting Quality of Loans Used in Residential Mortgage-BackedSecurities, Aug 2018, Nov 2018, uality-loans-used
WHITE PAPERAbout The AuthorAnirudha JadhavAnirudha Jadhav is a domainconsultant in the Financial CrimeCompliance (FCC) group of TCS'Banking, Financial Services, andInsurance business unit. Withover 12 years of industryexperience, he is responsible forthought leadership, strategyconsulting, solution design, andinnovation in the area of FCC forseveral of TCS' BFSI clients inNorth America. Jadhav is alsoresponsible for building solutions,frameworks, consulting, and presales support. He holds aBachelor's degree in ComputerScience Engineering from ShriGuru Gobind Singhji College ofEngineering, Swami RamanandThirth Marathwada University,Maharashtra, India.ContactVisit the Banking & Financial Services page on www.tcs.comEmail: bfs.marketing@tcs.comBlog: Drive GovernanceSubscribe to TCS White PapersTCS.com RSS: http://www.tcs.com/rss feeds/Pages/feed.aspx?f wFeedburner: http://feeds2.feedburner.com/tcswhitepapersTata Consultancy Services is an IT services, consulting and business solutionsorganization that delivers real results to global business, ensuring a level ofcertainty no other firm can match. TCS offers a consulting-led, integrated portfolioof IT and IT-enabled, infrastructure, engineering and assurance services. This isdelivered through its unique Global Network Delivery ModelTM, recognized as thebenchmark of excellence in software development. A part of the Tata Group,India’s largest industrial conglomerate, TCS has a global footprint and is listed onthe National Stock Exchange and Bombay Stock Exchange in India.For more information, visit us at www.tcs.comAll content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here iscorrect at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributedin any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademarkand other applicable laws, and could result in criminal or civil penalties. Copyright 2018 Tata Consultancy Services LimitedTCS Design Services I M I 11 I 18About Tata Consultancy Services Ltd (TCS)
Fighting Fraud in Financial Services: A Guide to Choosing the Right Technology Solution Abstract Fraud detection and prevention pose a big challenge to the nancial services industry. Banks and nancial institutions typically invest signi cant time and resources on combating fraud and nancial crime. A key
