Article

Payments fraud: perception versus reality - a conference summary

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Abstract

The authors highlight key issues from the presentations, keynote addresses, and open floor discussions at the Federal Reserve Bank of Chicago's eighth annual Payments Conference. The conference's agenda appears at the end of this article.

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... Recent literature categorizes fraud by the person conducting it and differentiates between first-party and third-party fraud. In first-party fraud, a legitimate customer betrays the bank, whereas in third-party fraud, the customer becomes a victim of criminals who steal identities, use lost or stolen cards, counterfeit cards, or gain unauthorized access to customer accounts by other means (Gates and Jacob, 2009;Greene, 2009). This study focusses on third-party fraud. ...
... Nowadays, customers rely heavily on the web for their banking business, leading to an increase in the number of online transactions (Berney, 2008). Fraudsters react to these changes as the internet provides them with more opportunities to attack customers (Gates and Jacob, 2009). On the web, customers are not physically present to authenticate transactions, which facilitates fraud (Malphrus, 2009;Gates and Jacob, 2009). ...
... Fraudsters react to these changes as the internet provides them with more opportunities to attack customers (Gates and Jacob, 2009). On the web, customers are not physically present to authenticate transactions, which facilitates fraud (Malphrus, 2009;Gates and Jacob, 2009). Orad (2010) even claims that the internet allows criminals to organize as a network, supporting each other in their attacks. ...
Article
Purpose The purpose of this paper is to establish a conceptual as well as an empirical link between retail banks’ activities to protect their customers from third‐party fraud, the quality of customer relationships, and customer loyalty. Design/methodology/approach A conceptual framework is developed linking customer familiarity with and knowledge about fraud prevention measures, relationship quality, and customer loyalty. To empirically test the conceptual framework, data were collected in collaboration with a large German retail bank. Findings A positive association was found between customer familiarity with and knowledge about fraud prevention measures and the quality of customer relationships as measured by satisfaction, trust, and commitment. The quality of customer relationships, in turn, is positively associated with customer loyalty as measured by intentions to continue their relationship with and cross‐buy other products from their bank. Research limitations/implications The paper focuses on the German retail banking market and uses data from only one bank. Future research may investigate the generalizability of the findings across other banks, as well as other countries. Moreover, future research could address how specific anti‐fraud instruments and their communication differentially affect customer satisfaction, trust, and commitment. Practical implications The results stress the importance of fraud prevention for retail banks and show that besides the financial objective of reducing operating costs, fraud prevention and its effective communication is a meaningful way to improve customer relationship quality and, ultimately, customer loyalty. Originality/value This is the first academic study to empirically examine the relationship between a retail bank's (communication about) fraud prevention mechanisms and the quality of their customer relationships.
... Technology is like a double-edged sword, which can be used to perpetuate, detect and prevent frauds‖ (Bhasin, 2013). However, Gates and Jacob (2009) have pointed out that -the misuse of technology in the banking includes use of banking access for over-payments to vendors, sharing confidential information, and misuse of technology for unauthorized activities.‖ Also, providing services on mobile and social media platforms, with limited knowledge of security requirements, poses lot of threats to customers and banks (ACL, 2015). ...
... For example, Berney (2008) observes that customers rely heavily on the web for their banking business, which leads to an increase in the number of online transactions. Similarly, Gates andJacob (2009), andMalphrus (2009) have asserted that -the internet provides fraudsters with more opportunities to attack customers, who are not physically present on the web to authenticate transactions.‖ Fraud, however, is a major component of operational risk. ...
... For example, Berney (2008) observes that customers rely heavily on the web for their banking business, which leads to an increase in the number of online transactions. Similarly, Gates andJacob (2009), andMalphrus (2009) have asserted that -the internet provides fraudsters with more opportunities to attack customers, who are not physically present on the web to authenticate transactions.‖ Fraud, however, is a major component of operational risk. ...
Article
Full-text available
Banks are the engines that drive the operations in the financial sector, money markets and growth of an economy. With the rapidly growing banking industry in India, frauds in banks are also increasing very fast, and fraudsters have started using innovative methods. As part of the study, a questionnaire-based survey was conducted in 2013-14 among 345 bank employees to know their perception towards bank frauds and evaluate the factors that influence the degree of their compliance level. In the modern era, there is ―no silver bullet for fraud protection. The use of neural network-based behavior models in real-time has changed the face of fraud management all over the world. Banks that can leverage advances in technology and analytics to improve fraud prevention will reduce their fraud losses. Recently, forensic accounting has come into limelight due to rapid increase in financial frauds or white-collar crimes. Some other promising steps to control frauds are: educate customers about fraud prevention, make application of laws more stringent, leverage the power of data analysis technologies, follow fraud mitigation best practices, and employ multipoint scrutiny. In 2015, the RBI has introduced new mechanisms for banks to check loan frauds by taking pro-active steps by setting up a Central Fraud Registry, introduced the concept of Red Flagged Account, and Indian investigative agencies (CBI, CEIB) will soon start sharing their databases with banks. Although banks cannot be 100% secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risk.
... Technology is like a double-edged sword 9 , which can be used to perpetuate, detect and prevent frauds." However, Gates and Jacob 10 have pointed out that "the misuse of technology in the banking includes use of banking access for over-payments to vendors, sharing confidential information, and misuse of technology for unauthorized activities." Also, providing services on mobile and social media platforms, with limited knowledge of security requirements, poses lot of threats to customers and banks. ...
... For example, Berney 13 observed that customers rely heavily on the web for their banking business, which leads to an increase in the number of online transactions. Similarly, Gates and Jacob, 10 and Malphrus 14 have asserted that the internet provides fraudsters with more opportunities to attack customers, who are not physically present on the web to authenticate transactions. Fraud, however, is a major component of operational risk. ...
Article
Full-text available
Objective: Fraud is a worldwide phenomenon that affects all continents and all sectors of the economy. With the rapidly growing banking industry in India, frauds are increasing fast, and fraudsters have started using innovative methods. Shockingly, the banking industry in India dubs rising fraud as an inevitable cost of business. One of the most challenging aspects in the Indian banking sector is to make banking transactions free from electronic crime. There is no “one silver bullet” to stop all frauds forever. By leveraging the power of data analysis software, banks can detect fraud sooner and reduce the negative impact of significant losses owing to fraud. Methods: The present study is both descriptive and analytical in nature. As part of the study, in 2013-14 a questionnaire-based survey was conducted among 345 bank employees of the National Capital Region area. The questionnaire was structured into two parts. In fact, the first part comprised of several questions that attempted to know their opinions while working in a bank regarding training received, attitude towards the procedures prescribed by RBI, awareness level towards frauds and their compliance level under the following six heads: deposit account, loans and advances, administration of passbook and check book, drafts section, internal and inter-branch accounts, and credit-card section. Moreover, the second part encompassed the issues about how to integrate technology in the banking industry in order to detect and prevent frauds in Indian banks. It also examined the technology solutions available and how to integrate forensic approach to combat bank frauds in the Indian banking industry. Results: The present study indicates there is limited separation of duties, false documentation, and inadequate or nonexistent control account for 60% of the fraud cases. It found that professional and managerial employees were involved in 45% of the cases. Bank Managers compliance level is the lowest in administration of check/pass book; while highest compliance is noticed in internal checks. Banks in India are not able to follow “zero-tolerance” policy. There is considerable difference in compliance level of employees of various banks on account of differences in the organizational culture, training provided, past experiences and their mental attitudes to strictly follow the RBI procedures. Mostly frauds in the banking institutions are detected through customer complaints, followed by an internal or external tip, which is in line with global trends. Although banks cannot be 100% secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risk. Internal audit professionals should play an integral role in their organization’s fraud fighting efforts. Some of other promising steps to control frauds are: educate customers about fraud prevention, make application of laws more stringent, leverage the power of data analysis technologies, follow fraud mitigation best practices, and employ multipoint scrutiny. Conclusion: Promising steps to control frauds are: educate customers about fraud prevention, make application of laws more stringent, leverage the power of data analysis technologies, follow fraud mitigation best practices, and employ multipoint scrutiny. In 2015, the RBI has introduced new mechanisms for banks to check loan frauds by taking pro-active steps by setting up a Central Fraud Registry, introduced the concept of Red Flagged Account, and Indian investigative agencies (CBI, CEIB) will soon start sharing their databases with banks. Although banks cannot be 100% secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risk.
... In the banking sector, fraud may cause loss of reputation and lead to loss of potential customers (Vousinas, 2016) [101] . In the event of fraud, banks incur substantial operating costs by refunding customers' monetary losses (Gates & Jacob, 2009) [38] , while bank customers experience considerable time and emotional losses which damaged a bank-customer relationship because of shattered trust and confidence. This will, in turn, increased dissatisfaction because of a perceived service failure (Hoffmann & Birnbrich, 2012) [51] and may ultimately lead to bank's poor performance and failure. ...
... In the banking sector, fraud may cause loss of reputation and lead to loss of potential customers (Vousinas, 2016) [101] . In the event of fraud, banks incur substantial operating costs by refunding customers' monetary losses (Gates & Jacob, 2009) [38] , while bank customers experience considerable time and emotional losses which damaged a bank-customer relationship because of shattered trust and confidence. This will, in turn, increased dissatisfaction because of a perceived service failure (Hoffmann & Birnbrich, 2012) [51] and may ultimately lead to bank's poor performance and failure. ...
Article
Full-text available
Bank fraud and the fall of world-leading business organizations have triggered scholars and professionals to reexamine the link between fraud risk management, and the bank's performance. The purpose of this paper is to propose a conceptual framework for measuring fraud risk management (preventive, detective, and responsive fraud risk management), risk culture and bank performance which could be used by banks and regulatory bodies. By theoretically review the relationship between fraud risk management, risk culture, and bank performance by suggesting future research agenda in the area. From the comprehensive review of past researchers in this area, it is found that fraud risk management has a positive relationship with bank performance. Similarly, evidence has shown that risk culture influence bank's performance. As studies that link fraud risk management, risk culture and bank performance are rare this paper will be pioneering in the relationship; this may in a long way aid in making various business decisions.
... Some of the risks considered as operational risks include: incorrect and intentional false accounting, theft of assets or misappropriation of assets. Most banks focus on a limited number of risks commonly of third party thefts but it is important to classify risks to possible type of offence and the potential perpetrators (Gates & Jacob, 2009). Adeyemo (2012) noted that to reduce cases of fraud while enhancing the fraud detection and prevention strategies, businesses must have internal control systems embedded in their operational framework. ...
... Fraud in the banking sector and in deed in all businesses can be reduced if all control devices built into the system are implemented, enhanced and respected. Banks incur substantial operating costs by refunding customers' monetary losses (Gates & Jacob, 2009), while bank customers experience considerable time and emotional losses. They have to detect the fraudulent transactions, communicate them to their bank, initiate the blocking and re-issuance or re-opening of a card or account, and dispute the reimbursement of their monetary losses. ...
Article
This study investigated the impact of fraud on the performance of deposit money banks in Nigeria between the periods from 1994 to 2015. In this study, bank deposit was specified as the dependent variable while the one-period lagged value of bank deposit, amount involved in reported fraud cases, amount lost to fraud and number of staffs involved in fraud cases were used as independent variables. The Generalized Method of Moments (GMM) estimator was employed to analyze the data. This study showed that the amounts involved in fraud cases, amount lost to fraud and number of staffs involved in fraud have a negative and significant influence on the deposit of banks in Nigeria. Meanwhile, the past value of bank deposit has a positive and significant relationship with deposit of banks in Nigeria. The significance of the past value of bank deposit justifies the introduction of dynamism to this study. It was recommended that bank management should not only strengthen their internal control system, but also utilize whistleblowing policy and other "speak-up" mechanisms, which have remained underused and underrated in the Nigerian financial sector, since greater dependence on the process-type fraud detection methods simply encourage complacency.
... Technology is like a double-edged sword, which can be used to perpetuate, detect and prevent frauds‖ . However, Gates and Jacob (2009) have pointed out that -the misuse of technology in the banking includes use of banking access for over-payments to vendors, sharing confidential information, and misuse of technology for unauthorized activities.‖ Also, providing services on mobile and social media platforms, with limited knowledge of security requirements, poses lot of threats to customers and banks (ACL, 2015). ...
... For example, Berney (2008) observes that customers rely heavily on the web for their banking business, which leads to an increase in the number of online transactions. Similarly, Gates and Jacob (2009), and Malphrus (2009) have asserted that -the internet provides fraudsters with more opportunities to attack customers, who are not physically present on the web to authenticate transactions.‖ Fraud, however, is a major component of operational risk. ...
Article
Full-text available
Banks are the engines that drive the operations in the financial sector, money markets and growth of an economy. With the rapidly growing banking industry in India, frauds in banks are also increasing fast, and fraudsters have started using innovative methods. A questionnaire-based survey was conducted in 2013-14 among 345 bank employees to know their perception towards bank frauds, evaluate the factors that influence the degree of their compliance level, and integration of technology to detect, control and prevent frauds. This study provides discussion of the attitudes, strategies, and the technology that bank specialists will need to combat frauds. In the modern era, there is ―no silver bullet for fraud protection; the double-edged sword of technology is getting sharper, day-in-day-out.‖ The use of neural network-based behavior models in real-time has changed the face of fraud management all over the world. Banks that can leverage advances in technology and analytics to improve fraud prevention will reduce their fraud losses. Promising steps to control frauds are: educate customers about fraud prevention, make application of laws more stringent, leverage the power of data analysis technologies, follow fraud mitigation best practices, and employ multipoint scrutiny. In 2015, the RBI has introduced new mechanisms for banks to check loan frauds by taking pro-active steps by setting up a Central Fraud Registry, introduced the concept of Red Flagged Account, and Indian investigative agencies will soon start sharing their databases with banks. Although banks cannot be 100% secure against unknown threats, a certain level of preparedness can go a long way in countering fraud risk.
... For example, Berney (2008) observes that customers rely heavily on the web for their banking business, which leads to an increase in the number of online transactions. Similarly, Gates and Jacob (2009), and Malphrus (2009) have asserted that " the internet provides fraudsters with more opportunities to attack customers, who are not physically present on the web to authenticate transactions. " Fraud, however, is a major component of operational risk. ...
Article
Banks are the engines that drive the operations in the financial sector and growth of an economy. With the growing banking industry in India, frauds in Banks are also increasing and fraudsters are becoming more sophisticated and ingenious. While it is not possible for Banks to operate in a zero fraud environment, proactive steps such as conducting risk assessments of procedures and policies can help them hedge their risk of contingent losses due to fraud. Thus, time has come when the security aspects of the Banks have to be dealt with on a priority basis. As part of the study, a questionnaire-based survey was conducted in 2012-13 among 345 Bank employees “to know their perception towards bank frauds and evaluate the factors that influence the degree of their compliance level.” This study reveals that “there are poor employment practices and lack of effective employee training; usually over-burdened staff, weak internal control systems, and low compliance levels on the part of Bank Managers, Offices and Clerks. However, technology can play a major part in combating new-age frauds: proactive forensic data analysis and data mining techniques can help governments, regulatory bodies and Banks to counter the increasingly complex nature of frauds.
... However, Gates and Jacob (2009) have pointed out that "the misuse of technology in the banking includes use of banking access for over-payments to vendors, sharing confidential information, and misuse of technology for unauthorized activities." Also, providing services on mobile and social media platforms, with limited knowledge of security requirements, poses lot of threats to customers and banks. ...
... The KPMG "India Fraud Survey 2012" states "Despite having a strong regulator, the financial services sector has emerged as the most susceptible sector to fraud. The misuse of technology in the banking sector includes use of banking access for overpayments to vendors or self-bank account, sharing of potential confidential information and misuse of the company"s technology resources for unauthorized activities, which includes conflicting business relationship (Gates and Jacob, 2009). Also, providing services on mobile and social media platforms with limited knowledge of the security requirements, poses lot of threats to customers as well as the financial institutions. ...
... In the banking sector, fraud can lead to loss of reputation and lead to loss of potential customers (Vousinas, 2016). In the case of fraud, banks incur high operating costs by repaying customer losses (Gates & Jacob, 2009), while bank customers experience a lot of time and emotional losses that damage the bank's relationship with the customer due to despair and confidence. Subsequently, this will increase dissatisfaction due to perceived service failures (Hoffmann & Birnbrich, 2012) and may ultimately lead to poor performance and bank failure. ...
... Recent literature differentiates between first party and third party fraud. In first party fraud, a legitimate customer betrays the bank, whereas in the third party fraud, the customer becomes a victim of the fraudsters who steal identities, use lost or stolen cards, counterfeit cards or gain unauthorized access to customers account by physical means or via virtual platforms (Owolabi 2010, Gates and Jacob 2009, Greene 2009). ...
Article
Full-text available
This paper investigates supply-side fraud elasticities of financial intermediation. Three rationales that make intermediation inevitable in modern economics were identified as dependent variables: reduction of transaction cost, transformation of risk, and transformation of liquidity. They were represented by operating cost, value-at-risk, and liquidity ratio, respectively. The independent variables stated in monetary value are unauthorized loans, theft & robbery, and fraudulent withdrawal. These variables were preferred after detailed literature review in the area. Three OLS-type multiple regression models were formulated to estimate the values of the dependent variables and the coefficients of the independent variables. Stationarity test, co-integration test, and Granger causality test were conducted for purposes of ensuring reliability of the time series data collected from NDIC, CBN and NBS in respect of the variables listed above. F-test and t-test were conducted to ascertain the statistical significance of the results. The coefficients of the independent variables were then used to evaluate the dependent variables on account of their responsiveness to changes in bank fraud. It was found that financial intermediation is inelastic to bank fraud. It was concluded that as a result of the minute elasticity, financial intermediation cannot be threatened by fraud but incidence of fraud is a signal for intermediaries and regulators to be alive to the responsibilities.
... Accordingly, they argued that this form of fraud may take the form of over-billing customers, deceptive sales practices, accelerated revenue and bogus revenue. Other forms of fraud perpetrated by employee or senior management staff of organisations identified byGates and Jacob (2009) include expenses or liabilities incurred for fraudulent or illegal acts which take the form of commercial or public bribery, kickbacks. A review of literature has revealed that all deceptions are not frauds. ...
Article
Full-text available
The objective of this study was to examine the effect of employee dishonesty and fraud on profitability of manufacturing firms in Nigeria. The ordinary least square model estimation technique was used to analyse the relationships between kickbacks, cash theft and firm profitability as measured by EPS. The results shows that kickbacks and cash theft have no significant effect on profitability though kickback is negatively related to firm performance. We recommend that organisations should employ strict internal controls, while government should continually review anti-corruption laws and other fraud related laws in the country to deter possible offenders at all levels and sectors of the economy.
... Financial fraud has become a severe problem with the rapid growth of e-commerce transactions and the development of IoT applications. According to the authors of [4], 87 percent of businesses and merchants allow electronic payments. This percentage will rise with mobile wallets and the ability of IoT devices to conduct payments, making systems more vulnerable to fraud attacks. ...
Article
Full-text available
Smart devices are used in the era of the Internet of Things (IoT) to provide efficient and reliable access to services. IoT technology can recognize comprehensive information, reliably deliver information, and intelligently process that information. Modern industrial systems have become increasingly dependent on data networks, control systems, and sensors. The number of IoT devices and the protocols they use has increased, which has led to an increase in attacks. Global operations can be disrupted, and substantial economic losses can be incurred due to these attacks. Cyberattacks have been detected using various techniques, such as deep learning and machine learning. In this paper, we propose an ensemble staking method to effectively reveal cyberattacks in the IoT with high performance. Experiments were conducted on three different datasets: credit card, NSL-KDD, and UNSW datasets. The proposed stacked ensemble classifier outperformed the individual base model classifiers.
Chapter
In today's world, fraud is one of the leading sources of significant financial consequences, not just for businesses but also for personal customers. The extraction of user profiles based on their past transaction data, and then determining whether or not an incoming transaction is a fraud based on their profiles, is an essential method of detecting fraud. The proposed blockchain method allows certified users to store, examine, and exchange digital data in a secure atmosphere, which aids in the development of trust, integrity, and visibility in online business relationships. Blockchain systematically analyzes the robustness of blockchain‐based reputation systems, which focuses on the extraction and transmission to customers in a safe and trustworthy manner. Blockchain employs cryptographic hashes, which are produced from summarized shopping blocks that are signed and transmitted that provides a safe and secured online shopping for an highly efficient manner without any interference of third parties.
Article
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The study examines the impact of forensic accounting on financial fraud detection in Deposit Money Banks (DMBs) in Nigeria. Survey research design was employed for the study with extensive reliance on primary data obtained through the use of structured Likert scale questionnaire. The data were tested using descriptive statistics and regression analysis on Statistical Package for Social Sciences (SPSS version 20.0). The study findings showed that forensic accounting techniques of conducting investigation, analyzing financial transactions and reconstructing incomplete accounting records have significant effect on financial fraud detection in deposit money banks in Nigeria. In the light of the study findings, the following recommendations were provided; more forensic accountants should be employed by DMBs in Nigeria to assist curb modern day financial fraud brought about by advancement in technology. The Central Bank of Nigeria (CBN) should in collaboration with all financial institutions establish an electronic fraud risk information center staffed with forensic accountants. DMBs should incorporate automated control measures such as biometric authentication of transactions to serve as deterrent for fraud occurring.
Article
Near field communication (NFC) payment technology was expected to revolutionize businesses, yet presents major challenges relating to security and assurance in the Canadian payment ecosystem. This paper suggest some of the best practices in various frameworks for Risks and Assurance management in implementing NFC-based payment technology (NFC-BPT). The NFC-BPT risks and threats are analyzed in conjunction with justified risks data from Canadian NFC Mobile Payment Reference Model (Canadian NFC-MPRM). The output of the analyzed risk is mapped to COBIT5 (Control objective for Information and Related Technology) for Risk and COBIT5 for Assurance processes through which, a comprehensive assurance steps will be obtained on data security, fraud, theft and malware for payment credential issuers and acquirers.
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