Technological progress – Assignment Example
TECHNOLOGICAL PROGRESS IN PROMOTING FRAUD IN FINANCIAL S by Date
Fraud in Financial Institutions
Presently, financial institutions face myriad fraud cases both from in and out their premises. Recent technological progress has worsened the situation in diverse ways, some of which often go unnoticed. Various forms of non-cash payments such as Point of sale (POS) terminals and online payment systems like PayPal have emerged that promote the transfer of money electronically. The risk of upsetting customers is a significant challenge in the whole process, and financial institutions must find a balance in instituting stringent measures that does not interfere with customer loyalty. Financial institutions have been successful at preventing fraud from occurring to some extent.
Most forms of non-cash payments remain susceptible to fraud, especially with technological progress such as the use of smartphones that widens the breadth of execution (Australian Payments Clearance Association, 2014, 9). Non-cash payments are subject to fraud mostly because of defies associated with online customer verification. Apart from stealing customer credentials, fraudsters are proficient at using malware to rip-off funds from unwary account holders. Financial institutions tackle this through institution of several security measures and verification procedures before confirming a transfer. PayPal, for instance, requires one to include date of birth and even provide online scans of documents for both the sender and the receiver.
Successful fraud activities occur in several ways. The threat of fraud comes from anonymous third parties, customers, and employees. The most common is the collusion of reprobate insiders with online lawbreakers that has left banking institutions and customers at their mercy. To counter such instances, financial institutions have developed strategies that can help detect fraud at an early stage. Through early-stage recognition, they are able to discover fraud operation early through investigations and cooperation with customers (Joyner, 2011, 4). The most recent global occurrence fraud is The Heartland Payment Systems data breach. A malevolent hack in the processors information systems deleteriously exposed several customers to possible credit/debit card fraud.
Global institutions such as the Federal Financial Institutions Examination Council (FFIEC) and FACTA Red Flags have been in the forefront in helping financial institutions tackle fraud. They formulate and implement rigid policies and punishments to counter fraud. In addition, financial institutions have turned to social media to reduce the risk of fraud. According to researchers Vinod Kumar, Nageswar Cherukupalli, Harminder Singh, Rushikesh Ubgade (2014), financial institutions have been able to reduce fraud risk with social media mostly through engagement with customers and timely resolution of their problems. Social media such as Facebook has been beneficial in the prevention of identity theft and impersonation.
In addition, financial institutions have also successfully employed point of sale (POS) terminals equipment to prevent fraud through password protection of key functions, account verification system, and duplicate card checking. Through this, the identity of a cardholder is easily verifiable (Australian Payments Clearance Association, 2014, 8). Even so, staff using POS terminals must be vigilant to ensure the equipment is safe and that only unauthorized recording devices are on site. Encryption technology is applicable on contactless-enabled cards and ‘tap and go’ technologies to alleviate and detect fraud.
In conclusion, financial institutions continue to grapple with the effects of fraud despite the stringent security measures they institute. Media reports on fraud have significantly reduced public confidence in financial institutions, which eventually endangers the existence of the same institutions. The multifarious nature of fraud means that financial institution must unearth all loopholes that fraudsters may exploit through the uncovering of apprehensive behavior and high-risk undertakings. Through the means listed above, financial institutions have successfully reduced the instances of fraud cases.
Australian Payments Clearance Association, 2014, “Australian Payments Fraud Details and Data”. Accessed from http://apca.com.au/docs/fraud-statistics/Australian-payments-fraud-details-and-data-2014.pdf
JOYNER, E., 2011, “Detecting and Preventing Fraud in Financial Institutions. Enterprise wide Fraud Management”. SAS Global Forum 2011.
KUMAR, V., NAGESWAR, C., HARMINDER, S., AND RUSHIKESH, U., 2014, “Financial institutions reduce fraud risk with social media”. Accessed from http://www.infosys.com/FINsights/Documents/pdf/issue10/fraud-risk-social-media.pdf