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Addressing fraud in Asia

Paul Henaghan, Managing Director, APAC at ACI Worldwide | Dec. 3, 2014
While new ways of interacting with banks may improve customer satisfaction, they introduce new opportunities for criminals too. So what should financial institutions do to avoid falling prey to fraud?

Asia's cultural and economic diversity makes it difficult to draw broad generalisations about trends and issues in the financial services industry. However, one clear trend is the growing incidence and size of payment fraud across the region, especially as customer transactions are increasingly completed either online or through a mobile phone.

Indeed, the region has taken the lead in mobile payments with Japan, South Korea and China embracing mobile wallet and payment technology. In China itself, many university graduates skip credit cards completely and jump straight into the virtual realm of digital wallets and instant payments. Online banking in Asia is also growing rapidly: according to McKinsey, the region had 670 million online banking customers in 2012 and will reach 1.7 billion by 2020.

New ways of interacting with banks introduce new opportunities for criminals. Some attempt to hack into systems to access customer data, which has lately gained notoriety with data breaches in a number of US companies and accusations of Chinese hackers accessing systems globally. Although there is a chance of success, many more criminals resort to simple social engineering or card fraud to profit. Indeed, China credit card fraud is among the highest in the world. Almost 42 percent of regional respondents in a recent ACI survey encountered card fraud in the last five years.

Japan's National Policy Agency reported that financial damages caused by online banking fraud spiked between April and June 2014. Individual and corporate clients in Japan incurred losses of USD 3.83 million and USD 1.91 million respectively. In Hong Kong, in one particular instance of online fraud, criminals used a phishing email to target accounts that contained more than USD 1.32 million in total deposits. The emails guided victims to websites looking identical to the banks' websites and required input of usernames, log-in passwords and passwords generated by personal security devices. According to the South China Morning Post, only USD 0.36 million was transferred to overseas accounts, as many of the transactions were cancelled by users who realised it was a scam.

In that situation, user education obviously helped. Regulators, governments and financial institutions realise this and are working to grow user awareness and education of potential fraud. In addition to education, regulations are driving physical technologies to combat fraud.

EMV (Europay, Mastercard and Visa) is a global standard that is being promoted globally to move toward physical chip and pin payment card security to combat fraud. Limited in the US, but almost ubiquitous in Europe, EMV adoption in Asia is mixed. Penetration is very high in developed markets like Japan and South Korea. It is catching up elsewhere in the region too, aided by decisive policies and regulations in certain countries. China for example is setting a deadline on EMV card issuance, where all new cards issued from 2015 onwards need to be EMV-enabled. New EMV cards are considered to be safer than the older standard and have already reduced card fraud rates in markets like the UK, where overall card fraud was reduced by a third after the implementation of EMV in 2004, according to the UK Cards Association.

 

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