Vision Casting for 2022: The Next Frontier for Digitalisation in the Financial Services Industry

Two years after the start of the Covid-19 pandemic, banks and financial institutions (FIs) in Asia Pacific are getting a clearer picture of what the fraud landscape could look like coming out of the global crisis. According to a GBG-commissioned IDC study, Next Gen Financial Crime Management Solution, identity crime and money laundering will continue to threaten the industry while the rise of cryptocurrency trading could lead to growing risks of cryptocurrency-related fraud.

Here are four ways we foresee the banking and financial services industry is expected to evolve in 2022.

Fraud will grow in to be both high- and low-tech

There is no doubt that Financial Crime 4.0 will continue to grow and proliferate in 2022, especially as more banks and FIs release new digital products and services such as crypto exchange and buy now, pay later offerings. With more financial services moving onto digital platforms, fraudsters are organising themselves into complex global fraud rings, sharing intelligence on the hyperconnected ecosystem and seamlessly coordinating identity crimes, money laundering, and cyber-engineered campaigns.

Concurrently, as their digital tactics become more sophisticated, financial criminals are also expected to double down on their use of human farms. Leveraging human capital in countries with low labour costs, this arsenal of low-tech, high-psychology fraudsters will augment automated phishing bots, making it harder for financial crime management solutions and consumers to discern between legitimate and malicious messages. This will be further exacerbated by improved social engineering skills, as demonstrated by fraudsters pretending to be financial advisors when Australia updated their superannuation rules.

Banks and FIs count on expanding and enriching data to keep up with financial crime

Machine learning (ML) and artificial intelligence (AI) will continue to be cornerstone technologies, with 48.9% of banks and FIs considering unsupervised ML as an important functionality according to the IDC study. As these models are only as good as the data they ingest, we expect the interest in ML and AI to be accompanied by a greater demand for enriched and expanded datasets.

The same study found that banks and FIs have been exploring new data sources for their fraud and compliance solutions, including device intelligence from mobile phones and tablets, social media identity matching and relationship networking, and telco data such as real-time call information. This expanded range of data sources enables banks and FIs to strengthen their defences against fraudsters who are launching attacks from a multitude of digital channels, including websites, calls, texts, emails, and mobile applications.

Besides tapping on a greater range of data from within, banks and FIs would also consider working with third-party data through vendors. This will equip their ML and AI models with better predictive power to prevent and protect them from new and emerging forms of fraud and financial crime.

Increased preference for bought and rented financial crime management systems

Moving into the new year, we are also expecting a slide in interest amongst banks and FIs towards taking full ownership and building in-house systems to fight fraud. The IDC study found that 76.8% of banks and FIs would prefer to either buy a financial crime management solution or utilise managed services from a solution provider to fight origination fraud in the future, up from just 63% that are currently using bought or rented systems today.

Increasingly, banks and FIs see financial crime management solution providers as consultative partners while also trusting them to provide regular system reviews, better management, and constant monitoring. Additionally, banks and FIs are also relying on the efficacies of these vendors to get their fraud management solutions up and running quicker, compared to the time needed for built systems to establish a fraud detection and prevention rhythm after deployment is completed.

However, it will be critical that banks and FIs choose vendors that are well-equipped with subject-matter experts and capabilities across the entire customer journey, from onboarding to investigation management, to ensure that their solutions are future-proof.

Public cloud adoption to rise amongst banks and FIs in Asia Pacific

Migration to the cloud will also be a rising trend in the sector with 68% of banks and FIs that are currently using on-premises solutions managed by in-house IT teams expected to switch to cloud-based solutions by 2022 according to the IDC study. The study also shows that public cloud adoption, managed by in-house teams or vendors, will account for 66% of all banks and FIs, up from 53% today.

The shift to cloud is a major step for banks and FIs as they tap on the infrastructure to react rapidly to changes in the environment across their entire network. Cloud features such as containerisation also provides them with the ability to scale resources according to real time demand. Furthermore, being on the cloud also enables them to strengthen their data security, plan disaster contingencies, and maintain uniform deployment of updates and new features in multiple locations across the world.

While making the switch to a cloud-based platform, banks and FIs should also consider functions such as real-time memory streaming which will help them process and analyse transactions at speed, and privacy enhancing technologies to enable the exchange of data without compromising their customers’ personal identifiable information.

2022 will be a year of fine-tuning digital strategies

After taking the first steps to embracing digitalisation, banks and FIs will be working hard to move past the initial phase of their digital transformation to handle billions of transactions at near real-time. This will see them adopting new infrastructures, leveraging solutions, and ingesting more sources of data to provide greater protection and a more seamless experience to their customers.