Digital – the other side of the coin.

The steep rise in bank frauds

Recently I came across a statement of one of the largest private bankers in India mentioning that, “The only thing that keeps me awake is the fear of a fraud happening with our customer’s money”.

While Digital is bringing out its vast advantages, it also exposes high levels of risks. Banking Frauds are at its peak.

A recent RBI report reveals that fraudsters looted around Rs 41,167 crore from the banking system in the financial year 2017-2018, a sharp rise of 72% over the previous fiscal year. In the year 2016-17, the overall frauds in the banking system accounted for Rs 23,933 crore. The Reserve Bank of India report, which was released on Friday, says total 5,917 fraud incidents were reported in various banking operations in the year.

A large customer (say BRAND) was mentioning recently about issues they are facing about fraudsters opening digital bank accounts in BRAND’s name (as they are a big name) and taking money from innocent people enacting as BRAND. BRAND and Bank are now struggling to settle things down.

Banking and financial institutions have a long/deep role in the war against money laundering and fraudulent transactions. Eliminating money laundering, however, is an overwhelming task because of the large volume of global financial transactions, constantly evolving government regulations, procedural changes, innovative laundering techniques, and increasing inter linkages of global financial systems. Based on a recent survey more than 60% of financial institutions are affected by Know-Your-Customer (KYC) regulatory changes and have experienced an impact on their compliance operations in several areas. Though there have been enough systems in place to put KYC in place, an automated & intelligent KYC due diligence process can help mitigate these risks.

What all can Financial Institutions do to curb the risks?

Role of Artificial Intelligence & Robotic Process Automation

In order to keep pace with the ever-increasing customer base, financial institutions and banks across the globe are switching to deeper & intelligent Know Your Customer (KYC) processes. KYC not only provides in-depth information about your customer, but also protects your organization from defamation, legal issues relating to customer frauds and safeguards your business from insolvency.

The demand of RPA in KYC has increased in recent years to avoid non-compliance. It obliterates human efforts which in turn, automates manual processes, errors and failures associated with Know Your Customer. According to the industry insiders, more than 12% of businesses are turning to automation and robotics to increase productivity, transactional efficiency, reduce AML frauds and reduce non-compliance to regulations.

Collation of Customer Data

AI holds information about the client’s data and overall transaction summary from several systems, sources and departments. It stores and processes the data of client to the centralized system, thereby eliminating possibilities of human errors. Automation enables banks to collate a clear picture of customer’s accounts and financial transaction history.

Fraud Detection and Elimination

The advent of technology has made it easy for fraudsters to execute their plans. It can be argued that experienced bankers are armed with intelligence to detect and counter fraudulent transaction, which is not possible with machines. This is where Artificial Intelligence (AI) and Machine Learning (ML) come into the picture. These next-gen technologies assist humans in detecting patterns and taking judgment calls. The need for banking and financial service industry (BFSI) is to tap into the complete potential of AI including Machine Learning (ML), Natural Language Processing (NPL), Natural Language Understanding (NLU), Artificial Neural Networks (ANN), and Pattern Recognition to not only detect frauds but also catch the fraudsters.

Tracking Regulation Laws

Client’s account’s monitoring is a tedious task as bank personnel have multiple accounts to look after.  This drawback is overcome by AI as it continually monitors and processes customer information across systems. AI automatically scrutinizes dynamic regulatory systems. This alleviates uncertainty of manual errors as machine reads and analyzes every information. Thus, automation will allow businesses to monitor the perils associated with customer account opening, customer due diligence and transaction monitoring to avoid fraudulent activities.

Help in Account Opening

RPA and AI speed up on-boarding procedure by efficiently ascertaining credit limits of client. They monitor the risks associated with such account opening and sync new regulatory norms. They also screen every transaction of the potential client. This enhances the productivity of the business and protects from non-compliance losses.


The manual processes adds a lot to the increasing annual costs of compliance. According to a report by Thomson Reuters, the average money spent by a financial firm on KYC, AML and Enhanced Due Diligence (EDD) is around $50 million per year and the figure is expected to surge by 20% in the next four years. Automation reduces costs involved in processing and storing high volume transactions, avoids redundant manual tasks and boosts overall efficiency. According to the recent survey by Times of India, the average user verification through physical KYC costs near about Rs.100 whilst the same by automation costs Rs.15.

Enhanced Customer Trust

Automated authentication brings trust in online transactions.  It eliminates access to client’s data to a few thus ensuring maximum control and reliability. Customers can rely on financial institutions as a result of improved data security and governance.

Way forward

Artificial Intelligence has a great impact on KYC procedures. It takes compliance process to the next level. The use of AI technologies such as machine learning, natural-language understanding (NLU) and natural-language processing (NLP) can help analyze customer sentiment and customer feedback, nuances, accuracy and timely completion not achievable through humans. NLP systems can analyze documents to identify people, products and processes affected by legal and regulatory changes. AI based analysis like link, what-if, text and pattern recognition evaluate complex web and cognitive engines and elicits conclusions from every piece of information which can be used for fraud eradication. AI chatbots are used for communication with customers, which analyze their responses using NLP, making KYC process efficient and reliable. Artificial Intelligence can monitor over two million data points at a time to provide precision in decisions. AI algorithms adapts to changing compliance regulations in seconds. Customer onboarding takes place 10 times faster by AI than manual process. AI will open customer account and apply for loans, credit card on behalf of customers. Artificial Intelligence will audit data and generate reports. Thus, AI & RPA is not only given due importance in recent years but is also seen as future of KYC, fraud management and AML compliance processes leading to improved regulatory compliance and customer experience.

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