Using innovative communications to prevent identity fraud

Recent Internet fraud incidents have cast a negative light on Internet banking, and certain banks unnecessarily, since identity fraud can happen to any bank, on most channels and not just on the Internet.

This is according to Dr Alex Rummel, Director of Financial Services Solutions at Grapevine Interactive. "Identity fraud, where the perpetrator steals a person's identity is quite old," he says "Exactly the same thing can happen to any bank and to most channels including ATMs or even at branch level. Once the perpetrator has the relevant banking details of a person, the question around how many levels of security a bank has is irrelevant, as the individual has all the required information and can bypass any security."

There is no doubt, that banks take fraud very seriously, as this is reflected in their annual spend on sophisticated technology, dedicated solely to fraud prevention. Fraud systems are used to examine ongoing transactions and identify unusual spending patterns and account movements, a concept that has been successfully deployed internationally, and which helps reduce the incidence of fraud daily.

However, where banks often fail is in their inability to share the responsibility for preventing fraud effectively, together with their customers. Banks are asking their customers to be more responsible and careful, but are not helping them with the task.

A few decades ago, bank tellers used to know their customers personally and therefore identity fraud was nearly impossible. Naturally, banks today operate in a different environment with multi-regional branches, a diversity of channels, cross-banking transactions and millions of customers. Hence, it is more complicated for them to know their customers, but this can be achieved by bridging the gap between the bank and the customer using channels such as SMS.

Utilising instant messaging technology customers can be notified within seconds about any account movements above a personal threshold, allowing banks to increase their levels of automation, involve the customer in the process, and share the responsibility around fraud prevention.

"Since banks clear inter-banking transfers once a day, the approach leaves plenty of time for action and allows for fraud to be stopped, as it occurs, without any funds leaving the bank," says Dr Rummel. "Notification technology could have alerted people like John Staal in the Western Cape to unusual transactions. The customer is the only one who really knows whether a transaction is fraudulent or not. A responsible customer would then contact their bank immediately, stopping fraudulent transactions within minutes without any damage to either party."