Demystifying Fraud: Why Does it Matter for Banks?

Banking fraud is a growing concern in Southeast Asia, affecting not only financial institutions (FIs) but also other participants in the financial ecosystem. A recent report by The Straits Times revealed that the region has one of the world’s highest rates of banking fraud. Scam victims in Singapore alone lost a staggering SGD 660.7 million in 2022, up from SGD 632 million in 2021¹.

Furthermore, the Association of Certified Fraud Examiners (ACFE) report highlights that fraud losses in Asia are estimated to reach up to 5 percent of revenue, surpassing the global average of 4 percent².
Although estimates may differ across various sources, it is evident that the trend points towards a projected increase in fraud losses unless FIs take immediate and necessary steps to prevent it.

Fraud can be defined as any illegal act that involves the use of deception to obtain money or other property from an FI. The nature of banking operations makes banks particularly susceptible to fraudulent activity. With large volumes of customer applications and transactions performed across multiple channels, there is a need for constant monitoring to detect and prevent suspicious activity.

The low digital literacy rate, coupled with increasing digital adoption and fear of authorities following the pandemic, is a key contributing factor to fraud prevalence in the region. This combination creates a vulnerable environment that fraudsters can exploit to target banking users, resulting in financial losses and erosion of customer trust. An example of a scam that takes advantage of this environment is the China Official impersonation.

According to a report by Singapore Business Review, two out of five Singaporeans do not fully trust their bank’s competency and capacity to handle fraudulent transactions or detect suspicious activities in their banking accounts³. More alarmingly, one in three Singaporean respondents lacks confidence in their bank’s ability to avert fraud.

Some of the most common types of banking fraud in the Southeast Asia include phishing attacks, account takeovers, love scams, China Official Impersonation scams, authorised payments fraud, and card fraud.

Online fraud in Southeast Asia is on the rise, and cybercriminals are using increasingly sophisticated tactics to target victims. In response, FIs are implementing various measures, such as biometric authentication, fraud analytics, device intelligence and machine learning. These technologies represent a significant improvement over traditional rule-based fraud detection systems, which rely on fixed conditions or thresholds.

However, due to the ever-changing nature of fraud and the emergence of new tactics, banks must continually adapt and update their detection processes and technology to better protect their customers from a range of fraud typologies, such as:

Payment fraud

Payment fraud is a type of scam where victims are typically informed of suspicious payment attempts detected from their bank accounts and then prompted to click on a link, which leads them to a phishing website that requests personal information. In Singapore alone, during the first two weeks of November 2021, over 370 people had already fallen prey to these scams⁴.

Cards fraud

Cards fraud involves the unauthorised use of a credit or debit card to make purchases or withdraw cash. Fraudsters can obtain card information in a variety of ways, including through phishing scams, skimming devices, data breaches and cards not present (CNP) scams. According to a report by Nilson, CNP fraud accounted for more than 70 percent of all fraud losses in Asia Pacific in 2021, and is expected to grow driven by rapid growth in CNP sales⁵.

Internal fraud

Internal frauds happen when bank employees engage in fraudulent activities, such as collusion, embezzlement, and asset misappropriation. Examples include procurement fraud, personnel management fraud, receipt fraud, and asset and information exploitation. These frauds can severely impact the reputation and financial stability of banks, as they often go undetected for long periods of time. According to a 2020 report by ACFE, the median loss caused by internal fraud globally was USD 150,000, and the average duration of the fraud was 14 months⁶.

Application fraud

Application fraud involves the use of stolen or synthetic identities to apply for loans with no intention of repayment. Fraudsters may lay dormant or transact as ideal customers for a period of time before obtaining a huge loan that they eventually default on, making detection extremely challenging. 60 percent of Asia Pacific banks experience fraud using synthetic identities built from data stolen from social media and mobile apps, as well as conventional sources⁷.

The threat of banking fraud continues to evolve, and it is crucial for FIs to stay ahead of the game. By adopting sophisticated technologies, such as biometric authentication and machine learning, and implementing comprehensive fraud risk management strategies, banks can safeguard their customers’ assets and preserve their reputations.

At Synpulse, we have extensive experience in helping our clients combat banking fraud, and we are committed to providing valuable insights and advice in this area.

Look out for more informative articles on fraud risk management, including team structures, vendor selection, and fraud detection technology. Together, we can work towards a safer and more secure banking system.

¹ More victims scammed in first half of 2023 (The Straits Times, 2023)

² Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse (ACFE, 2020)

³ Survey shows Singaporeans most susceptible to fraud (Singapore Business Review, 2022)

⁴ Gena Soh, 378 people fall prey to phishing scams in the first half of November (The Straits Times, 18 November 2021).

⁵ Global card fraud losses reach $16.1 billion (Businesswire, 4 Aug 2015).

⁶ Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse (ACFE, 2020)

⁷ APAC Banks Say Fraudulent Synthetic Identities on the Rise (FICO, 2018).