Eastern Asia is one of the world’s most diverse and vibrant regions. Its economy is also the most dynamic. With 6.5% growth in 2015, according to the World Bank, it outperformed the rest of the world. Despite the drag that China’s slowdown is expected to pull on the other economies of the region, they still represent a massive opportunity for businesses across the globe. But with opportunity comes risk, so we asked GBG’s Managing Director in the region, Clinton Mills, to identify the top five fraud and anti-money laundering (AML) risks that could face businesses wanting to expand in the region:
1. Isolated systems create risk
Asian businesses tend to manage fraud and money laundering data in isolation. This stops them seeing the whole customer, and can increase their exposure to crime. It can also lead to ‘false positives’ and block good customers or transactions by mistakenly flagging them as risks.
Financial institutions must meet counter-terrorism financing and AML regulations without affecting good customers. PwC’s 2016 Global Economic Crime Survey suggests that current system alerts fail to spot 50% of these incidents. It is not enough for businesses to consider the data contained in a single, local, system. They need to bring together customer data from multiple systems and look at the insights they reveal.
2. Reluctance to share data holds back progress
In Europe, fraud bureaus pool ‘bad’ data from organisations across different sectors. Asia, on the other hand, has a cultural reluctance to expose possible weaknesses in internal systems. This means that openly sharing information about the level of exposure to fraud is still rare.
Things may be changing. Nearly 100 South Korean firms share known fraud data in an active fraud bureau which we run with the Korean Credit Bureau. This recently exposed a Thai taxi driver who had defrauded 17 different organisations by taking out $350k in loans. The ROI for organisations willing to share their data within a closed, tightly governed community of this kind can be as much as 75 to 1. But it does need a strong spirit of collaboration.
3. China’s slowdown will increase risk
When economic growth slows, financial crime tends to rise. Reduced investment in systems and resources exposes organisations to risk. As the criminals become more and more sophisticated, it’s important to stay abreast of the latest trends and threats, and respond accordingly.
Across Asia, insider fraud has climbed (up 9% from 2014 levels according to PwC), with the highest growth among senior management. It’s a totally different picture compared to Europe and North America. There, frauds are more likely to come from external, rather than internal, groups or individuals. When organisations are looking at their fraud and AML processes and systems, they must ensure they also include robust employee screening and monitoring.
4. A shift to identity-based application fraud
The take-up of ‘chip and pin’ cards in the region has increased security for the two billion people who use them. Fraudsters unable to carry out transaction frauds using stolen or cloned cards will look for other weaknesses to exploit, like false account opening.
5. Increasing disruption to business models will introduce new risks
Robust checking of application data is essential, and needs to involve more than just identity details and credit history. Has the person applied for other products elsewhere in the organisation? Are we sure they are not on any AML sanctions lists? Has any of their data been identified as part of an incident elsewhere – including within partner organisations? (That’s where fraud bureaus come in.) Doing this quickly over the Internet or a mobile channel presents a major challenge to fraud teams. They are already under pressure from commercial colleagues who want to sign up customers quickly but organisations need to adopt a more holistic approach to be sure of covering every angle.
Enormous changes are happening in the region.
- 15 million new labour migrants entered the region in 2013.
- Peer to peer lending continues to grow in China.
- Regulation of sectors like online gaming is becoming widespread.
- In South Korea e-tailers can now accept orders from beyond the country’s borders, as long as they can confirm the purchaser’s ID.
Each change brings new risks. Businesses will lose out if they fail to keep up, either because consumers will choose to go elsewhere, or because they will become an easy target for criminal gangs looking to exploit the latest weakness.
Getting customers ready to shop in 10 minutes
Inside RHB Bank
It used to take several days to open an account with RHB Bank in Malaysia. The laborious process meant that customers often lost interest and moved to other providers. RHB Bank needed a faster way to get new customers on board and using their new accounts.
The bank wanted to find a way to speed up its customer onboarding processes which include the need for robust anti money laundering checks. With GBG Activate, it was able to complete instant credit checks, and pass through to GBG Instinct for fraud and anti-money laundering checks. Customers now provide data which is checked against a wide range of sources inside and outside the bank – including known fraud data. The decision engine accepts, rejects or refers the application for immediate investigation. Importantly, the final decision is fed back into the system for future reference and to avoid duplicating effort in other parts of the organisation.
Today, new RHB customers can sign up in a branch during their lunch hour, complete a full credit, ID and fraud check and walk away with their new card ready to start shopping, in as little as 10 minutes.