What global finance must do to fight digital fraud across sectors

The digital revolution in financial services has reshaped customer interactions, offering unmatched convenience, speed and accessibility. However, this progress has also fuelled a sharp rise in financial fraud, making it imperative for banks and financial institutions to proactively adopt cutting-edge risk mitigation techniques. 

The Reserve Bank of India’s (RBI’s) annual report for 2023–24 shows a worrying increase in fraud, with 36,075 cases reported, involving losses of ₹13,930 crore. Deloitte India’s ‘India Banking Fraud Survey 2021’ reveals that nearly 40 per cent of fraud cases are linked to digital- and cyber-related issues. Similar trends have been observed globally, with financial regulators highlighting rising incidents of digital fraud. For instance, the US Federal Trade Commission reported that in 2023 alone, American consumers lost nearly $9 billion to digital fraud. 

Fraud methods have become sophisticated, challenging traditional detection systems. Phishing remains widespread, deceiving customers into revealing sensitive information through cleverly disguised emails and messages. Malware and ransomware continue to disrupt financial institutions, causing substantial operational losses. Social engineering attacks, flash fraud exploiting real-time payment systems, fraudulent mobile applications, and mule accounts further complicate the landscape. 

The RBI has strengthened regulatory frameworks. Its updated Master Directions on Fraud Risk Management (2024) stresses on a cohesive regulatory framework through comprehensive governance, including Early Warning Systems, dedicated fraud detection units, board-level oversight, fair classification of fraud cases and streamlined compliance processes. The RBI’s Digital Lending Guidelines (2023) set stringent standards, mandating explicit transparency on fees, interest rates and clear identification of digital lending partners. 

Financial institutions and regulators worldwide are using technology-driven solutions that incorporate artificial intelligence (AI) and machine learning. Regulators such as the European Banking Authority advocate for AI-powered real-time transaction monitoring, recognising its ability. 

Biometric authentication methods — including fingerprint scans and facial recognition — are gaining traction globally. Regulators such as the UK’s Financial Conduct Authority recommend biometrics for protection against identity theft and unauthorised account access. 

Predictive analytics has become crucial in detecting fraud. Institutions use big data analytics to identify subtle fraud indicators by continuously analysing transaction patterns and customer behaviour. 

Multi-Factor Authentication (MFA) continues to be a widely endorsed method. MFA reduces unauthorised access risks through layered authentication involving passwords, PINs and biometric data. 

Robust data encryption is also universally acknowledged by global regulators, such as the European Union’s General Data Protection Regulation and the Payment Card Industry Data Security Standard, to protect sensitive customer information. 

A critical component in fraud prevention is customer education. The RBI has emphasised the importance of consumer awareness within its digital lending guidelines, urging institutions to educate borrowers about safe lending practices and potential risks. 

Combating digital fraud requires coordinated efforts at multiple levels. Cross-sector collaboration between financial institutions, global regulators, law enforcement agencies and technology providers significantly enhances collective resilience.  

In conclusion, addressing digital financial fraud requires a balanced and integrated approach combining advanced technologies, robust global regulatory compliance, comprehensive customer education and strategic collaboration across sectors. Such a holistic framework not only reduces fraud risks but also fortifies customer trust, safeguarding global finance. 

The writer is Partner (Forensic & Financial Crime) at Deloitte India. The column has been edited for space