Every year bank fraud costs financial institutions a significant amount of their profits. It also harms their customers and their reputations. To minimize losses as much as possible, financial institutions need fraud detection software. This guide explains the basics of bank fraud detection software, and it contains links to resources with more information.
What Is Banking Fraud Detection Software?
Fraud detection software detects and prevents fraud at your bank. It scans all transactions in real time, and when it spots red flags of fraud, it requests a manual review of the transaction. There are several different types of anti-fraud software, but for the highest level of protection, financial institutions need software that is customized for the unique needs of banks.
How Fraud Detection Software for Banks Works
Fraud detection software monitors bank transactions to look for signs of fraud. It relies on machine learning and data analysis to learn about the patterns of fraud. Then, when it identifies a potential instance of fraud, it flags the transaction for a manual review by your fraud team, or it requests customer verification of the transaction.
Top Features of Bank Fraud Detection Software
The fraud detection software you select for your bank needs the right features to be effective. While traditional solutions primarily relied on rule-based fraud detection, contemporary solutions offer features that improve the efficacy of the software. Check out the following features:
● Artificial Intelligence
AI drives the success of most fraud software for banks. It allows you to automate processes that are currently handled by humans or labor-intensive machines.
● Machine Learning
Machine learning allows the AI in anti-fraud software to improve its detection abilities over time. The software learns the differences between legitimate and fraudulent transactions in general. At the same time, it also learns about the unique behaviors of your customers. To be as effective as possible, fraud detection software for banks should leverage both supervised and unsupervised machine learning.
To ensure that you select the most effective anti-fraud software, you should ask the following 9 Questions to Ask About Machine Learning Solutions. You can easily use your software without understanding the intricacies of machine learning, but you may want to read a bit about the types of machine learning used in anti-fraud solutions so that you have a general understanding of how they work.
● Real-Time Analysis
Every day, your financial institution processes thousands of transactions, and if you don’t monitor those transactions in real-time, you risk fraud getting through the cracks. Real-time analysis also helps to protect the customer experience because it reduces the risk of fraud on their accounts.
● Support for the Customer Experience
Your customers don’t want to deal with legitimate transactions getting declined because your software thinks they’re fraudulent. To prevent this from happening, you need software that protects the customer experience by getting to know the unique patterns of your customers. Effective fraud detection software should be able to understand that what may be a red flag of fraud on one customer’s account, may be another customer’s standard practice.
● False Positive Reduction
A false positive is when your software flags a legitimate transaction as fraudulent. False positives disrupt the customer experience, and they compromise your ability to detect fraud. When choosing fraud detection software for your bank, make sure that the software uses machine learning or other strategies to actively reduce false positives.
When you automate fraud detection with software, you speed up processes internally, but you also enhance the services that you offer your customers. If your team doesn’t need to spend as much of their time monitoring transactions for fraud, they have more time for human interactions with your customers.
● Cyber Threat Analysis
Ideally, your fraud solution should be backed by cyber threat intelligence. This is when analysts collect data about emerging threats from the darknet, hacker forums, social media, and other sources. Then, they use this information to improve the detection capabilities of your fraud detection software. Check out these resources to learn more:
Your solution also needs to be proactive. Ideally, you want to detect fraud before it occurs rather than after it has started. This reduces the losses directly related to the fraud, but early detection also helps to reduce fraud remediation costs.
Benefits of Fraud Detection Software for Banks
Fraud detection software is an investment in your financial institution. It helps to protect you from losses, but it also safeguards your reputation and improves the customer experience. Here are the top five benefits of fraud detection software for banks.
- Reduced Fraud — Fraud detection software helps to reduce fraud at your bank. It reduces losses by spotting fraud in action, and it prevents losses by spotting fraud before it occurs.
- Improved Fraud Detection Processes — There are numerous steps you can take to improve your fraud detection processes, but investing in software can be the most important decision you make.
- Saved time for employees — By automating your manual fraud detection processes, you save time for your employees. This can reduce your payroll costs, but it can also free up time for your employees to focus on other core business essentials.
- Customer Satisfaction — Customers are very aware of the risks of bank fraud, and they expect their financial institutions to protect them. To attract and retain a quality customer base, you need to have 24/7 fraud monitoring and other anti-fraud tools in place.
- Protected Reputation — Fraud has a direct impact on your bank’s reputation. After fraud occurs, there are many steps you can take to reduce the impact on your reputation, but the best protection for your reputation is to simply avoid fraud in the first place. Again, anti-fraud software is critical for that.
How to Choose Bank Fraud Detection Software
When choosing fraud detection software for your bank, you want to work with a developer that can help you create a custom solution based on your bank’s practices and risk profiles. You also want software that leverages machine learning to improve detection while safeguarding the customer experience. Look for the following features when choosing fraud detection software for your bank:
- Comprehensive detection capabilities
- Self-learning and supervised learning
- Multiple layers of protection
- Integration with existing systems.
- Streamlined deployment
- Compliance with banking industry security standards
- Customer support
- 24/7 technical support
While looking at different types of software, you may see a range of price points. Don’t necessarily opt for the cheapest option. Instead, look for value. Ultimately, you want a balance between cost and features.
Hosting for Bank Fraud Software
When you invest in fraud detection software for your bank, you don’t necessarily have to buy expensive hardware to support the software. Instead, you can have the software provider host the software for you. Sometimes called infrastructure as a service (IaaS) or platform as a service (PaaS), hosting allows you to save money on IT equipment.
Rather than buying equipment upfront, paying to maintain it, and eventually needing to replace it, you simply pay a monthly fee to a hosting service. Then, in exchange, you get updated equipment, maintenance, and support.
Contact Us About Fraud Detection Software for Banks
At SQN Banking Systems, we offer signature verification, check image analysis, transaction analysis, real-time analysis, and alert review workflow as well as other solutions and services. We can also host your anti-fraud software and/or provide software as a service (SaaS). To learn more about fraud detection software for banks, contact us today.