Banking

FCA needs to work with payment service providers to address financial fraud

A cabinet reshuffle immediately followed, signifying the beginning of a new government that would tackle pressing challenges, including those facing businesses and consumers. Regulatory bodies also used the opportunity to announce strategies and objectives that will be used to adapt to the new political era. 

This political transformation was overshadowed by the passing of Queen Elizabeth II – a monumental event that brought the country to a standstill. With this mourning period over, it is now important to consider how policy announcements made in early September will impact different subsectors of the financial services sector. 

BoE gilt market intervention gives ‘breathing room’ to embattled pension schemes

Core to regulatory focus is revised attempts to tackle financial fraud. This was made clear by the Financial Conduct Authority (FCA). The City watchdog announced in early September that financial crime is a top priority, with a new strategy in place to ensure a whole system response is in place, backed by national, international partnerships and shared intelligence. This response includes monitoring internal processes employed by certain firms, from effective customer due diligence to the identification and prevention of fraudulent activities. 

This shift in tack by the FCA is welcomed, particularly considering the scale of the challenge posed by fraudulent activities in the payments sector. According to Merchant Savvy, the total value of global losses from payment fraud tripled from just under $10bn in 2011 to over $30bn in 2020. This is projected to rise by an additional 25% to $40.6bn in 2027 should current trends persist. 

The spike in financial fraud has been triggered by the rapid digitalisation of banking services and the growing sophistication of financial crime methods. Online transaction volumes are rising, increasing the exposure of payment rails to fraud attacks. Incidents of e-commerce fraud are also on the rise – as more consumers engage with online merchants, there is a heightened risk of consumers being targeted by fraudulent activities. 

For merchants, this means using fraud management systems that can address and reduce chargeback disputes. It also means going beyond manual detection processes and employing fraud prevention technology able to immediately flag and address any suspicious activities. Merchants need to prioritise effective and targeted security processes over blanket measures, as the latter can increase the chances of a false decline occurring. According to research, approximately $20.3bn is lost at online checkouts each year in the US, UK, Germany and France due to false declines.

Mark Carney: Government is ‘undercutting’ economic institutions

The FCA will no doubt see this as a key focus of its strategy, particularly given the popularity of e-commerce since the pandemic. Importantly, security mechanisms are already in place by some payment service providers. These payment service providers are typically scaling fintechs which have experienced rapid growth in the last five years. As such, it makes sense for the FCA to engage with these payment service providers to understand the technology being employed and how this could be leveraged to meet its objectives. 

As of yet, it is difficult to know just how the FCA and newly appointed government will approach the coming months considering the socio-economic and political challenges it faces. However, any attempt to tackle financial fraud and financial crime will require collaboration with the private sector, and specifically fintechs who are already implementing next-generation technology to minimise the risk of businesses and consumers falling victim to such activities. 

The FCA and other relevant regulators should call upon payment service providers. The changing nature of e-commerce in supporting merchants seeking to expand into new, emerging markets, through the provision of new payment types such as crypto has meant the sector has had to evolve. Ultimately, in an era of realigned outcomes and objectives, the private sector is a resource that cannot be overlooked, particularly when it comes to financial crime. 

Jurijs Borovojs is CTO at Transact365

Checkout latest world news below links :
World News || Latest News || U.S. News

Source link

Back to top button