Managing Risks and Fraud in Digital Finance

The number of incidents related to digital finance is on the rise. As a result, delivery channels and digital products are continuously transformed to protect the users. Nowadays, we are facing dozens of different types of financial risks in the digital world, some of which have evidently increased in the last couple of years. 

These include mobile app frauds, biometric identity breaches, synthetic identity fraud, and more. People and companies often fall victim to data breaches, debt collection practices, and liability allocation risks. 

All of these make the challenge to keep digital finances safe quite big today. Between 2015 and 2020, exposed records in the world increased from 800 million to 37.2 billion, which equals a 4,550% rise. It’s noteworthy that these massive variations require a more active, more fierce approach to protecting our digital finances. 

That being said, this article will explore said fraud and help you learn how to better manage it in digital finance.

What is fraud and risk management?

Risk and fraud management is the main action that businesses and organizations take to prevent scams and fraud. This concept implies using a variety of fraud management solutions and strategies to avoid or limit the fraud risk. Without fraud management, companies are at a higher risk of fraud linked to their normal operations and activities, as well as reduced consequences if such fraud occurs. 

The world of digital finance is growing every day. In just a few years, the number of people who keep track and manage their finances online has grown tremendously. The benefits are numerous. 

For instance, digital finance leads to greater inclusion and expansion of financial services to different sectors. This is especially popular today since over half of people in the developing world already own a mobile device. It has the potential of providing convenient and affordable banking services to people who use it. 


However, even though the benefits are big, moving finances to the digital realm comes with many risks of fraud and scams. That’s why organizations in this industry use fraud management in the first place.

Fraud management includes all analysis activities that are susceptible to breach of trust, disloyalty, and fraud in financial relationships. Let’s take, for example, banks. These carry out risk management by implementing a system that has a 360-degree approach. This way, banks identify various potential risk factors faster and more effectively. 

Fraud management is implemented throughout an organization’s departments and branches by using solutions to access the financial, as well as legal, operational, and labor area. Only by gaining a complete overview of the situation can organizations understand the fraud risks. 

Based on the fraud risks and their potential repercussions, organizations develop their fraud case management plans. These consist of preventative measures that will mitigate the risks as much as possible.

Due to the nature of the operations of these companies, fraud is a very high risk in digital finance. Because of this, companies are taking action by implementing digital and software solutions for fraud management.

Choosing the right financial risk management software

This might just be the most important decision you make for your organization or business, especially if it is in the digital finance sphere. Investing in a great financial risk software can potentially save you thousands of dollars.

Choosing the right software will help you beat fraudsters, fight different types of digital risks, and give you access to many features that make the experience of users safer and more effective. These solutions provide a clear threats overview, as well as help businesses mitigate and manage the risks. 

There are plenty of financial risk management solutions on the market. Every module or application that provides you with informed decisions regarding financial risks can fall under this category. However, this umbrella term is so broad that you might go very wrong with your choice. The idea is to find a tool that will offer you tons of features and be affordable at the same time.

One of the best-rated tools these days is SEON, software that offers finance fraud management to businesses since 2015. This anti-fraud solution is feature-rich, affordable, and used by businesses of all sizes. 

SEON provides users with invaluable insight for reviews. It has a data enrichment module that will scour OSINT sources and create individual customer digital footprints to assist the automatic or manual decision-making process.

Some of the features included in SEON are IP analysis, advanced device fingerprinting, social media lookup, velocity checks, etc.

Types of digital finance risks to manage

Nowadays, there are many risks in the digital finance world that range from small scams to major frauds that can kill the business altogether. At this point, you can’t just advise your customers to avoid bad cybersecurity habits and expect a seamless experience for them. As someone in the finance sector, you need to be familiar with all potential financial fraud risks and manage them. 

Let’s take a look at the most common types of digital risk:

  • Fraud risks. Nowadays, anti-money laundering and know-your-customer processes are vital to the survival of a financial organization. In companies that facilitate financial transactions, there are tons of risks related to money transfers, open banking, account activations, and more. 

  • Cybersecurity risks. Data and digital processes are more networked and digitized than ever. This has brought on a tremendous increase in cybersecurity scams and frauds. To prevent this, organizations are tracking risks in an attempt to protect their digital assets and avoid cybersecurity incidents. 

  • Execution risks. Digital finance projects require top-down, fundamental shifts in operations. Firms today often run into issues with institutional buy-ins, user adoption, and legacy system integration. Instead of executing their tasks seamlessly, the organizational structures are facing challenges due to such threats. 

  • Ecosystem risks. The ecosystems of businesses create many opportunities for systemic risks and cyber-intrusion. Outsourced services and partnerships, for example, can increase the exposure of the business to contagion, bad actors, and errors that result from miscalibration. 

  • Legal/ regulatory risks. Regulators constantly come up with new rules to address the digitization of financial services. Such regimes can contradict past business practices, which is why financial organizations need to keep track of and company to the newest regulations. 

  • Privacy risks. Privacy laws change constantly to protect people from data breaches. Since many organizations need to request, use, and retain personal information, it is very important to secure personally identifiable information from third parties. 

In addition to the risks to personal and financial data, as well as those of the systems and programs used in financial institutions, there’s a huge reputational risk in case of fraud. If a business doesn’t work to mitigate and prevent fraud from happening, they are looking at a bad brand image and possibly the end of the organization as it is. 

Outages, misuse, and data loss can be detrimental for digital finance organizations these days. Users expect their digital finance to be handled with care and won’t appreciate it if the organization doesn’t do its best to protect the data.

The purposes of fraud management

Fraud management can be very useful for your organization if done right. There are many reasons why businesses implement these and use said software. Let’s take a look at the purposes of fraud management:

  • Supervise all company activities and processes and create reports that facilitate detecting the risks

  • Investigate fraud attempts or existing frauds by overseeing every operation, communication, and activity within the organization

  • Develop a variety of preventative measures by using fraud management solutions to secure the company’s activities and customers’ data

  • Ensure secure and fluent internal communication and form a secure channel for reporting and risk detection

  • Keep track of, report, and follow up on the plan of action to eliminate fraud and prevent it


Stages of managing risks and fraud

Companies and institutions that aim to avoid and prevent fraud have to work continuously on this. They must oversee every step of the customer journey, track the work within the organization, and eliminate fraud attempts before they cause damage to the company. 

In most cases, a comprehensive risk and fraud management plan will consist of 5 main stages. These are:

  1. Create and implement a policy for fraud risk management and create a guide that covers all competencies needed to detect and prevent fraud. 

  2. Conduct an assessment of fraud risks by using the information as set in the fraud risk management policy mentioned you have implemented. 

  3. Create and implement both detective and preventive control solutions and activities for the fraud risks found in the second step. The goal is to find solutions that will work in the shortest time possible since, in most cases, it’s important to act fast to minimize damage to a financial organization. 

  4. Work on a secure and effective reporting process that will allow the organization to implement corrective actions and investigate the fraud risks.

  5. Monitor the management process, keep track of its progress, and edit the plan to boost its performance.

Your organization is in digital finance? The time to take action is today!

The digital finance world is currently one of the most prospective industries to be in. Being able to store, manage, and keep track of finances online is widely accepted and chosen by many, but it comes with its set of risks. If you want your organization to survive and thrive in this market, you need to take measures to detect fraud before it happens - and fast!

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