Fraud and Financial Crimes: 5 predictions for 2021

2020 was a year like no other, as disruption from the novel coronavirus pandemic created interlinked health and economic crises. In retrospect, the unknown magnitude of COVID-19 and its ripple effects did little to derail the accuracy my 2020 fraud predictions. Three of the five came to fruition, and we saw partial progress toward the remaining two. Considering unforeseen events, I’ll take the 80 percent hit rate.

But enough about 2020. How will the continued impacts of COVID-19 shape the year ahead in fraud, anti-money laundering (AML) compliance, and security? One thing is certain. With additional stimulus, 2021 will also start the long process of government book balancing. Unemployment double that of this time last year, significant headwinds for average consumers, and fast-tracked digitalization initiatives will unfortunately create a more target-rich environment for fraud.

Prediction 1: Faster scams
2021 will have old scams, new scams, and changing scams. No matter what scams come to the forefront, the scams will be faster in terms of how they are executed, how quickly they spread, and how rapidly they change. Based on pandemic-focused economic recovery programs, late 2020 saw a resurgence in scam focused activity. Fraudsters no longer need to pretend to be the customer; they can just as easily scam the customers to fight their battles for them. The juice is worth the squeeze, as scams can yield more than 10 times the return vs. other fraud typologies. This requires organizations to adjust their fraud prevention strategies. They’ll need to monitor differently as they must help consumers help themselves.

Prediction 2: Origination nations
2021 will bring significant pressure for financial institutions (FIs) around credit and consumer lending, especially as they continue to execute and take on the risk burden of government-driven programs. While delinquencies and foreclosures from the pandemic have been delayed thus far, as central banks run out of monetary policy options, bad debt will no longer have stimulus as a buffer. As misrepresentation, manipulation, and outright fraud increase, and as consumers try to pay their bills, managing the risk of digital originations will be critical. In addition, as loan losses rise, FIs will need to identify which non-performing loans on their books can be salvaged vs. those that may be synthetics or bust outs. This, in turn, will require a more holistic view of customer behaviors that have traditionally been confined to silos of authentication, detection, and collections.

Prediction 3: Regulators make crypto less cryptic
Crypto currency can be an effective mechanism for money laundering, and regulators are beginning to sharpen their focus. Some exchanges perform extensive due diligence on customers, while others do very little. Financial institutions will be required to better assess and measure the use of crypto currency by their customers, as well as which customers are transacting with crypto currency exchanges. Understanding the nature and types of exchanges being utilized by customers will continue to get more attention. In essence, Know Your Customer’s Customer will expand to Know Your Customer’s Exchange’s Customer.

Prediction 4: Internal fraud rises as work becomes external
One of the most complicated fraud typologies to monitor only becomes more complex as organizations formalize long-term remote work programs. Controls are challenged as policies become more difficult to enforce and flexibility in working hours makes unusual patterns more usual. Opportunity combined with need, driven by the economic crisis, is a troublesome recipe. Organizations must finally use all the data they have at their disposal to identify and remedy internal fraud risks and insider threats.

Prediction 5: The political battle between digital identity and privacy hits the frontline
Organizations are now experiencing digital transactions in numbers they didn’t expect until 2025. Collecting device information, public records, biometrics, telephone records, email histories, and more and using that data in decisions has become mandatory for managing identity risks and synthetic identities. In parallel, legislation related to digital identity and privacy is picking up steam. Organizations from banks to insurance companies to government agencies must continue to advance their digital identity initiatives while having an awareness of the privacy implications.

Progressing into 2021, there will clearly be a new set of challenges for us to address. As economic pressures bite, fraud will rise, and fraudsters will take advantage of digital programs that were rushed to market. Addressing these challenges will require agility – an agility that can only be achieved through integrated decisioning architectures that deploy analytics on common data across the entire customer lifecycle.

I invite you to connect with me on LinkedIn and share your thoughts.