Companies in every industry are embracing the power of automation. From streamlining processes to simplifying operations, organizations are finding new ways to increase efficiency and improve experiences for both customers and employees.
For companies in the financial services sector, however, reaching the full potential of their automation requires that they also manage and mitigate risk. Automated workflows do increase productivity—but they’re not all built to support the varying levels and vectors of risk faced by financial institutions every day.
Why does that matter? One of the greatest risks to finance teams and the financial services industry is fraud. According to a 2021 FiVerity report, synthetic identity fraud losses have increased dramatically, moving from $6 billion in 2016 to $20 billion in 2020 (pg. 8). Fintechs saw a 70% increase in fraud attacks in 2021 alone.
Consider the loan approval process at a financial institution: Modern fintech companies are using automated strategies to analyze applications more efficiently. While these speed up the digitalization of customers’ information, are they also enhancing the company’s ability to detect fraudulent applications? These are the risk management considerations that every fintech and financial institution must face.
Automation without risk management is reckless. It’s imperative for companies across all industries to balance their desire for increased efficiency with the necessary task of protecting their organization’s reputation and revenue. But for the sake of this article, I’ll focus on financial services. Here are four strategies that will help fintechs and financial institutions automate responsibly and protect themselves from unnecessary risk.
Infusing Automation With Layered Risk Management Strategies
When implementing automated strategies, companies must also embed risk management procedures at multiple points across their customer life cycle. Take fraud, for example. Fraudsters can exploit an organization’s vulnerabilities at several different stages. Whether it’s the identity verification process, the credit analysis process, the payments process or even further along, risk management improves when candidates undergo several checkpoints.
Antifraud professionals refer to this as a “Swiss cheese approach,” where each step in your fraud and risk strategy is like a piece of Swiss cheese. There’s no silver bullet in risk management; every approach has holes that criminals can and will exploit. But you can layer in enough defenses to prevent the holes from lining up in a way that would allow bad actors to slip through. If a high-risk candidate gets through one layer, they will likely be caught in a later one.
This approach not only enhances your risk management but increases productivity and cost-effectiveness. If fraud or other risk signals are detected at one stage of the customer life cycle, you’re able to prevent that applicant from moving on to the next step and instead focus on approving legitimate customers.
Going Beyond A One-Size-Fits-All Automated Approach
Every company is unique, as is every fraudster. This is why companies can’t use a one-size-fits-all solution when it comes to managing risk or automating processes. If every fintech is using the same manual review processes for every client, cybercriminals will continue infiltrating these organizations. It is challenging and incredibly time-consuming for human employees to keep up with every possible scenario and solution without the help of automation and artificial intelligence.
Now more than ever, vendors need options that go beyond the one-size-fits-all approach when analyzing their data. Take the process of application document review: There are so many intricacies and nuances across different document types, and a human being can only remember a certain amount of information. But a machine can remember trillions of data points. Combining artificial intelligence with automation gives you a deeper insight into your data and the ability to build data-driven risk management strategies that work best for your unique business.
Empowering Your Front-Line Fraud Fighters
Your team is your most important asset in fighting fraud. While using technology is good for weeding out potential fraud, it’s still important for professionals in the field to make the final judgment calls. If automated technologies malfunction (for instance, falsely flagging a legitimate customer as fraudulent, preventing them from moving forward) you’ll end up frustrating applicants and losing good potential customers. Humans should always be involved when making high-value decisions.
Machine learning models aim to replicate human intuition, but their power truly lies in automating repetitive tasks—freeing up your team to spend their time on more strategic and nuanced activities. In fact, arming your team with technology that improves their workflows could be one of the best ways to empower them.
We will always need the “people” component of risk management. Only now, the work of employees can be more specialized and less tedious.
Envisioning An Automation-Powered Economy
I am not unaware of how painful, or perhaps even frightening, change can feel. But this is far from the first time in human history that we’ve used technology to advance society. The industrial revolution, the agricultural revolution and even the very first time one of our ancestors began using primitive tools—all of these introduced new economies and gave us more free time to focus on other pursuits.
Like economic revolutions of the past, this may require reskilling of the workforce. But the opportunities for new careers and skill sets far outweigh the challenges. And more importantly, automation may finally allow many of us to spend more time on creative or individual pursuits, instead of on ones that increase our GDP. We could see more writers, more artists and more people spending time on their passions. That’s a future that I am really excited to see.
But until then, all of us can still fuel our businesses’ growth and empower our internal teams by augmenting automation with risk management. Giving people the ability to enjoy their work by reducing the day-to-day tedium is one of the things that inspire me and my company to advance these technologies.
Courtesy- https://www.forbes.com/sites/forbestechcouncil/2022/08/26/why-automating-financial-services-without-risk-management-can-be-reckless-and-how-to-automate-responsibly/?sh=3b7ea2e739f2