Despite financial institutions’ unwavering efforts to safeguard their customers, scammers continually evolve to exploit advancements in technology. For example, the number of scams and cybercrimes reported to the police in Singapore increased by a staggering 49.6% to 50,376 at an estimated cost of USD 482M in 2023. GenAI represents the latest challenge to the industry, providing fraudsters with new avenues for deception.
Ecosystm research shows that BFSI organisations in Asia Pacific are spending more on technologies to authenticate customer identity and prevent fraud, than they are in their Know Your Customer (KYC) processes.
The Evolution of the Threat Landscape in BFSI
Synthetic Identity Fraud. This involves the creation of fictitious identities by combining real and fake information, distinct from traditional identity theft where personal data is stolen. These synthetic identities are then exploited to open fraudulent accounts, obtain credit, or engage in financial crimes, often evading detection due to their lack of association with real individuals. The Deloitte Centre for Financial Services predicts that synthetic identity fraud will result in USD 23B in losses by 2030. Synthetic fraud is posing significant challenges for financial institutions and law enforcement agencies, especially with the emergence of advanced technologies like GenAI being used to produce realistic documents blending genuine and false information, undermining Know Your Customer (KYC) protocols.
AI-Enhanced Phishing. Ecosystm research reveals that in Asia Pacific, 71% of customer interactions in BFSI occur across multiple digital channels, including mobile apps, emails, messaging, web chats, and conversational AI. In fact, 57% of organisations plan to further improve customer self-service capabilities to meet the demand for flexible and convenient service delivery. The proliferation of digital channels brings with it an increased risk of phishing attacks.
While these organisations continue to educate their customers on how to secure their accounts in a digital world, GenAI poses an escalating threat here as well. Phishing schemes will employ widely available LLMs to generate convincing text and even images. For many potential victims, misspellings and strangely worded appeals are the only hint that an email from their bank is not what it seems. The maturing of deepfake technology will also make it possible for malicious agents to create personalised voice and video attacks.
Identity Fraud Detection and Prevention
Although fraudsters are exploiting every new vulnerability, financial organisations also have new tools to protect their customers. Organisations should build a layered defence to prevent increasingly sophisticated attempts at fraud.
- Behavioural analytics. Using machine learning, financial organisations can differentiate between standard activities and suspicious behaviour at the account level. Data that can be analysed includes purchase patterns, unusual transaction values, VPN use, browser choice, log-in times, and impossible travel. Anomalies can be flagged, and additional security measures initiated to stem the attack.
- Passive authentication. Accounts can be protected even before password or biometric authentication by analysing additional data, such as phone number and IP address. This approach can be enhanced by comparing databases populated with the details of suspicious actors.
- SIM swap detection. SMS-based MFA is vulnerable to SIM swap attacks where a customer’s phone number is transferred to the fraudster’s own device. This can be prevented by using an authenticator app rather than SMS. Alternatively, SIM swap history can be detected before sending one-time passwords (OTPs).
- Breached password detection. Although customers are strongly discouraged to reuse passwords across sites, some inevitably will. By employing a service that maintains a database of credentials leaked during third-party breaches, it is possible to compare with active customer passwords and initiate a reset.
- Stronger biometrics. Phone-based fingerprint recognition has helped financial organisations safeguard against fraud and simplify the authentication experience. Advances in biometrics continue with recognition for faces, retina, iris, palm print, and voice making multimodal biometric protection possible. Liveness detection will grow in importance to combat against AI-generated content.
- Step-up validation. Authentication requirements can be differentiated according to risk level. Lower risk activities, such as balance check or internal transfer, may only require minimal authentication while higher risk ones, like international or cryptocurrency transactions may require a step up in validation. When anomalous behaviour is detected, even greater levels of security can be initiated.
Recommendations
- Reduce friction. While it may be tempting to implement heavy handed approaches to prevent fraud, it is also important to minimise friction in the authentication system. Frustrated users may abandon services or find risky ways to circumvent security. An effective layered defence should act in the background to prevent attackers getting close.
- AI Phishing Awareness. Even the savviest of customers could fall prey to advanced phishing attacks that are using GenAI. Social engineering at scale becomes increasingly more possible with each advance in AI. Monitor emerging global phishing activities and remind customers to be ever vigilant of more polished and personalised phishing attempts.
- Deploy an authenticator app. Consider shifting away from OTP SMS as an MFA method and implement either an authenticator app or one embedded in the financial app instead.
- Integrate authentication with fraud analytics. Select an authentication provider that can integrate its offering with analytics to identify fraud or unusual behaviour during account creation, log in, and transactions. The two systems should work in tandem.
- Take a zero-trust approach. Protecting both customers and employees is critical, particularly in the hybrid work era. Implement zero trust tools to prevent employees from falling victim to malicious attacks and minimising damage if they do.
Banks, insurers, and other financial services organisations in Asia Pacific have plenty of tech challenges and opportunities including cybersecurity and data privacy management; adapting to tech and customer demands, AI and ML integration; use of big data for personalisation; and regulatory compliance across business functions and transformation journeys.
Modernisation Projects are Back on the Table
An emerging tech challenge lies in modernising, replacing, or retiring legacy platforms and systems. Many banks still rely on outdated core systems, hindering agility, innovation, and personalised customer experiences. Migrating to modern, cloud-based systems presents challenges due to complexity, cost, and potential disruptions. Insurers are evaluating key platforms amid evolving customer needs and business models; ERP and HCM systems are up for renewal; data warehouses are transforming for the AI era; even CRM and other CX platforms are being modernised as older customer data stores and models become obsolete.
For the past five years, many financial services organisations in the region have sidelined large legacy modernisation projects, opting instead to make incremental transformations around their core systems. However, it is becoming critical for them to take action to secure their long-term survival and success.
Benefits of legacy modernisation include:
- Improved operational efficiency and agility
- Enhanced customer experience and satisfaction
- Increased innovation and competitive advantage
- Reduced security risks and compliance costs
- Preparation for future technologies
However, legacy modernisation and migration initiatives carry significant risks. For instance, TSB faced a USD 62M fine due to a failed mainframe migration, resulting in severe disruptions to branch operations and core banking functions like telephone, online, and mobile banking. The migration failure led to 225,492 complaints between 2018 and 2019, affecting all 550 branches and required TSB to pay more than USD 25M to customers through a redress program.
Modernisation Options
- Rip and Replace. Replacing the entire legacy system with a modern, cloud-based solution. While offering a clean slate and faster time to value, it’s expensive, disruptive, and carries migration risks.
- Refactoring. Rewriting key components of the legacy system with modern languages and architectures. It’s less disruptive than rip-and-replace but requires skilled developers and can still be time-consuming.
- Encapsulation. Wrapping the legacy system with a modern API layer, allowing integration with newer applications and tools. It’s quicker and cheaper than other options but doesn’t fully address underlying limitations.
- Microservices-based Modernisation. Breaking down the legacy system into smaller, independent services that can be individually modernised over time. It offers flexibility and agility but requires careful planning and execution.
Financial Systems on the Block for Legacy Modernisation
Data Analytics Platforms. Harnessing customer data for insights and targeted offerings is vital. Legacy data warehouses often struggle with real-time data processing and advanced analytics.
CRM Systems. Effective customer interactions require integrated CRM platforms. Outdated systems might hinder communication, personalisation, and cross-selling opportunities.
Payment Processing Systems. Legacy systems might lack support for real-time secure transactions, mobile payments, and cross-border transactions.
Core Banking Systems (CBS). The central nervous system of any bank, handling account management, transactions, and loan processing. Many Asia Pacific banks rely on aging, monolithic CBS with limited digital capabilities.
Digital Banking Platforms. While several Asia Pacific banks provide basic online banking, genuine digital transformation requires mobile-first apps with features such as instant payments, personalised financial management tools, and seamless third-party service integration.
Modernising Technical Approaches and Architectures
Numerous technical factors need to be addressed during modernisation, with decisions needing to be made upfront. Questions around data migration, testing and QA, change management, data security and development methodology (agile, waterfall or hybrid) need consideration.
Best practices in legacy migration have taught some lessons.
Adopt a data fabric platform. Many organisations find that centralising all data into a single warehouse or platform rarely justifies the time and effort invested. Businesses continually generate new data, adding sources, and updating systems. Managing data where it resides might seem complex initially. However, in the mid to longer term, this approach offers clearer benefits as it reduces the likelihood of data discrepancies, obsolescence, and governance challenges.
Focus modernisation on the customer metrics and journeys that matter. Legacy modernisation need not be an all-or-nothing initiative. While systems like mainframes may require complete replacement, even some mainframe-based software can be partially modernised to enable services for external applications and processes. Assess the potential of modernising components of existing systems rather than opting for a complete overhaul of legacy applications.
Embrace the cloud and SaaS. With the growing network of hyperscaler cloud locations and data centres, there’s likely to be a solution that enables organisations to operate in the cloud while meeting data residency requirements. Even if not available now, it could align with the timeline of a multi-year legacy modernisation project. Whenever feasible, prioritise SaaS over cloud-hosted applications to streamline management, reduce overhead, and mitigate risk.
Build for customisation for local and regional needs. Many legacy applications are highly customised, leading to inflexibility, high management costs, and complexity in integration. Today, software providers advocate minimising configuration and customisation, opting for “out-of-the-box” solutions with room for localisation. The operations in different countries may require reconfiguration due to varying regulations and competitive pressures. Architecting applications to isolate these configurations simplifies system management, facilitating continuous improvement as new services are introduced by platform providers or ISV partners.
Explore the opportunity for emerging technologies. Emerging technologies, notably AI, can significantly enhance the speed and value of new systems. In the near future, AI will automate much of the work in data migration and systems integration, reducing the need for human involvement. When humans are required, low-code or no-code tools can expedite development. Private 5G services may eliminate the need for new network builds in branches or offices. AIOps and Observability can improve system uptime at lower costs. Considering these capabilities in platform decisions and understanding the ecosystem of partners and providers can accelerate modernisation journeys and deliver value faster.
Don’t Let Analysis Paralysis Slow Down Your Journey!
Yes, there are a lot of decisions that need to be made; and yes, there is much at stake if things go wrong! However, there’s a greater risk in not taking action. Maintaining a laser-focus on the customer and business outcomes that need to be achieved will help align many decisions. Keeping the customer experience as the guiding light ensures organisations are always moving in the right direction.
Setting and achieving Sustainability goals is complex in BFSI. To be truly sustainable, organisations need to:
- Reduce internal energy consumption and carbon footprint
- Fund the transition to decarbonisation in high emission industries
- Introduce “green” customer products and services
- Monitor carbon data for financed emissions
Data and AI have the potential to assist in achieving these objectives, provided they are used effectively. Here is how.
Download ‘Driving Sustainability with Data and AI in Financial Services’ as a PDF
Ecosystm research reveals a stark reality: 75% of technology leaders in Financial Services anticipate data breaches.
Given the sector’s regulatory environment, data breaches carry substantial financial implications, emphasising the critical importance of giving precedence to cybersecurity. This is compelling a fresh cyber strategy focused on early threat detection and reduction of attack impact.
Read on to find out how tech leaders are building a culture of cyber-resilience, re-evaluating their cyber policies, and adopting technologies that keep them one step ahead of their adversaries.
Download ‘Cyber-Resilience in Finance: People, Policy & Technology’ as a PDF
Fintechs have carved out a niche both in their customer-centric approach and in crafting solutions for underserved communities without access to traditional financial services. Irrespective of their objectives, there is an immense reliance on innovation for lower-cost, personalised, and more convenient services.
However, a staggering 75% of venture-backed fintech startups fail to scale and grow – and this applies to fintechs as well.
Here are the 5 areas that fintechs need to focus on to succeed in a competitive market.
Download ‘Building a Successful Fintech Business’ as a PDF
The Banking, Financial Services, and Insurance (BFSI) industry, known for its cautious stance on technology, is swiftly undergoing a transformational modernisation journey. Areas such as digital customer experiences, automated fraud detection, and real-time risk assessment are all part of a technology-led roadmap. This shift is transforming the cybersecurity stance of BFSI organisations, which have conventionally favoured centralising everything within a data centre behind a firewall.
Ecosystm research finds that 75% of BFSI technology leaders believe that a data breach is inevitable. This requires taking a new cyber approach to detect threats early, reduce the impact of an attack, and avoid lateral movement across the network.
BFSI organisations will boost investments in two main areas over the next year: updating infrastructure and software, and exploring innovative domains like digital workplaces and automation. Cybersecurity investments are crucial in both of these areas.
As a regulated industry, breaches come with significant cost implications, underscoring the need to prioritise cybersecurity. BFSI cybersecurity and risk teams need to constantly reassess their strategies for safeguarding data and fulfilling compliance obligations, as they explore ways to facilitate new services for customers, partners, and employees.
The primary concerns of BFSI CISOs can be categorised into two distinct groups:
- Expanding Technology Use. This includes the proliferation of applications and devices, as well as data access beyond the network perimeter.
- Employee-Related Vulnerabilities. This involves responses to phishing and malware attempts, as well as intentional and unintentional misuse of technology.
Vulnerabilities Arising from Employee Actions
Security vulnerabilities arising from employee actions and unawareness represent a significant and ongoing concern for businesses of all sizes and industries – the risks are just much bigger for BFSI. These vulnerabilities can lead to data breaches, financial losses, damage to reputation, and legal ramifications. A multi-pronged approach is needed that combines technology, training, policies, and a culture of security consciousness.
Training and Culture. BFSI organisations prioritise comprehensive training and awareness programs, educating employees about common threats like phishing and best practices for safeguarding sensitive data. While these programs are often ongoing and adaptable to new threats, they can sometimes become mere compliance checklists, raising questions about their true effectiveness. Conducting simulated phishing attacks and security quizzes to assess employee awareness and identify areas where further training is required, can be effective.
To truly educate employees on risks, it’s essential to move beyond compliance and build a cybersecurity culture throughout the organisation. This can involve setting organisation-wide security KPIs that cascade from the CEO down to every employee, promoting accountability and transparency. Creating an environment where employees feel comfortable reporting security concerns is critical for early threat detection and mitigation.
Policies. Clear security policies and enforcement are essential for ensuring that employees understand their roles within the broader security framework, including responsibilities on strong password use, secure data handling, and prompt incident reporting. Implementing the principle of least privilege, which restricts access based on specific roles, mitigates potential harm from insider threats and inadvertent data exposure. Policies should evolve through routine security audits, including technical assessments and evaluations of employee protocol adherence, which will help organisations with a swifter identification of vulnerabilities and to take the necessary corrective actions.
However, despite the best efforts, breaches do happen – and this is where a well-defined incident response plan, that is regularly tested and updated, is crucial to minimise the damage. This requires every employee to know their roles and responsibilities during a security incident.
Tech Expansion Leading to Cyber Complexity
Cloud. Initially hesitant to transition essential workloads to the cloud, the BFSI industry has experienced a shift in perspective due to the rise of inventive SaaS-based Fintech tools and hybrid cloud solutions, that have created new impetus for change. This new distributed architecture requires a fresh look at cyber measures. Secure Access Service Edge (SASE) providers are integrating a range of cloud-delivered safeguards, such as FWaaS, CASB, and ZTNA with SD-WAN to ensure organisations can securely access the cloud without compromising on performance.
Data & AI. Data holds paramount importance in the BFSI industry for informed decision-making, personalised customer experiences, risk assessment, fraud prevention, and regulatory compliance. AI applications are being used to tailor products and services, optimise operational efficiency, and stay competitive in an evolving market. As part of their technology modernisation efforts, 47% of BFSI institutions are refining their data and AI strategies. They also acknowledge the challenges associated – and satisfying risk, regulatory, and compliance requirements is one of the biggest challenges facing BFSI organisations in the AI deployments.
The rush to experiment with Generative AI and foundation models to assist customers and employees is only heightening these concerns. There is an urgent need for policies around the use of these emerging technologies. Initiatives such as the Monetary Authority of Singapore’s Veritas that aim to enable financial institutions to evaluate their AI and data analytics solutions against the principles of fairness, ethics, accountability, and transparency (FEAT) are expected to provide the much-needed guidance to the industry.
Digital Workplace. As with other industries with a high percentage of knowledge workers, BFSI organisations are grappling with granting remote access to staff. Cloud-based collaboration and Fintech tools, BYOD policies, and sensitive data traversing home networks are all creating new challenges for cyber teams. Modern approaches, such as zero trust network access, privilege management, and network segmentation are necessary to ensure workers can seamlessly but securely perform their roles remotely.
Looking Beyond Technology: Evaluating the Adequacy of Compliance-Centric Cyber Strategies
The BFSI industry stands among the most rigorously regulated industries, with scrutiny intensifying following every collapse or notable breach. Cyber and data protection teams shoulder the responsibility of understanding the implications of and adhering to emerging data protection regulations in areas such as GDPR, PCI-DSS, SOC 2, and PSD2. Automating compliance procedures emerges as a compelling solution to streamline processes, mitigate risks, and curtail expenses. Technologies such as robotic process automation (RPA), low-code development, and continuous compliance monitoring are gaining prominence.
The adoption of AI to enhance security is still emerging but will accelerate rapidly. Ecosystm research shows that within the next two years, nearly 70% of BFSI organisations will have invested in SecOps. AI can help Security Operations Centres (SOCs) prioritise alerts and respond to threats faster than could be performed manually. Additionally, the expanding variety of network endpoints, including customer devices, ATMs, and tools used by frontline employees, can embrace AI-enhanced protection without introducing additional onboarding friction.
However, there is a need for BFSI organisations to look beyond compliance checklists to a more holistic cyber approach that can prioritise cyber measures continually based on the risk to the organisations. And this is one of the biggest challenges that BFSI CISOs face. Ecosystm research finds that 72% of cyber and technology leaders in the industry feel that there is limited understanding of cyber risk and governance in their organisations.
In fact, BFSI organisations must look at the interconnectedness of an intelligence-led and risk-based strategy. Thorough risk assessments let organisations prioritise vulnerability mitigation effectively. This targeted approach optimises security initiatives by focusing on high-risk areas, reducing security debt. To adapt to evolving threats, intelligence should inform risk assessment. Intelligence-led strategies empower cybersecurity leaders with real-time threat insights for proactive measures, actively tackling emerging threats and vulnerabilities – and definitely moving beyond compliance-focused strategies.
Zurich will be the centre of attention for the Financial and Regulatory industries from June 26th to 28th as it hosts the second edition of the Point Zero Forum. Organised by Elevandi and the Swiss State Secretariat for International Finance, this event serves as a platform to encourage dialogue on policy and technology in Financial Services, with a particular emphasis on adopting transformative technologies and establishing the necessary governance and risk frameworks.
As a knowledge partner, Ecosystm is deeply involved in the Point Zero Forum. Throughout the event, we will actively engage in discussions and closely monitor three key areas: ESG, digital assets, and Responsible AI.
Read on to find out what our leaders — Amit Gupta (CEO, Ecosystm Group), Ullrich Loeffler (CEO and Co-Founder, Ecosystm), and Anubhav Nayyar (Chief Growth Advisor, Ecosystm) — say about why this will be core to building a sustainable and innovative future.
Download ‘Building Synergy Between Policy & Technology’ as a PDF
The Financial Services industry can benefit greatly from leveraging Data and AI technologies to enhance client value and innovation. BFSI organisations want to deliver AI-driven outcomes.
However, many AI projects fail to deliver long-term business value. Leaders in the industry must overcome challenges such as
- Converting proofs of concept to scalable implementations
- Deploying end-to-end AI and Data strategies
- Evolving business requirements
- Responding to emerging trends such as Generative AI.
As a technology leader in BFSI, here are 5 ways you can help deliver on your organisation’s AI ambitions.
- Think in terms of outcomes – not use cases
- Identify and eliminate digital debt
- Build the right data platform architecture
- Adopt a dual AI strategy
- Be part of an innovation ecosystem
Read on to find out more.
Click here to download ‘5 Actions to Achieve Your AI Ambitions’ as a PDF
In this Insight, our guest author Anupam Verma talks about how the Global Capability Centres (GCCs) in India are poised to become Global Transformation Centres. “In the post-COVID world, industry boundaries are blurring, and business models are being transformed for the digital age. While traditional functions of GCCs will continue to be providing efficiencies, GCCs will be ‘Digital Transformation Centres’ for global businesses.”
India has a lot to offer to the world of technology and transformation. Attracted by the talent pool, enabling policies, digital infrastructure, and competitive cost structure, MNCs have long embraced India as a preferred destination for Global Capability Centres (GCCs). It has been reported that India has more than 1,700 GCCs with an estimated global market share of over 50%.
GCCs employ around 1 million Indian professionals and has an immense impact on the economy, contributing an estimated USD 30 billion. US MNCs have the largest presence in the market and the dominating industries are BSFI, Engineering & Manufacturing, Tech & Consulting.
GCC capabilities have always been evolving
The journey began with MNCs setting up captives for cost optimisation & operational excellence. GCCs started handling operations (such as back-office and business support functions), IT support (such as app development and maintenance, remote IT infrastructure, and help desk) and customer service contact centres for the parent organisation.
In the second phase, MNCs started leveraging GCCs as centers of excellence (CoE). The focus then was product innovation, Engineering Design & R&D. BFSI and Professional Services firms started expanding the scope to cover research, underwriting, and consulting etc. Some global MNCs that have large GCCs in India are Apple, Microsoft, Google, Nissan, Ford, Qualcomm, Cisco, Wells Fargo, Bank of America, Barclays, Standard Chartered, and KPMG.
In the post-COVID world, industry boundaries are blurring, and business models are being transformed for the digital age. While traditional functions of GCCs will continue to be providing efficiencies, GCCs will be “Digital Transformation Centres” for global businesses.
The New Age GCC in the post-COVID world
On one hand, the pandemic broke through cultural barriers that had prevented remote operations and work. The world became remote everything! On the other hand, it accelerated digital adoption in organisations. Businesses are re-imagining customer experiences and fast-tracking digital transformation enabled by technology (Figure 1). High digital adoption and rising customer expectations will also be a big catalyst for change.
In last few years, India has seen a surge in talent pool in emerging technologies such as data analytics, experience design, AI/ML, robotic process automation, IoT, cloud, blockchain and cybersecurity. GCCs in India will leverage this talent pool and play a pivotal role in enabling digital transformation at a global scale. GCCs will have direct and significant impacts on global business performance and top line growth creating long-term stakeholder value – and not be only about cost optimisation.
GCCs in India will also play an important role in digitisation and automation of existing processes, risk management and fraud prevention using data analytics and managing new risks like cybersecurity.
More and more MNCs in traditional businesses will add GCCs in India over the next decade and the existing 1,700 plus GCCs will grow in scale and scope focussing on innovation. Shift of supply chains to India will also be supported by Engineering R & D Centres. GCCs passed the pandemic test with flying colours when an exceptionally large workforce transitioned to the Work from Home model. In a matter of weeks, the resilience, continuity, and efficiency of GCCs returned to pre-pandemic levels with a distributed and remote workforce.
A Final Take
Having said that, I believe the growth spurt in GCCs in India will come from new-age businesses. Consumer-facing platforms (eCommerce marketplaces, Healthtechs, Edtechs, and Fintechs) are creating digital native businesses. As of June 2021, there are more than 700 unicorns trying to solve different problems using technology and data. Currently, very few unicorns have GCCs in India (notable names being Uber, Grab, Gojek). However, this segment will be one of the biggest growth drivers.
Currently, only 10% of the GCCs in India are from Asia Pacific organisations. Some of the prominent names being Hitachi, Rakuten, Panasonic, Samsung, LG, and Foxconn. Asian MNCs have an opportunity to move fast and stay relevant. This segment is also expected to grow disproportionately.
New age GCCs in India have the potential to be the crown jewel for global MNCs. For India, this has a huge potential for job creation and development of Smart City ecosystems. In this decade, growth of GCCs will be one of the core pillars of India’s journey to a USD 5 trillion economy.
The views and opinions mentioned in the article are personal.
Anupam Verma is part of the Senior Leadership team at ICICI Bank and his responsibilities have included leading the Bank’s strategy in South East Asia to play a significant role in capturing Investment, NRI remittance, and trade flows between SEA and India.
