Digital banking trends: challenges, risks and solutions in APAC

The risk of digital banks in APAC

The scale of the digital banking boom in APAC cannot be ignored; 20% of the world's 250 digital banks operate in the region.¹ These banks offer electronic client servicing, comprehensive digital infrastructure and 100% digital delivery to customers. However, the rapid pace of transactions in the digital banking sphere presents unique obstacles.

Payment innovation: Overcoming the challenge of faster transactions

As transactions process faster, banks face the challenge of ensuring accuracy and security. Increased online transactions can make identity verification more difficult, increasing the risk of synthetic identity fraud, traditional identity theft and account takeovers.² This has led to a pressing need for effective solutions to manage these risks.

Payment fraud in APAC: Addressing the risks

The APAC region has witnessed several prominent fraud cases involving banks in recent years. In 2016, hackers attempted to steal nearly $1 billion from a central bank's account, successfully transferring $81 million to accounts in the Philippines.³ A prominent bank in Nepal suffered a major fraud in 2017 , with millions of dollars allegedly embezzled through fraudulent loans and misappropriation of funds.⁴ The 2018 fraud case in Punjab involved the unauthorized issuance of letters of undertaking totaling around $1.36 million by certain individuals in collusion with bank officials.⁵ 

Additionally, a Taiwanese bank experienced a significant security breach when hackers compromised its SWIFT system, resulting in fraudulent transfers of millions of dollars. A large Chinese bank also experienced a cyberattack, highlighting the growing threat of cybercrime in the APAC financial sector. These cases demonstrate the ongoing challenges in combating fraud and cybercrime within the banking sector, emphasizing the need for robust risk management, compliance measures and cybersecurity protocols to safeguard the interests of investors and maintain the integrity of the financial system.

The risk of financial crime is an unavoidable measure of the booming success of digital banking. Fraudsters are increasingly utilizing digital payment channels, raising the risk that money is being laundered by these means. Therefore, banks must implement robust measures to mitigate these risks and protect their customers.

Innovative payment solutions: Implementing payment validation services

In the face of these challenges, banks are adopting proactive measures to combat fraud.⁶ One such measure is the implementation of payment validation services. Payment validation services are a way of verifying the legitimacy of a payment before it is executed. This can help prevent fraud, reduce errors and increase efficiency. By using payment validation services, banks can facilitate compliance with anti-fraud regulations, as well as meeting customer expectations for fast and secure transactions. These services are not just about pre-validating transactions, but they also involve providing clients with an online portal to define rules that identify legitimate payments.

Innovations in banking: BNY’s Payment Validation Service

Payment Validation Service is a best-in-class online portal that offers multiple features to support various use cases. Payment Validation Service is a way of verifying the legitimacy of a payment before it is executed. This can help prevent fraud, reduce errors and increase efficiency.

Payment Validation Service enables clients to define specific rules to identify legitimate payments and flag any transactions that deviate from the established norms as potentially fraudulent. For example, a client can set a time-based rule indicating that they will only send payments on weekdays. When such a rule is violated, the payment validation service alerts clients to any suspicious or unauthorized transactions, enabling them to detect and prevent fraud in real time. The client can then choose how they want to handle the transaction. They can set up rules to process or reject the transaction by default, or to require the client to validate the transaction before BNY processes the payment. This proactive approach allows clients to have greater control over their transactions, thereby enhancing security and reducing the risk of fraud.

Payment Validation Service is one of the innovative solutions that BNY offers to its clients in the digital banking environment, where faster and more convenient transactions also pose higher fraud risks. By empowering clients with tools to define their transaction rules, BNY is not only mitigating fraud risks but also enhancing customer trust and satisfaction in the digital banking experience.

Ensuring secure digital banking: Future trends and strategies

The digital banking revolution in APAC is not without its challenges. However, with innovative solutions like payment validation services, banks are rising to the occasion, meaning their customers can enjoy the benefits of digital banking securely and efficiently.

1. Winning the Digital Banking Battle in Asia-Pacific, Boston Consulting Group, August 23, 2021. https://www.bcg.com/publications/2021/digital-banking-asia-pacific
    
2. Risk for banks on the rise as digital transactions increase during the pandemic, Dataquest, August 10, 2021. https://www.dqindia.com/risks-banks-rise-digital-transactions-increase-pandemic/
    
3. Bangladesh bank official’s computer hacked to carry out $81 million heist, Reuters, May 19, 2016. https://www.reuters.com/article/idUSKCN0YA0CG/
    
4. Nepal bank latest victim in cyber heists recovers most of the funds, Reuters, November 10, 2017. https://www.reuters.com/article/idUSKBN1D71Y7/
    
5. Business Today: https://www.businesstoday.in/industry/banks/story/nirav-modi-case-pnb-fraud-11400-crore-scam-ed-cbi-raid-101200-2018-02-15
    
6. Managing Financial Crime Risk in Digital Payments, McKinsey, June 24, 2022. https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/managing-financial-crime-risk-in-digital-payments