Malaysian financial institutions face challenges in driving digital transaction growth

PETALING JAYA: More than 50% of financial institutions (FIs) in Malaysia see identity verification (58%) and cyber fraud prevention (50%) as key challenges in driving digital transaction growth, according to GBG, a specialist in fraud, identity verification and location data intelligence.

It was reported that Malaysia experienced RM153 million of losses as a result of cybercrimes in the first five months of 2019.

About 47% of FIs in Malaysia indicated fraud detection while digitally onboarding new customers as the biggest challenge, which is higher than the Asia Pacific (Apac) aggregate of 37%, as revealed in GBG’s inaugural report in Malaysia, “Future-proofing Fraud Prevention in Digital Channels: Malaysia FI Study”.

GBG Apac managing director June Lee (pix) said this was due to the high penetration of mobile utilisation in the country and Covid-19 has increased the number even further as consumers are driven to perform financial transactions now.

The second biggest challenge indicated was identity verification of new customers for account opening (33%).

“Think about how we get through our day. The massive amount of personal data that we leave in the trail, from accessing our social media account, posting a video online, getting on the e-commerce platform to buy groceries, collecting and uploading data to the cloud from wearables like Fitbit... all these activities make cyberfraud easier to administer. FIs are even more vulnerable to these cyber activities,” she said in a virtual media briefing today.

The ability of Malaysian FIs to manage fraud in the entire digital customer journey is, however, not yet on par with the progressive pace of digitalisation.

“In most cases, the digitalisation of the product move at a much faster rate than the adoption of technology to protect and defend against cyber fraud. The Covid-19 pandemic also helped to escalate the volume of cyberfraud attacks with our increased online dependency,” added Lee, who is based in Singapore.

This gap will be intensified as over 25% of Malaysian FIs plan to ramp up their rollout of instant banking and credit facilities, particularly instant bank account application, instant loan and instant credit card application. Instant financial services are of huge interest to consumers, providing them immediate gratification in obtaining financial support and merchandise, but fraud detection and prevention for these services are still in the nascent stage and both organisation and consumers could be more vulnerable to unchartered fraud types.

For FIs in Malaysia, digital banking and cashless services have gone mainstream and are pegged to overtake the average Apac rate of adoption this year, in particularly e-banking, e-statements, and e-wallet services. The indicators reflecting Malaysia’s growing digital lifestyle preference can be seen from their relatively high smartphone penetration at 78%, and the readiness in its internet infrastructure from the 80% penetration rate of their 4G networks.

From the research, all fraud typologies from social engineering, first party fraud, cyber attacks and anti-money laundering are projected to rise in 2020-2021. In particular, 54% of the FIs in Malaysia are expecting an increase in scams and 51% on stolen IDs.

“Looking at 2020-2021, the Covid-19 pandemic will continue to push people and businesses to take digital-first approaches to financial transactions. Our research indicates that 21% of FIs in Malaysia have started to lay the groundwork in establishing end-to-end fraud management platforms. However, the expected growth in scams would require added layers of data intelligence to assess the digital tools which are used to onboard and transact with the financial organisations, as well as to obtain a better holistic view of the intent and integrity of the individuals.

Meanwhile, Lee pointed out that at least 60% of the FIs in Malaysia have approved budget to invest in cyber fraud solutions this year, but noted that only about 20% of FIs are currently equipped.

When comparing Malaysia and other Southeast Asian countries, Lee said Malaysia has done well and is advanced in terms of having a Risk Management in Technology policy and a fraud bureau that allows banks to share information of fraudsters.

“Fraud mitigation is not just about technology, it’s also the people, processes and policies. You can have the best technology, but human can be your weakest link. Banks need to look at all the different areas. All these, coupled with implementing some of the latest technology, can help to mitigate wide-ranging fraud. In addition, we encourage FIs to come together to have a regular sharing session on the trends they see in the market.”

GBG worked with The Asian Banker to conduct the survey across 324 respondents from FIs in six Apac countries, including Malaysia.