Combating emerging scams and fraud in the Philippines

The Philippines is expecting digital banking to grow significantly in the next few years. As the second-most populous country in Southeast Asia with young and digitally engaged people, the Philippines has huge potential for digital banking adoption.

Research shows that the country is well on its way to boosting digital banking participation and digital financial transactions as part of the government’s plans to transform the financial sector and improve financial inclusion in the country. Currently, 1 in 2 Filipinos are already using mobile banking services and the number of consumers having a digital-only bank account is expected to double by 2026, reaching 36 percent of the country’s population.

While the convenience afforded by digital banking has seen its popularity grow among consumers, especially post-pandemic, so too has its appeal for criminals. Scammers are attracted to the increase in money flows, growth in some inexperienced users and finding new ways to con consumers online where money is transacted. Banking fraud losses in the Philippines hit P1 billion last year as digital fraud and scams rose alongside the increase in digital transactions.

Top fraud threats in PHL

According to the Bangko Sentral ng Pilipinas, the top fraud threats reported last year are phishing, card-not-present fraud, and identity theft, which could lead to account takeovers and unauthorized transactions. As new digital payment systems such as PESONet and InstaPay are introduced, new fraud threats such as Authorized Push Payment (APP) fraud will also emerge.

In the case of APP fraud, even authentication checks have limited efficacy when fraudsters manipulate consumers or individuals at a business to transfer money to a bank account controlled by the fraudster. The complexity of such scams is that victims are deceived into authorizing these payments themselves, which makes it particularly difficult to detect and prevent.

What’s concerning is that not all customers may be aware of the risks involved in new banking services like real-time payments. As money is transferred near instantly, to a peer or to a merchant, it means that victims don’t have a window of time where they can try to reverse a payment once they realize they have been conned. Fraudsters also swiftly launder it through multiple accounts, making it difficult to trace.

As the volume and value of digital transactions in the Philippines is expected to continue increasing, it demonstrates the emerging threats that scams pose and the need for banks to up their banking security game and adopt real-time fraud prevention.

How to tackle scams

While it’s important to provide customers with the convenience of instant transfers, banks need to engender trust in these systems. To protect real-time payments requires analytics that look for changes in customer behavior such as using accounts or devices outside of their usual habits, as well as the usual anomalies such as the time of day or frequency of transfer. The use of targeted profiling of customer behavior to spot scams yields some impressive results with 50 percent more scam transactions detected.

Beyond these analytics, communication with customers at the right time is also essential. We know scammers rely on creating a sense of urgency so the ability to dynamically add a “break” into the transaction gives the customer thinking time and a way to back out of making the payment.

Consumer education is another important tool that banks can leverage to make customers more aware of this type of fraud. By regularly communicating with customers, banks can provide useful advice on fraud prevention and practical checks that individuals can follow to protect themselves. It is also crucial that banks encourage customers to keep their contact information updated so that they receive timely fraud alerts.

While scams that trick customers into sending money are currently an area for concern, other types of fraud where criminals use people’s card details or takeover their accounts also have a significant impact.

The many and varied ways financial scams are executed means that multi-layered security safeguards are necessary to protect customers, businesses, and banks.

For example, sophisticated digital identity and authentication solutions to create a stronger level of security across products and channels. In the Philippines, text message (62 percent) remains customers’ top choice to verify payments because of convenience. But this first-generation verification method can be easily compromised with scams such as “SIM swap” where a fraudster gains access to your SMS one-time-passwords by tricking your phone company into activating a SIM that they control.

As customers transition to other channels like third-party messaging and banking apps for payment verification, banks need to consider multiple factors of authentication for a layered approach to security. This includes using the tools available to them, such as biometric authentication, which consumers are increasingly familiar with such as fingerprint and facial recognition.

Another key recommendation is to reduce information silos. Effective fraud prevention depends on having a single view of the customer, their transactions, and behaviors. For banks that have different solutions for transaction monitoring and fraud, it is important to remove these silos and overlapping functionality and work collaboratively. Integrated solutions can move more quickly to spot suspicious transactions across different lines of business, accounts, channels and devices.

Using AI to stop fraud

With the sophistication of scams evolving rapidly, banks need to strategically innovate with cutting-edge scam detection analytics to effectively combat fraud.

Artificial Intelligence (AI) and machine learning-driven analytic technologies include sophisticated behavioral biometrics capabilities and scam detection scores that can help spot and prevent fraud. By analyzing customer and contextual data from a range of sources and behavioral biometrics, these technologies can significantly improve detection accuracy, identify types of fraud taking place and inform decision-making in real-time to stop fraud quickly.

It is becoming increasingly clear that siloed, on-premise, single-focus solutions are a significant loophole exploited by criminals. They test everything from how authentication checks are made across products and channels to what types of activities and amounts trigger verification checks.

An integrated, enterprise-wide fraud platform enables banks to design and adapt rules dynamically to emerging fraud types and execute machine learning models based on targeted profiling of customer behavior to determine what’s a scam and what’s normal banking activity.

Ultimately, this is a win-win as banks in the Philippines can improve operational efficiency, reduce losses due to fraud, and achieve higher levels of customer satisfaction.

CK Leo is FICO’s leader for fraud, security and financial crime in Asia Pacific