Post-Covid digitalization has also seen a spike in fraud and malicious activities. Companies need to take extra precautions to protect their customers this year.

From the metaverse to breakthroughs in generative AI, 2022 was quite a year for technology.

Post-pandemic digitalization continues to transform the way digital commerce and financial services are being delivered and adopted, particularly in Southeast Asia.

The evolution of AI technologies such as machine learning and biometric verification is changing the way financial services and digital commerce operate, creating an ever more seamless and delightful customer experience.

However, alongside the emergence of new technologies, digital security and fraud threats are also on the rise.

A recent data breach in Malaysia saw the personal information of over 13 million citizens sold online.

Indonesia also saw one of its biggest data breaches where over 1 billion Indonesian SIM card data was stolen and listed on the Dark Web for sale.

In Singapore, data of an alleged 2.6 million user accounts from online marketplace Carousell were compromised and sold on the Dark Web and hacking forums for $1,000 a pop.

Unfortunately, these cases are only the proverbial tip of the iceberg.

With increased reliance on digital systems and the adoption of new technologies, businesses are facing a greater risk of fraud – especially in e-commerce, crypto, and financial services. Stolen personal information then finds its way into subsequent onboarding processes or fraudulent activities.

As such, here are my three key forecasts for 2023 and how businesses can protect themselves.

#1: Rise of round-the-clock synthetic and syndicated fraud

Phishing, which involves luring victims into revealing sensitive information or money, continues to be one of the most common digital security threats in Southeast Asia.

With the growing ubiquity of work-from-anywhere, e-commerce, and digital payments, increasingly sophisticated syndicates are also upping their game in exploiting vulnerabilities from insecure networks and lax customer onboarding processes.

Of increasing and urgent concern is the rise of synthetic identity fraud.

Here, fraudsters use AI and machine learning to combine legitimate and fake information, e.g. using a national ID number bought from the Dark Web together with a made-up name and date of birth.

Their intention? To defraud retailers, government agencies, and financial institutions by creating thousands of fake accounts at scale.

Unlike regular fraud or identity theft, synthetic fraud is much harder to trace because subsequent transactions on these accounts cannot be traced to any one victim or person.

According to Worldpay’s Payment Risk Survey, 61 percent of merchants in Asia-Pacific reported higher numbers of incidence involving synthetic identity fraud – the most among regions globally.

This is the trend we have seen at ADVANCE.AI as well, where syndicates have registered hundreds of accounts on crypto platforms from one or a few individuals.

#2: Robust identity verification will be business and customer imperative

As fraud losses continue to mount, robust verification will become a business imperative and not just a “tick-in-the-box” exercise.

Quick, secure, and accurate digital identity verification and customer onboarding processes will be the first line of defense against fraudsters.

These include implementing remote Know Your Customer (KYC) processes that use frictionless biometrics powered by AI to verify user identities.

Beyond banking and financial services, KYC will be used in other sectors requiring new user account set-ups including the payment, retail, hospitality, healthcare, and e-commerce industries.

Demand for Know Your Business (KYB) will only increase as businesses will want to verify the legitimacy as well as the ultimate beneficial owner of the companies being onboarded.

This is the same for Know Your Transaction (KYT) monitoring, which tackles the high incidence of fraud in transactions real-time.

Consumer and public education around digital identity hygiene is also crucial, especially in emerging markets where a significant digital divide and knowledge gap remains.

#3: Compliance and regulation will become a strategic business advantage

In the US, Coinbase agreed to pay a $50 million fine for charges of insufficient new user background checks, as well as spend another $50 million to bolster its compliance program.

As the dramatic fallout of FTX and other high-profile crypto lenders continue, expect a renewed focus from regulators over stricter standards around KYC, customer due diligence (CDD), and transaction screenings, as well as anti-money laundering or combating financing of terrorism (CFT) controls.

We will see increasingly tighter compliance and regulatory frameworks drafted into law this year as they are vital and necessary for governments to empower the digital economy while minimizing risks.

However, it is not just the government’s job to protect users; businesses also have an imperative duty to comply with evolving regulatory standards while ensuring customers’ safety, such that it becomes a competitive strategic advantage.

Companies that ace their onboarding journeys can not only meet their customer acquisition targets quickly and enjoy higher rates of conversion but will also have an ease of mind knowing that their platforms are not being abused by criminal syndicates who are laundering stolen funds or defrauding others.

This is a joint responsibility by both the public and private sectors.We must pave the way for a safer, more robust digital advancement and customer adoption, as well as digital and financial inclusion for all.

David Pan is Head of Solutions Consulting at ADVANCE.AI, a Singapore-based regional leader in digital identity verification, fraud, and risk management solutions.

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