Why bancarization of LATAM cause a spike in online banking fraud


Individuals living in Latin America have been slower to take to mainstream banking. Culturally, there just doesn’t exist the same level of trust in banks and in digital channels to look after hard-earned money, as arguably exists throughout Europe and the USA. Instead, apart from the operations of larger businesses in the area, a large proportion of the population was used to conducting transactions mainly in cash.

Banking in Latin America

In addition to this, internet penetration in Latin America is very low relative to other countries where banks offer digital services to their customers.

In 2018, it was recorded that just 59 percent of the population of the region had access to the internet, meaning it has also been slower to adopt digital banking and online payment services than its North American neighbors.

Both of these factors mean that bancarization – a term used to describe the measurement of access in countries or regions to financial inclusion such as banking services, including online banking services – has been slow to gain momentum in Latin America.


According to McKinsey this time last year, approximately 70 percent of the population over the age of 15 were unbanked or underbanked.


 

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Effect of Covid-19 on Latin American banking

However, Covid-19 has dramatically altered this landscape of financial inclusion. There has been an extensive migration of customers to digital services including online banking and e-commerce as a direct result of the pandemic.

Online card payments in Chile, for example, more than doubled at the end of March 2020 compared to the same period the year before.

In fact, new research commissioned by Mastercard and prepared by Americas Market Intelligence in April of this year shows that 55 percent of consumers in the region now have a bank account and over 50 percent of these consumers are conducting their banking transactions online.

This is for many reasons:

  • Many physical branches of banks along with other retail premises closed during lockdown, meaning that the only way in which to conduct transactions has been via online services
  • Government aid during the crisis has been distributed through the digital system, which means customers have had to sign up to online services in order to access these funds
  • Social distancing has accelerated what was a gradual, global move to contactless payments from using cash, meaning Covid-19 has expedited the shift towards a cashless society.
  • Latin America has a young and growing population which contributes to faster growth such as more rapid adoption of digital services.

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Ultimately, the way in which money is moving in this region is no longer majorly in cash but is now more often traveling via digital channels.

This is good news for the countries located here – many of Latin America’s banks and fintechs will enter the post-pandemic landscape with vastly improved digital offerings for customers, bringing huge benefits to smaller businesses and people living in the area.


Latin America is expected to remain the growth leader in banking as it continues to close the banking penetration gap. And yet at the same time, these advances are bringing with them serious risk.


 

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Key risks of bancarization in Latin America

Although a general move to online banking was gathering momentum here before the pandemic, the banking and e-commerce industries in Latin America have been forced to accelerate to meet the scaled demands created by Covid-19.

Unfortunately, this means there has simultaneously been a huge increase in the opportunity for fraudsters to commit online banking fraud in the region.

The customers themselves are not used to banking online. The most common fraud attacks, including social engineering attacks such as phishing attacks, will suddenly be extremely effective for fraudsters, as customers will have had no previous experience of online services and will not know what to deem as suspicious activity or what to look out for and avoid.


The pressure to rapidly scale and digitize services means there is a concern that security has not been top of mind during the process.



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This should be worrying for banks: customers will be worried about the safety of handing over their money or keeping it within the digital system, whilst their business will suffer if many such attacks succeed and a lack of trust becomes pervasive in the industry.


The reason there is such vast potential for online banking fraud in Latin America is that fraudsters can commit fraud from anywhere in the world.



It will not be the same story of cat-and-mouse games banks and fraudsters have played in countries where online banking and online banking fraud progressed together, as the fraudsters who will be targeting Latin America have already honed their techniques.

The opportunity to exploit the rapid bancarization of Latin America will attract organized and highly-skilled cybercriminals from around the globe, who will be extremely well-equipped to circumvent rudimentary cybersecurity and perpetrate online banking fraud.

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Building customer trust while maintaining a frictionless user experience

Banks in Latin America must make security a priority during this uncertain period to avoid huge losses on behalf of customers and damages to their businesses due to a resulting loss of trust that will be hard to rectify.

They can do this by staying one step ahead of sophisticated fraudster techniques by deploying advanced security measures now that will ensure they keep customer funds safe.


The only way in which to guarantee protection from online banking fraud is by ensuring that customers are who they say they are and have not been manipulated or taken over throughout their entire online session.



Only this way can they avoid particularly sophisticated attacks such as ones including remote access trojans (RATs) – where a fraudster can hijack a user’s online banking account mid-session after they have logged in – or injections of malware into a session.

A solution combining deep learning and behavioral biometrics can accurately verify a user’s identity throughout their entire online session by analyzing thousands of parameters unique to each user’s typical behavior such as the way in which they type their name or move their mouse.

Deep learning means the solution becomes increasingly accurate to each user every time they log in, while users’ identities can be validated continuously and invisibly, maintaining a frictionless user experience.

In this way banks in Latin America can ensure their post-pandemic landscape includes enduring success, with the shift to online banking services emerging as wholly a good thing, continuing safely and with customers’ full trust.

 

Posted by Tim Ayling

Tim Ayling is currently the Vice-President EMEA at buguroo. With over 20 years' experience in the cybersecurity and anti-fraud industry, Ayling began his career in technical support, and moved on to System Engineering. He began his leadership career when he established Entrust Inc. in Australia in 2003 and was made Vice-President Asia Pacific in 2006. Ayling has held numerous leadership roles in large cybersecurity vendors, including serving as the Global Head of Fraud Prevention Solutions at Kaspersky Labs, as EMEA Director of Fraud & Risk Intelligence at RSA Security, as well as spending time in the cyber-security practice of KPMG.

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