How Fraud and Financial Crime Will Look in 2025

Podcast Transcript

Rich Williams:    Financial crime and the reasons behind it are continually evolving which is exactly why during this year’s Aite Financial Crime Forum four leading fraud experts shared their views about what we can expect when it comes to fraud and financial crime in the year 2025. How should we prepare for it?
    Hello, I’m Rich Williams, host of the Payments Podcast and today I’ll be speaking with Omri Kletter VP of Cyber Crime and Fraud Management at Bottomline and also one of the panelists during the Aite session on how organisations should prepare to stay ahead of new trends and forms of criminal activity.
    Hi Omri, first time on the show so a big welcome to you.

Omri Kletter:    Thank you, pleasure to be here and looking forward to our chat.

Rich Williams:    Let’s go straight into it then, one of the first questions during this panel was focused on the technology in play around financial crime and looking at machine learning and data analytics in particular. How rapidly do you think the landscape is set to change over the next five years and do you see a move to Cloud-based real-time monitoring something which is likely or inevitable?

Omri Kletter:    Brilliant question, and obviously this is one of the questions we ask ourselves as a panel when we had the luxury to have different points of view from different geographies. It’s always interesting to reflect on these questions. It’s very hard to forecast by nature, but we did want to have this kind of panel in Aite and to have the ability to plan. Because on one hand obviously, it’s quite a challenge to think what will happen in five years, I’m mentioning it and we’re having this recording in really unprecedented times in history. No one four or three years ago even one year ago would expect how this year will look. So we need to be quite humble when we’re trying to reflect and to focus on what will happen in the future.
    Nevertheless, when we’re managing big programmes, big organisations we must take some assumptions as we plan and I would say the conflict between understanding the complexity in forecasting but also the need to have assumptions as we plan ahead, and we are obviously living in an industry, in a discourse that is super vivid, we are seeing the changes all the time. This is really one of the main topics for us as a society, we are going much more into the digital war, the question is how we protect ourselves from financial crime is becoming such a core element to what we do.

    So that’s almost a kind of preamble to this discussion. When we think about the next five years, and maybe just one comment around COVID because obviously we don’t want to make it a COVID discussion; one thing that we should remember is that what we’ve seen in the last 6 to 9 months is that processes that would have taken 5 to 10 years to mature, right? Digitalisation, remote access, changes in how we operate. By the way, all of the things we’re seeing now were forecasted to be a slow process, but they were kind of condensed into a few months.
    So I believe one thing that we can definitely predict, and it obviously impacts your question around financial crime and data and analytics and how the lens cap will be changed, is the fact that we are predicting constant change in a much more rapid element. That must be one of the fundamental concepts when we are designing the solutions.
    So that’s kind of where I would start from here. When you think about the changes, your point around the next five years in technology, before we dive into technology, I think bottom line we have a unique point of view, not only because of what we do but also because of where we sit. We sit in different junctions in what I would call the business payment life cycle and it allows us to see some unique activities. Hence, before I touch on the question of the specific changes I want to highlight three main things that are changing in parallel and these are the main drivers to the changes in technology which you are asking for.
    We are seeing dramatic change in fraud and AML as what I would call specific topics, for example in fraud we are seeing higher attacks than ever, and that’s because of some social changes. We are seeing higher fines in AML work, we just saw in the news a few elements on how the AML topic is bubbling and taking, I would say, top headlines in our environment.
    So fraud and financial crime, as a discourse, as a topic is kind of going through dramatic changes that are practically making it more and more lucrative for the bad guys to operate. This is only one element, the second element is the payment element, which is a standalone activity right, is also going through dramatic changes. We’re seeing a drive for colonisation, we’re seeing all the changes with the latest ISO so more and more traffic is being represented in a single manner. That’s a dramatic change that we are obviously supporting in Bottomline, put aside our cybercrime and fraud business, this is core to who we are and what we do.
    I’m saying it because in addition to the changes on AML there are specific changes in payment that are impacting that. I talked about colonisation, I should definitely mention the fact that in many areas around the globe and here in the UK we are doing. It for many years, but not necessarily in other places. We are seeing drive into instant payments and into faster payments as a concept, which again have dramatic impact on how fraud and AML should react.
    That point would be obviously open banking, so the concept of who is the customer that’s reaching out to the entity and how this customer is being represented is going through dramatic changes.
    We talked about the changes in fraud and AML as a stand-alone activity, we talked about the changes in payment as, if you like, the ecosystem where fraud and financial crime takes place. The point is there is a third dramatic change around technology itself. So the moving to the Cloud, the availability of data science as a main practice- by the way, five years ago if I would have asked you, “Richard, do you have data scientists in your organisation?” You would ask me, “Who is a data scientist?” So we are seeing a new paradigm around data, around analytics and everything available through the Cloud.
    So these are the three forces, the changes how we think about the changes in fraud and financial crime in the next five years. If you ask me what are the key things we will see changing in the technology, and that was part of the question that started the Aite panel. I am expecting changes in three main things, one is around data, so far data- fraud and financial crime is still too much structured, still too much time and effort for organisations is being invested in making the data available. I believe that we will see a dramatic change over there.
    I can tell you that here in Bottomline we are investing a lot in making data much more accessible, much more easy to consume and I would introduce to you the concept of consumability. So data is one thing. Analytics, we talked about data science; one thing that I’m expecting to see in the coming years is the technologies and focus around self-development and machine learning. It was mainly being experimental in the tier one banks who will become much more available, much more common across the industry to tier two, three, four and corporates. That will be a dramatic change, the idea to combine both artificial intelligence with expert pitches and history, so that will be a second thing. 
The third element will be around investigation, and we’ll talk about it later during the discussion. This is again an area that I am expecting to see going through disruption and dramatic change. So data analytics, data investigation, I gave a few examples I believe to your question, areas where we’ll see changes in the coming five years.

Rich Williams:    Thanks Omri, a very comprehensive start to the podcast there. I think to your point there about Bottomline being uniquely positioned. We’ve mentioned this on the podcast before several times, we look at people, process and technology and I suppose data fits in there nicely as well. 
    We’ll come on to some of these topics again later in more detail particularly around anti-money laundering. For the second question I have for you, the other panellists were asked whether they think it’s evolutionary or revolutionary change which is required within financial institutions to react to this changing payments landscape or financial fraud and crime landscape. What’s your specific take on that?

Omri Kletter:    It’s a very good question, and I think it’s a good question also because it helps us to think what is the magnitude of change we need to embrace? That’s generally when we think about organisations, when we think about evolution we think about, this is almost BAU type in line with the growth that we are expecting to do. Let’s upgrade some of the processes, let’s maybe invest more in increasing the development team, and that’s fine. It would be an example for something that is more or less working.
    When we think about evolution we think about areas we will really need to do things completely differently. I think the reality for organisations is that they will need to first, and I think that’s almost a tip to the audience, identify what are the things that actually if you just evolve them you should be fine? Let’s be real with ourselves, this is super important in the environment we are living in, we must be much more candid with ourselves and identify the areas that we really need to evolve.
    I can tell you that I’m doing the same with my teams and this kind of concept and this kind of tool of identifying what is working and let’s evolve in a BAU business in usual mode. What are the things that really need disruption? Is a key element for us as leaders and managers. If you ask me what- again I believe we’ll see a combination of both from most organisations. 
I do want to highlight a few things that really require revolution, and one of them for me is how we deal with investigations. I think so far, if you reflect back on the last few years, because obviously fraud and financial crime, and we were saying it across the service we are doing, across the positive friction we’re having with the industry. I know in these podcasts for example we discussed a few times our payment barometer and things that we are seeing. One thing that is clear, fraud and financial crime is becoming higher and higher on the headlines for the C level leadership in each and every organisation, this is true both for banks and for multinational corporates.
I think with that, what are the areas we need to revolt? Really create a revolution in the world of fraud and financial crime. I think it’s connected to what we discussed before on data analytics and investigation, but I want to go and give specific examples around the investigations and how we analyse things.
So far the way most organisations deal with the increase in data or the increase in traffic, people create- think about us as each and every person, even the two of us Richard, we create more signals. Even this call creates more and more signals, and it will be recorded, and we’ll have more and more meta data related to that. It means by definition if the amount of traffic was doubles or tripled in the last few years, by definition it means that the number of alerts and the number of events and incidents that require phone financial crime experts to review and to make a decision whether to make a sale of to stop the payment because of fraud is increasing.
So far the way organisations dealt with it is to through more people into the floor and that was great if you are a fraud and financial crime expert it means that you are in greater need. My point of is that it can scale, I think organisations won’t be able just to throw more people into the fraud operation floor or for the AML compliance investigation team. We will need to do something different here, I can tell you exactly that we are heavily investing in making an eight-minute investigation into a three-minute investigation. You can do it only if you are doing a dramatic revolution in how you deal with this kind of investigation task. You need to bring much more automation into the process, much more visualisation into the process.
Again we are in a unique point of view where we are sitting in a good place between being a data hub and sitting just before the payment leaves the organisation. Which allows us to really understand how to build this process properly. I do want to highlight that the industry must go through a revolution in the way it deals with alerts and with incidents and I think so far the industry just threw more people into the pile. I think we will see in the coming years a need to reduce some of the costs around fraud and compliance and that could be driven through automation, visualisation and just a smarter approach.
I can see it going through some upgrade processes for this specific problem, I hope it makes sense but that’s my take on that.

Rich Williams:    Yes, interesting point there about the scalability of how to actually analyse the data and it seems like it’s growing exponentially. Bad news then for anyone that was hoping for a COVID immune job description.
    Moving on slightly to regulations now which is always a popular topic due to the fundamental effect it has on financial institutions and all of us fundamentally. How likely is the regulatory environment to evolve over the next five-year time period?

Omri Kletter:    I think regulation will again go through some changes and I’ll explain why. First of all so far we’ve seen regulation being a bit reactive to stuff, there is a problem and the regulator steps in. Because of the changes in the rapidness of changes, I think this is one area we’ll see changing, so we’ll see a much more proactive approach from the regulator, I’m speaking with several of them and they understand there is a need to change the way they operate. Not necessarily trying to find a solution to a problem that is soaring rather trying to put the remedy even before the problem comes.
    So I’m expecting to see much more proactiveness. I know that you have a few interesting panelists to join this important podcast in the future and I believe that we will hear more and more a proactive approach that is less reactive to what’s happening. So that’s one thing to mention.
    The second thing is the dramatic change around fraud regulation. I’m in this industry for quite a while and I was always more focused on fraud and AML, I was looking from a fraud point of view, to be honest quite sometimes jealous of the AML guys. Because it was very easy to convince the board or the execs to invest in AML because AML used to be a regulatory-driven business where fraud was more like a P&L, “How much we are losing currently?” It’s more it’s our own decision how to react and how to deal with fraud.
    The changes we’ve seen in the last few years, and to your questions around the changes in regulations in the coming years and I’m expecting this trend to be even stronger than the last few years is fraud becoming a more and more regulated area. We are seeing it now with how the industry here in the UK, for example, react to APP fraud, Authorised Push Payment fraud as a phenomena and trying to create some rules and logics. We have invested heavily as you know in bottom line and finding specific remedies to some of these problems like information of payee. Which again, a case where the industry and the regulators are trying to find a better way to protect victims.
    We’ve seen it also with PSD2 where again the European regulator is trying to put for the first time exact rules on how authentication and fraud processes should take place. So to answer your questions, what are the changes we are expecting to see in the next five years? I think throughout the panel there was quite a unanimous point of view on that, one is a move from being reactive to proactiveness and the regulators will try to set the scene for the future problems compared to just focusing on solving yesterday’s problems. We want to go beyond that.

    The second thing I’d like to discuss now would be changes in how fraud is becoming more and more regulated, and this is also one of the reasons we’re seeing a convergence between fraud and AML. We would like to be in a position where we are solving more than one problem and I think the perfect storm in technology allows us now for example. We are more and more involved in projects and programmes for clients where they’re asking to do both, for example sanction screening and watch list screening together with fraud detection on the payment. Because the point of view that both these things are now being regulated, regulation will come stronger in the coming years, “We want you Bottomline to solve two in one,” and that’s for us a very important focus area.
    So we talked about moving to proactiveness, we talked about the changes in fraud. The third thing that I think is critical when you think about regulation is actually more and more responsibility on corporates and not just on banks. I think there is almost a dramatic gap between how banks are being scrutinised for fraud and financial crime. It could be the smallest building society up there in the North compared to how multinational corporate, you and I can think of several examples where actually from a magnitude perspective and the number of payments they are doing a day would be larger than a bank. Still they’re controlled, their point of view on the responsibility on fraud and financial crime is quite immature.
    For me, we talked about being proactive, we talked about the changes in fraud. I would say that one of the main things we’ll see in the next five years in terms of changes in regulation is how corporates will be more and more under scrutiny and pressure to step up their game from a fraud and financial crime perspective. Again for us this is key in Bottomline because when we think about our focus on business payments we are not limiting ourselves for banks or financial institutions. We see a great pride in the fact that we are helping thousands of corporates around the globe not just to pay and get paid but also to put controls for fraud and financial crime.
    This is for us a key focus area and I believe again if we have in the audience someone that is actually a more powerful corporate than a bank, I think we’ll see more and more corporates trying to hire experts for fraud and financial crime and doing more activities over that.

Rich Williams:    Thanks Omri. I think I probably know the answer to this next question, but I’ll ask it regardless; do you see innovation in technology helping with these regulatory changes over the next five-year period?

Omri Kletter:    Yes, I’m not surprised you know the answer, I think by the way technology is being used not just by us the good guys, also the bad guys. So we must embrace technology I would say at the same level and speed and creativity that unfortunately the bad guys are using. We’re seeing for example how the bad guys are evolving their game in sharing tactics and having their own networks and communications on the dark web. I’m expecting us, and I think the reason I’m saying us is because we need to break the wall between the three players; the regulators, the FIs or the corporates and the vendors. 

We need to see how technology helps this triangle much more closely. That’s our aim, we are building a platform where organisations can work together to fight financial crime. We are investing heavily in the ability to share intel, to share lists of mule accounts or whatever is needed for not just one organisation to benefit but really to embrace the value of community. There is a string connection between the value of community and the fact that the technology of 2020 and 2025 enable us to do it, mainly with Cloud and the ability to share data and to store data with big data capabilities and run analytics much faster.

So the technology is going hand in hand with what is needed and what I’m expecting us to see in the next five years, as I mentioned before we have string platforms where we’re allowing corporates or banks to fight together on financial crime. 

Rich Williams:    So Omri, let’s bring this podcast to a close now if I may and look at our final question; there’s a lot of talk about real-time monitoring of money laundering and fraud in the industry and the challenges that presents. In fact you mentioned it earlier on in the conversation. What do you think this could look like in 2025?

Omri Kletter:    I think the question of how to deal with real-time, so far the focus is not on fraud and financial crime, and I think this question is so perfectly in place to end our discussion. Because I think it’s a good time to think, “What are the implications of fraud and financial crime around real-time?” I’ll go beyond obviously what is being done in the UK for several years.

    Think about APP again, Authorised Push Payments as a problem that by the way holds both fraud and financial crime. Because if we are talking about the fraud element of victims that are losing their entire savings because they authorise the payment as part of an investment scheme or investment scam I should say, we will see more and more problems that we must put controls around them. I’ll give an example; mule accounts, which is again a flip side of APP fraud because APP fraud payment will land somewhere in a mule account. Should we think what are the real-time controls we want to do from an AML perspective? So far AML was always the story of T plus one, I’m talking mainly about transaction monitoring.

    Obviously with sanctions and with real-time payments fraud these things are implying that real-time elements in fraud and financial crime should be increased. So I think they are specific, to highlight the specific problems that will require real-time solutions. Mule accounts would be a good example, account opening and applications, this is one of the main changes I would say in the digital world. We are in a payments environment that went digital for a while but traditionally many of the applications were still not in real time. We’re seeing more and more creation activities, applications activities that are real-time and have real-time manners and hence will require real-time for the AML controls.

    The good news from a technology perspective is we are in a much stronger position to do it, we go higher on the transaction per second, we can consume, we can store more data, we can use more advanced analytics, we can make the process go live much faster. We are aiming to allow organisations to go live with fraud and financial crime solutions within weeks and it used to be a future science to think that organisations can have proper fraud controls within weeks since the onboard solution.

    So I think the question is super valid, I think it’s almost a good invitation for another podcast for us to discuss what are the full implications of real-time? I gave two specific examples; mule accounts and account openings and applications that I believe will require changes in how fraud and financial crime think about real-time.

No question about it, in 2025 the community will be less forgiving for not providing real-time remedies to real-time problems. This is high on our investment teams, I believe this is high on the investment team of each and every organisation and I’m looking forward to see us more and more interacting with the industry on this specific point.

Rich Williams:    Omri thanks so much for your insights and your time on today’s podcast and I hope you’ll join us sometime again in the near future.

Omri Kletter:    Same here, I really enjoyed the conversation, I’m looking forward to having more like that.

Rich Williams:    Financial crime is always a topic we like to discuss on our channel. Not only because it constantly changes and issues interesting debate, but it’s also a topic that organisations need to be extremely mindful of. This has been a really good look into how innovation and new technologies can impact organisations over the next five years when staying ahead of new trends and forms of criminal activity.


    Unfortunately that is all we have time for today, but as usual you can listen to more episodes on all things payments at the touch of a button using your preferred provider, and we’ll see you all next time.