{"id":4031,"date":"2023-06-27T12:08:51","date_gmt":"2023-06-27T12:08:51","guid":{"rendered":"https:\/\/innovationisrael.org.il\/en\/?post_type=report&p=2772"},"modified":"2023-08-15T10:38:13","modified_gmt":"2023-08-15T10:38:13","slug":"the-dark-side-of-digital","status":"publish","type":"article","link":"https:\/\/innovationisrael.org.il\/en\/article\/the-dark-side-of-digital\/","title":{"rendered":"The Dark Side of Digital"},"content":{"rendered":"\n

“Preventing financial crime is a multi-billion-dollar industry”, says Yuval Marco, General Manager of the Fraud and Authentication Management Business Unit at NICE Actimize<\/strong><\/a>. According to Marco, in 2020 alone, banks and financial organizations were fined more than 10 billion dollars by various regulators for insufficient effort and underachievement in preventing money laundering. The losses as the result of fraud are even greater: 50 billion dollars just from identity fraud, i.e., when criminals steal the identity of others and take over their bank accounts or create fictitious identities and open accounts via which they conduct their criminal activity.<\/p>\n\n\n\n

“These numbers are very large, and, for several reasons, we believe that this criminal industry will only continue to grow”, says Yuval Marco. “The first reason is that the crime organizations are becoming increasingly sophisticated \u2013 and they also use Artificial Intelligence and machine learning”.<\/p>\n\n\n\n

The second reason Marco mentions is connected to the leading trend of recent years and one which has grown during the Covid crisis \u2013 the accelerated transition to the digital world. Financial services organizations have adopted a strategy of moving rapidly to digital, and a process that was supposed to take several years has happened very quickly. Financial organizations now allow more customers more digital possibilities. One can even apply digitally to open an account with a new bank without being physically present even once. “On one hand, this offers benefits for the customer but on the other hand, it also creates risks for the financial institution”, Marco says. “We can already see the beginnings of financial crime changes, and this is expected to continue in the future. <\/p>\n\n\n\n

Another significant trend pointed out by Marco is that of faster payments. Today, money can be transferred to another person at the click of a button, and the funds become available for immediate use in the recipient’s account. This means that the time the banks have to analyze the transactions and to ascertain whether it poses a risk has been significantly cut down to milliseconds. This necessitates a transition to advanced technology that can analyze the risk in a fraction of a second. <\/p>\n\n\n\n

According to Marco, all these processes lead to better customer experience, more business opportunities for the financial institutions, but also more crime and more money that needs protecting. This situation is exacerbated by the fact that unlike financial institutions that adhere to regulation, crime organizations make use of sophisticated technologies without any regulatory or ethical inhibitions. <\/p>\n\n\n\n

A Market of Fraud Prevention Solutions<\/h3>\n\n\n\n

NICE Actimize supplies financial crime and compliance solutions to organizations of all sizes including the world\u2019s largest global financial organizations, for preventing money laundering, fraud, and market manipulation. The company \u2013 founded more than 20 years ago \u2013 was subsequently acquired by another Israeli company \u2013 NICE. “If you look at NICE as the parent company, Actimize is the division that focuses on outsmarting financial crime with intelligent solutions”, Marco explains. NICE Actimize has more than a thousand employees and we serve customers located in more than 70 countries around the world. <\/p>\n\n\n\n

“We presently lead the market and work with approximately 750 financial organizations worldwide, including the leading ten global financial services organizations, and we cater to the full range of needs, from packaged, fast to deploy SaaS solutions to customized solutions including self-development capabilities for the more mature organizations”, says Marco.<\/p>\n\n\n\n

“Our solutions are installed at the financial organizations themselves or in the cloud and our platforms continuously receive information about every transaction that the institution executes”, Marco explains. “We also receive ongoing relevant data to identify financial crime such as lists of criminal elements or other supplementary solutions that provide additional information, for example, about the device from which the transaction was executed \u2013 who it belongs to and whether certain apps or software are installed on it.<\/p>\n\n\n\n

“We run the analytical models and AI with the aim of informing the organization of the risk level for each transaction. “If we identify a risk of money laundering or fraud, we can disrupt the transaction, step-up the authentication (e.g., send one-time-password to a trusted device) and alert the company of the suspicious activity”, Marco clarifies. “We also provide them with intelligent & automated tools in order to complete the investigation of suspicious accounts. The outcome of the investigation (ascertaining whether it is fraud or not, which type etc.) is being used to continuously optimize our models and improve the precision.<\/p>\n\n\n\n

“In the world in which we live, the more data you have, the better job you can do”, Marco explains. “But to obtain the data from different sources, transform, correlate, and integrate it, takes a lot of energy and time. In practice, studies in this field show that about 40 percent of the organization’s fraud prevention expenses are spent on the acquisition and integration of data sources, and on making them operational. <\/p>\n\n\n\n

Understanding of this problem, the company launched X-Sight Marketplace, a cloud ecosystem of sellers and end customers \u2013 just like the Google Store. Customers can choose the solution they want to connect to their NICE Actimize solutions.<\/p>\n\n\n\n

“Part of the innovation here is the advantage in using the cloud to save our clients the hassle of integration. It significantly enhances the ability of these organizations to add information and intelligence to our platform in order to improve their identification”, says Marco. “The Marketplace is part of a broader platform called X-Sight. Every 1-2 weeks, we release new features that enable us to cover a whole world of complementary solutions for preventing money laundering and fraud. For example, when we saw criminals creating accounts and using them for a whole range of purposes, we launched a specific solution”.<\/p>\n\n\n\n

One fraud method that has developed rapidly in the US over the past year is that of synthetic identity fraud \u2013 in other words, criminals steal different identities and use them to create a mixture \u2013 one person’s name, another person’s address etc. To identify such cases, NICE Actimize checks when and where else a certain identity was seen and its level of credibility. Was the user’s email address created only recently? Does the same identity appear on the Dark Web \u2013 the hidden internet network that is used by dubious parties and where identities can be bought? We do this by collaborating with companies that specialize in these specific areas”.<\/p>\n\n\n

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How to Bypass the Problem of Privacy?<\/h3>\n\n\n\n

“Questions are raised in the world of analytics about how to use Artificial Intelligence to identify risk. This is the point to mention two concepts: Federated Learning and Online Incremental Learning”, Marco says. <\/p>\n\n\n\n

When criminals see that a scam or fraud works, they replicate it at other banks so there is tremendous value in the sharing of indications between our clients as part of AI. “Our clients’ data flows to the cloud but due to regulation and their cybersecurity requirements, each of their customer’s data is stored separately. The Federated Learning method enables us to take a model from Customer A and use it as part of a model that we provide to Customer B”, Marco explains. “In this way, we can share data without exposing the customers”.<\/p>\n\n\n\n

Danny Butvinik, the company’s Chief Data Scientist, adds: “We can’t ascertain the identity of the specific customer from the insights we gain. These are merely parameters, not names, but these variables act as the foundation for building models that serve everyone. In this way, everyone gives a little but receives a lot so that every client of NICE Actimize, whatever the size of their company, can benefit from this method”. <\/p>\n\n\n\n

NICE Actimize’s clients are financial institutions: financial managers, traditional or digital banks, and the fintech industry which provides financial services to consumers and corporations that are the target of criminals. These organizations have entire divisions that tackle financial crime. They have teams responsible for fraud and other teams in charge of working on money laundering. One of the trends that NICE Actimize is advancing is synergy between these two groups because of the direct connection between them, something that the large organizations are also now beginning to understand”.<\/p>\n\n\n\n

“With fraud, the damage to both the bank and the customer is obvious. In the world of money laundering, financial institutions must comply with regulations, and they want to best serve their customers and prevent societal issues like human trafficking, arms trade, drug trafficking, and more because these are the types of organized crime rings that money is laundered to. If a bank does not adequately comply nor stop money laundering the down-stream impact is massive fines and reputational damage.<\/p>\n\n\n\n

Butvinik tells of their very close collaboration with the Innovation Authority: “The goal is to create innovation that differentiates us from other companies. In addition, this innovation must connect directly to our analytical needs at the company \u2013 innovation that can be seen in our products and with our clients. These are two very important aspects that contribute to our successful collaboration with the Innovation Authority. <\/p>\n\n\n\n

“For example, this year we are working on an innovative project of online digital learning and are aspiring to achieve maximum possible automation and speed. We want to know in real-time about trends, risks, and other information without any indication that we are doing so, as is the case with most companies worldwide”.<\/p>\n\n\n\n

“Our strategy is very clear”, Marco summarizes. “And it has a name: ‘Autonomous Customer Lifecycle Risk Management’. The goal is to change the paradigm from a reality whereby the fight against economic crime is siloed, labor intensive and reactive \u2013 with multiple teams that need to maintain and operate these programs, to a world in which we are leveraging advancements in AI, cloud technology, and automation to use machines for the “heavy lifting” of fighting financial crime and have humans merely “correct course” when necessary.  <\/p>\n\n\n\n

We intend to implement this across the customer lifecycle \u2013 from the decision whether to accept a new customer, into the ongoing monitoring of accounts, through to offboarding when a customer has the right to erase all their account information.  We believe that providing a holistic view of the customer and the associated risk is integral to stopping financial crimes.<\/p>\n\n\n\n

Dr. Ami Appelbaum, Innovation Authority Chairman and Chief Scientist in the Ministry of Economy & Industry: <\/strong>“Technological innovation constitutes a tremendous growth engine for building a better world for us all. Despite the message of progress, humans have remained human and unfortunately criminal elements choose to take advantage of these advanced capabilities and work methods for fraud and money laundering. The Innovation Authority is glad to be a partner in the effort to contain this activity, among others by supporting outstanding startup companies operating in the fintech field and assisting us all to preserve a safe financial environment”.     <\/em><\/p><\/blockquote><\/figure>\n\n\n\n

Looking for the Unknown Unknowns<\/h3>\n\n\n\n

In 2013, Prof. Amir Averbuch founded ThetaRay<\/strong><\/a>, a fintech company together with Prof. Ronald Coifman. Today, he serves as the company’s CTO. ThetaRay’s goal is to prevent financial crime by locating big data anomalies in banks and financial institutions that may indicate crimes such as financial fraud, money laundering, funding of terror, and drug and human trafficking.<\/p>\n\n\n\n

“The anomalies we identify can originate in three verticals: IOT (The Internet of Things), cyber, or financial”, Prof. Averbuch explains. “We are presently focusing on the financial field and our target market is financial institutions where money transfers are executed, such as banks, fintech, and blockchain companies that offer payment transfers. Many large banks around the world are already our clients. We can offer solutions to banks and large financial institutions as well as to the SWIFT industry, such as small banks and private organizations that offer international money transfers, for example to migrant workers who send money home. When you transfer money to someone, each bank has its own SWIFT code which is included in the financial transaction”.<\/p>\n\n\n\n

ThetaRay is built on three pillars: algorithms, a platform, and data sciences. These three pillars enable the company to offer complete and coherent solutions for all types of financial institutions obligated by regulation to adopt a solution that will identify semi \u2013 and un\u2013 supervised financial crime in data. <\/p>\n\n\n\n

The algorithms developed by the company are the core of the system and they are suited to the three verticals. These algorithms use geometric methods and extremely advanced deep learning and Artificial Intelligence technologies. “We were among the first companies to build a system for identifying financial crime that runs on AI infrastructure”, says Prof. Averbuch. “Our system is the only one in the world that simulates human intuition or gut feeling. We call it ‘Artificial Intuition’.<\/p>\n\n\n\n

“Our big advantage is in the development of algorithms that don’t use rules. In practice, we don’t know in advance what we’re looking for. Whereas algorithms that conform to rules need to know what to look for in order to write a rule, we are searching for the unknown unknowns. One disadvantage of working according to rules is the creation of a large number of false alarms”. <\/p>\n\n\n\n

ThetaRay’s solutions come in three primary forms: on the client’s premises (‘On Prem’), in a cloud, and ‘Software as a Service’ (SaaS). They detect 95% of worthy anomalies compared to other solutions that offer only 5%-30% detection. The number of false alerts of ThetaRay’s solution is 95% lower than the old tools and, accordingly, they reduce the time spent investigating alerts by at least 50%. The average time required for assimilating such a solution stands at only 6 weeks as opposed to 6-12 months. <\/p>\n\n\n\n

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