Abstract
For the last few years, rapid digitalization has been observed in the world banking industry, which helped boost global economic growth. At the same time, fraud cases in the banking sector have been increasing immensely. Regulating authorities of banks nationwide have been issuing numerous circulars and guidelines for preventing fraud incidents. However, fraudsters are taking advantage of the digitalization of and shortfalls in the industry, by which the fraudsters easily defraud customers and banks. Hence, it resulted in a worsening of the asset quality of banks and a loss of public trust and confidence in the banking industry. In this regard, banks must be equipped with sophisticated technological tools for fraud identification and preventive measures apart from the conventional systems and procedures since core banking solutions in the banking industry have evolved drastically over the last few years. In this context, this chapter is intended to study the role of blockchain technology and data mining tools in identifying and preventing frauds in specific bank products.
TopObjectives Of Study
TopStudies On Banking Sector
In the current period of globalization, digital banking has occupied a prominent place in the present century. Online crimes are also increasing along with technology. To arrest the same to a certain extent, specific preventive measures must be adopted, i.e., to find out the source of the crime, recruit skilled employees, and adopt preventive measures, i.e., educate the customers (More et al., 2015).
Financial statement-type fraud affects the economy worldwide, and effective measures should be employed in detecting and preventing the said type of fraud. Further it is to be noted that fraud detection techniques should be updated continuously over time and identify criminal strategies (Renu Chaudhary, 2013). It should be noted that banks must implement sophisticated fraud preventive measures to build customer trust; without the above checks, it is difficult to build customer trust and increase business (Suh and Han, 2002). A research study by Sharma and Brahma (2000) revealed that the causes of many frauds are due to the negligence of the bank's supervisory staff. Further, it was stated in the study that supervisory staff at the branch level need to control the above types of fraud.
The banks are directed by the ‘Uniform Customs and Practice (UCP)’ concerning ‘Letter of Credit (LC)’; upon full compliance with the requirements, banks should honor payment to the seller. However, it was disclosed that banks must obey the UCP guidelines despite being presented with counterfeit documents. Further, it was recommended preventive measures for banks in dealing with such fraudulent activities in the ‘LC’ transactions (CheHashim et al., 2014). In a research study of data relating to financial fraud cases from 2009 to 2019, it was revealed that the SVM technique is the most widely used technique for fraud detection and that most data mining techniques are used in the banking and insurance field in the financial sector (Khaled et al., 2021).
Key Terms in this Chapter
Crowdfunding: Crowdfunding is a way of raising debt and equity with a collective effort of multiple investors through an internet-based platform.
Cryptocurrency: It is an encrypted, decentralized digital currency transferred between peers and confirmed in a public ledger via a process known as mining. This is also known as Digital currency.
Distributed Ledger Technology: The technological infrastructure and protocols that allow simultaneous access, validation, and record updating in an immutable manner across a network that's spread across multiple entities or locations.
Digital Currency: It is also known as Crypto Currency. It is an encrypted, decentralized digital currency transferred between peers and confirmed in a public ledger via a process known as mining. Digital currencies are issued by private developers and denominated in their unit of account. They are obtained, stored, accessed, and transacted electronically and are neither denominated in any sovereign currency nor issued or backed by any government or central bank.
Blockchain: It is an immutable, cryptographic, distributed, consensus-driven ledger. It is a software protocol for the instantaneous transfer of money and other forms of value via the Internet. It is a system of linking blocks in a chain format that stores data and is chronologically consistent. Because one cannot delete or modify the chain without consensus from the network.
Crypto-Wallet: It stores the private key needed to unlock funds from the investor's wallet address on the blockchain.
Decentralized Financial Transactions (DeFi): DeFi is an economic paradigm that leverages distributed ledger technologies to offer services such as lending, investing, or exchanging crypto assets like cryptocurrency, smart contracts, bitcoin, etc., without relying on a traditional centralized intermediary.
Digital Finance: This term is used to describe the usage of technologies in the financial services industry. It includes various products, applications, processes, and business models that have transformed the traditional way of providing banking and financial services.
Forward Contract: Sales and purchase of currency where currencies are delivered at a future date at a rate mentioned in the agreement.