Fraud Mitigation Challenges Across An Account Lifecycle

September 9, 2015 Sally Ewalt

Trouble Ahead Concept

Businesses face a multitude of challenges in dealing with the overall fraud problem. Protecting against new-account fraud is often a top priority, but fraud occurs at all points in an account lifecycle. Various individual solutions address pieces of the fraud mitigation problem with many specifically designed for online and mobile channels. For example, during an online application process, the IP address can be checked for consistency with the applicant’s billing address. Other tools can be applied to specific situations, channels or product lines. Here are some of the challenges that a good fraud management solution needs to address:

  1. Fraud is hard to measure. Fraud has varying definitions, and even the definitions can be ambiguous. When fraud is suspected, businesses are often reluctant to pinpoint an account, application or transaction as being fraudulent without clear proof. Consequently, many fraudulent transactions are written off as collections or other non-fraud losses.
  2. Fraud patterns are a dynamic, moving target. When businesses bolster their fraud defenses in one area, criminals find new soft spots and shift their attacks to these less protected areas. Fraudsters constantly probing for the most vulnerable, least defended areas and focusing their efforts on these weak spots.
  3. Fraud mitigation efforts need to be dynamic. Businesses need to constantly scrutinize and upgrade their fraud defenses. Old methods may not need to be discarded—many of them still need to be in place, just modernized and expanded to keep up with fraudsters’ ever-shifting tactics.
  4. Fraud containment efforts may collide with growth goals. Businesses understandably want to maximize new opportunities. The dilemma is how to screen effectively for the likelihood of fraud without generating too many “false positives”—legitimate applicants who are declined because they exhibit some traits often seen in fraudulent applications.
  5. New customers and fraudsters both prefer the online channel. Look at the demographics of the customers you’re trying to attract. More and more are likely to be younger professionals who rely heavily on the Internet. A new bank customer, for example, may be more familiar with the bank’s website than its nearest brick-and-mortar bank. The trick is to exploit online channels without taking on excessive fraud risk.

The scope of fraud activity is broad. Because there are so many aspects to fraud detection, prevention and resolution, and because they change so rapidly, fraud control managers can be daunted by these challenges. A good solution allows for quick changes to rules engines and facilitates those change with advanced reporting. If the reported numbers are not within acceptable range, the tools need to be flexible enough to adjust in real time. This way, a business can react to new trends and ever-changing tactics, follow fraud patterns, identify fraud patterns earlier, and control false positives. There are excellent tools available to help close the gaps in a process and help lower fraud losses, cut operational costs and, perhaps most important, improve the customer experience.

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