What’s the perfect tool to prevent fraud losses?
There is no perfect tool, therefore use more of a layered approach to find that fraudulent “needle in the haystack.”
Bank customers now conduct more than 80% of their banking transactions in self-service, faceless mechanisms. Experts say consumers are already submitting half of applications for financial products through their mobile devices. Consequently, as consumers and financial institutions embrace mobile and digital opportunities, so are fraudsters.
As always, the onus is on fraud prevention managers to minimize fraud losses. At the same time, they must do everything possible to facilitate seamless digital interactions with bank customers.
Fraud prevention teams perform the following:
- Keep the fraud capture rate at an acceptably high, targeted level of revenue. Theoretically, armies of investigators could stop all fraud with manual reviews of everybody, but that approach would obviously be highly intrusive and exorbitantly expensive.
- Control operational expenses. Manual reviews can easily cost up to $40 each, so make them a last-ditch measure to be used only when decisions can’t be achieved with up-front automated processes.
- Deliver a smooth customer experience. A customer who has been getting “go” signals to do business with a financial institution will be turned off when suddenly faced with a probing manual review.
The three are closely linked. Pushing for higher capture rates could increase expenses and harm the customer experience.
Does the dilemma have a solution?
How can financial institutions protect against fraud losses without busting the budget and compromising the customer’s digital experience?
Fraud detection is like searching for needles in a haystack. Among 1,000 applications, for example, perhaps your bank’s experience indicates just one is likely to be fraudulent. To identify the fraudster, use layers of passive tools to progressively “shrink the haystack.”
Let’s assume the first step is an application scoring system. It “passes” 500 of the applicants without any friction. The remaining 500 are directed to further behind-the-scenes fraud checks that are transparent to the applicants. In addition, tools are available, to determine if an applicant’s smart phone has been used fraudulently or has suspicious usage patterns. Let’s say these passive, frictionless tools clear 400 more applicants.
Now only 100 applicants remain to be cleared. These can be presented with automated “active” checks, such as two-factor authentication or knowledge-based authentication. Yes, these tools inject very mild friction into the customer experience, but let’s assume they whittle the suspect universe down to just 10 cases.
These 10 applicants are asked to send a “selfie” photo and a driver’s license photo. A tool compares them biometrically and clears eight applicants. Bottom line: Out of 1,000 applicants, only two are subjected to more in-depth manual reviews.
False positives don’t deserve manual reviews
It’s important to note that all tools will have false positives. You don’t want false positives going through manual review. By using this tiered “waterfall” approach, starting with transparent passive checks followed by a few active checks, fraud prevention managers can clear (and avoid alienating) almost all of the false positives.
The layered approach is a smart way to keep the customer experience at a high level while achieving high fraud capture rates and holding operational costs down. Use variations of the approach for different products and channels. Some workflows call for more tools or different tools than others.
Remember, fraud keeps evolving. To keep up with the evolution, fraud control measures must evolve, too. The key is to be flexible and creative, always ready to plug in different fraud prevention tools according to the situation.
For decades Equifax has worked with organizations to help them secure and authenticate across the customer lifecycle with an eye towards growth and an improved customer experience. Visit www.equifax.com/fraudiq for details.
For more insights on this topic, check out a recent webinar presented by Equifax and Aite Group: “Walking the Tightrope: Striking the Balance Between Fraud Prevention and UX.”
This is part three of a series of articles on the shifting nature of fraud. For previous articles, read more.