As credit unions seek to provide greater convenience and fewer barriers for new customers, fraud is on the rise. But there are strategies to help head it off.
Today, customers prioritize convenience. They want fewer barriers to accessing the products and services they want. Credit union members are no different. To serve that demand for convenient account access, credit unions are offering more online and mobile services. As credit union business lines increasingly move to the digital world, with less face-to-face interaction, the opportunity for fraud increases.
The cost of fraud shouldn’t be taken lightly. Fraudulent applications costs are expected to hit $28.6 billion by 2016, according to the First Party Fraud report by the Aite Group1. In addition, more than $800 million was reported lost to online identity fraud in 2014, according to the FBI’s Internet Crime Complaint Center2. The most dangerous fraudsters often operate in prolific criminal rings that exploit fraudulent or hacked identities until they are detected and declined.
Credit unions may be concerned that effective but cumbersome authentication processes may alienate prospective members. However, there are ways to both serve member needs and mitigate even increasingly sophisticated fraudsters. Savvy financial institutions are staying abreast of threats and using the latest tools and best practices, especially data integration, to help reduce fraud. Here are four places to start.
- Establish a strong first line of defense. Protecting your organization from fraudulent account opening, takeover schemes, and transactions requires a multi-layered approach. Setting policies about transaction levels is a basic measure, increasing verification requirements as transaction levels escalate. In addition, working with a third-party data provider that can help verify an identity quickly starting from basic information such as an address and Social Security number.
- Use big data. Internal and external data sources can help your organization pinpoint fraudsters. Your third-party verification provider should use “stacked data,” which goes beyond just credit files and compiles everything from utility and telecommunications billing data to public records and other data points into individual profiles. This kind of approach creates a more comprehensive picture of the individual and helps the provider to see whether a profile is being used fraudulently. In addition, it’s a good idea to participate in data exchanges, which pool information from a number of sources that can help identify fraudsters and legitimate identities that have been co-opted by fraudsters. Equifax hosts several industry-leading data exchanges, giving us access to rich consortium data to help combat fraud.
- Use frictionless tools. Device identity tools that track phone settings, model information and location, and even history on previous possible fraud, serve as good tools for helping to identify fraudulent transactions. Increasingly, biometrics such as voice or facial recognition are being incorporated into credit unions’ identity verification. If the “customer” is trying to establish or take over an account using a new device from another country and biometric features do not match the credit union’s member profile, this may trigger an alert to further verify the account.
- Apply analytics. Work with your verification provider to identify hidden patterns in the data, which can alert you to suspicious behavior and activity. Tip-offs to fraud might include application anomalies, unusually high purchases of popular items or transaction value, or multiple accounts with common data being opened in a short period of time.
As technology and information provide fraudsters with more opportunities, advanced data capture and analysis are helping financial institutions combat this growing threat. By instituting safeguards and working with experienced, reputable third-party providers, you can deliver the convenience your members increasingly demand while helping your organization to mitigate unreasonable levels of risk.
1 October 2012, First Party Fraud, The Aite Group, http://www.aitegroup.com/report/first-party-fraud-global-battle-against-diabolical-charge-offs
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