Banking has gone digital. In 2019, financial institutions are leveraging technology more than ever to provide the type of customer experience being demanded by today’s consumer market. The financial services industry has been going through a digital transformation in recent years. Consumers are free to complete almost any financial transaction from a computer or mobile device, getting pre-approved for a home mortgage loan or depositing a check by taking a photo is now easier than ever. These financial organizations have opened new channels for customers to use, providing a sophisticated level of convenience, security, and timeliness when it comes to banking and online transactions.
With convenience and timeliness to meet current consumer preferences comes the rise of digital fraud looking to take advantage of weaknesses in financial banking systems. Fraud fragmentation is one of the biggest issues facing the financial services industry, an industry where the average cost of fraud grew 9.3% from 2016 to 2017.
This article will take a closer look at current challenges facing financial institutions and how these challenges can be managed through a new form of fraud management known as “fraud orchestration.”
Current Challenges
A few challenges the financial services industry is facing when it comes to increased digital fraud include multi-channel banking options, mobile dominant customers, and synthetic identity theft.
Multi-Channel Banking
Multi-channel banking refers to the array of services financial institutions provide their customers to manage their finances. Mobile is quickly becoming the dominant channel but customers can also access ATMs, physical branch locations, and telephone to service their banking needs. Providing more channels means providing more value for customers, however, unfortunately, it also creates a silo effect where fraudulent activities can be hard to manage across different channels.
The complexity and visibility into multi-channel fraud prevention is a major issue for financial institutions. Fraudsters are educated on the challenges of multi-channel banking and know how to exploit weaknesses for illicit gain. For example, a fraudster can steal personal information from one banking channel and use this information to commit fraud on another channel. If fraud prevention systems lack cross-channel communication and transparency, this provides a cloak for illicit activities to cultivate and adversely impact financial institutions.
Mobile Dominant Customers
Recent studies are showing banking customers are going mobile more than ever. A report by Fiserv shows that mobile is now the most heavily used banking channel, with customers accessing mobile banking an average of 8.4 times within a 30-day period. Financial institutions are pushing for more their customers to use mobile banking services as it is by far the most cost-effective method. For example, in 2018 a retail bank spent roughly $4 every time a customer calls or visits a physical branch.
The exact same transaction costs just $.10 when completed via a mobile app. Not only is mobile banking more convenient for customers, who can manage their finances from anywhere at any time, it is also saving banks a significant amount when it comes to operational expenses. PwC also reported 15% of customers are now mobile dominant, up from 10% the prior year. A significant increase in customers going full-mobile when it comes to banking.
Synthetic Identity Theft
Synthetic identity theft is defined as a type of fraud where criminals parse together real and fake personal information to create a new identity, which is then used to open fraudulent banking accounts or make fraudulent purchases. This type of fraud has quickly become the fastest growing and hardest to detect the form of identity theft to date. TransUnion found between 2015-2016 alone there was an increase in synthetic fraud balances of 68%. These fraudulent activities resulted in $800 million in credit card losses in 2017, an increase of 38% since 2015.
Synthetic identity theft is the most common type of identity fraud and is becoming a major source of losses for financial institutions. A big reason why is banking fraud systems are not sophisticated enough to catch the illicit activity before it is too late. Fraud detection can be made all the more difficult if multiple banking channels are siloed and unable to effectively communicate with one another. Financial institutions must be diligent in finding ways to prevent synthetic identity theft which is estimated to be the source of 80% of credit card losses in the industry.
Why Fraud Orchestration is the Answer Fraud orchestration can be the answer to the many challenges facing financial institutions in this digital age. Fraud orchestration creates a centralized platform where fraud activity can be viewed across the entire enterprise, no matter how many banking channels exist. A fraud management mission control where all fraud activities are visible for fraud teams to address in real-time. A data-driven platform leveraging adaptive analytics to boost fraud performance and response actions. There are several advantages to fraud orchestration which include:
Increases operational efficiency A centralized, anti-silo fraud management platform which improves communication between banking channels increasing fraud prevention optimization
Creates enterprise-wide transparency Fraud orchestration creates a mission control where fraud activities are made transparent across the entire enterprise leading to real-time action to catch fraud in the act
Decreases operational costs No need for additional staff or training monitoring countless fraud management systems, fraud orchestration brings all fraud systems onto one platform
Reduces customer friction Faster fraud response equals less customer friction for financial institutions, it is that simple
Wrapping Up Fraud orchestration is the future of fraud management in the financial services industry. This technology allows for financial institutions to stay ahead of fraudsters who are always searching for weaknesses in fraud prevention. Multi-channel offerings to customers do not have to come at a high cost when it comes to an increased risk of illicit activities. Let’s help all of our fraud prevention systems sing in unison through fraud orchestration.
With the ever-growing market of fraud vendors, it is tempting for retailers and financial institutions to continually add new specific vendors to bring additional capabilities to their fraud detection toolkit (for example, by adding behavioral analytics or endpoint proofing). Security and risk management leaders must ensure that data from all these vendor sources is aggregated into a single platform for decision making and analysis. This will avoid the creation of both data and decision silos. The formation of which creates opportunities for fraudsters.
Take an omnichannel View of Fraud.
Security and risk management leaders must include all digital channels (Web, Mobile, Telephony, …) in their fraud prevention strategy, providing an omnichannel view of how fraudsters are attacking the business. This will minimize the risk of the fraudster simply migrating to one channel after being blocked by another. In line with the previous recommendation, this also involves leveraging a single centralized decision platform to ensure the data attributes and paters of behavior can be correlated across all channels.
Barry Bowen | fcase
