How financial institutions are improving customer experience with fraud prevention measures

Fraud is a persistent threat, and there’s no end in sight as the e-commerce landscape continues to evolve and the use of online payment platforms increases.

financial institutions fraud

According to one recent study, e-commerce merchants, consumers and financial service providers lose approximately $6.4 billion to fraud annually. Even worse: Losses from false declines are estimated at $443 billion—almost 70 times greater than losses from fraud—each year.

Customers expect their accounts and transactions to be secure, but an interaction that takes too long or grows too complex—or wrongly results in a rejection—could prompt them to abandon the effort and move their business elsewhere.

Interestingly, the expectations for a friction-free journey have made financial institutions rethink the false dichotomy between maintaining stringent security and a positive customer experience. It doesn’t have to be a balancing act—in fact, modern fraud prevention and authentication strategies can improve both.

Proliferation of security measures offers answers

Savvy financial institutions are realizing that they don’t need to choose between customer experience and fraud loss; rather, they need to identify and implement more efficient and effective tools when it comes to verifying with whom they are conducting business.

According to a Global Industry Analysts report released in March 2022, the U.S. market for fraud detection and prevention will reach $9.5 billion this year. The market offers thousands of innovative security resources to choose from when it comes to authenticating user identity and preventing illegitimate access to customer accounts. However, fraudsters are innovating just as quickly and incorporating new technologies and more complexity into their methods. As a result, financial services companies may be experiencing some indecision, as well as solution overload, when it comes to choosing the best way forward.

By leveraging a wide range of digital identity markers in the background—such as location, IP address, device-specific data—and assessing the connections between customers’ online and offline identities and their typical behaviors, organizations can gain confidence in their authentication processes without introducing overt, disruptive speed bumps for customers. The market can’t offer a single silver bullet to stop all instances of fraud, but it can provide intelligence that, when optimally collated and cross-referenced, can effectively put a stop to millions of dollars in fraud loss while also protecting the customer experience.

Leveraging data insights in practice

Various institutions are already using a host of online, offline, and device-based elements to corroborate an existing customer’s digital information or a prospective customer’s application, and they are reaping clear benefits.

For instance, one top-10 financial institution found that its new customer acquisition efforts were being thwarted by its high rate of reviewing new applications manually to avoid instances of fraud. Not only was the manual process costing new business, but it was costing the institution in terms of time and resources to handle the high volume. It leveraged some data intelligence in its original process, but not enough to reduce the instances of false flags.

As a test, the financial institution landed on a solution that incorporated IP address attributes. New applicants were then assessed based on a host of elements in addition to IP, including behaviors related to browsing and phone activity as well as how digital footprints related to people or households. These elements were just the beginning, as information gleaned was then corroborated against authoritative online and offline consumer data.

Altogether, the information—gathered and analyzed in the background—resulted in a score denoting the level of risk of fraud. Applicants identified as low risk continued through the sign-up process uninterrupted. For applicants identified as high risk, a manual review was triggered, launching additional verification steps to rule out fraudulent activity. As a result, the number of manual reviews required to weed out potential fraud declined by 35%, saving the institution valuable time and resources, and incidents of incurred fraud also declined 11%.

Passive authentication is a win-win

Financial institutions have a trove of telling information available to them when consumers explore their brand web properties from any digital device, be it a smartphone, tablet or desktop computer. With the right security partner, companies can leverage and link such information to additional observations, data and behaviors to develop customer profile with confidence—all without the consumer suffering undue friction.

These passive authentication practices can identify and segment low-risk populations from high-risk, enabling financial institutions to treat legitimate customers as valued individuals, rather than as potential fraudsters. Not only can financial services companies provide these legitimate customers with the experience they deserve and expect, but they can lower their operations costs and their losses due to fraud. It’s a win-win situation for the parties that matter most.

Don't miss