When people become the victim of fraud, they blame their financial institutions. If you want to retain customers and keep them happy, you need strong defenses against fraud especially in the digital banking realm.
Financial institution executives expected a slight decrease in fraud in 2020, but as COVID spread across the world, executives quickly changed their minds and realized that fraud was going to increase dramatically that year and through 2021. Right now, attack rates are rising, attack surfaces are expanding, and attacks are taking a greater toll on banks. To protect themselves, financial institutions need to be ready to address the following fraud prevention challenges in digital banking.
1. Reducing Fraud
Clearly, the central challenge in fraud detection and prevention is to decrease fraud. Financial institutions need to be poised and ready to detect fraud across all digital banking channels including new account and account takeover fraud. Financial institutions need comprehensive anti-fraud solutions that can fight the increasing volume and complexity of attacks and that can also identify and address new attack scenarios.
2. Optimizing the Customer Experience
At the same time, financial institutions need to address fraud prevention in a way that does not impede the customer’s ability to access their accounts and perform transactions. The gold standard in fraud prevention used to be rules-based systems, but this antiquated approach to fraud prevention injects friction into the customer experience because rules-based tools often perceive legitimate transactions as fraudulent.
To optimize the customer experience while also maintaining a secure environment, financial institutions need to move away from rules-based fraud detection systems and leverage analytics to perform real-time fraud analysis. They need tools that make instant decisions by looking at multiple elements of each transaction and their context in relation to historical actions.
3. Building Trust
Customer trust is a bank’s most important currency. Without your customers, you don’t have a business. You will lose your customers’ trust if your financial institution suffers a large-scale attack or if your customers become the individual victims of fraud.
Shortcomings in your fraud tech stack can increase fraud or cause a disjointed customer experience. To build trust, you need to balance both of these elements. The key? A system that uses analytics to generate risk scores and provides precise security for each action and transaction.
4. Minimizing Fraud-Related Costs
To protect your profit margins, you need to minimize costs related to fraud including the following:
- Maintaining an internal fraud team
- Upgrading the anti-fraud tech stack
- Incurring fines for non-compliance
- Losing customers due to a poor user experience
- Suffering other indirect costs related to reputational damage
5. Meeting Regulatory Requirements
The regulatory environment seems to become more complex every year, and financial institutions that operate internationally must have anti-fraud solutions that are inline with the diverse regulatory rules of multiple countries. To ensure you’re meeting regulatory requirements, you need anti-fraud solutions that are constantly updated based on new regulations.
6. Addressing Gaps in Fraud Protection
There are a lot of fraud detection and prevention tools on the market place, but they do not offer the same level of quality, sophistication, or efficacy. Financial institutions need to ensure that their anti-fraud solutions address new areas of security such as mobile app security, device intelligence, and session monitoring.
Effective tools should also be able to manage large volumes of data related to apps, devices, users, accounts, and channels, and to eliminate as many gaps as possible, they should connect risk capabilities and share data across all of a financial institution’s business lines and functions. Many financial institutions have gaps in their anti-fraud approach because they are using multiple fraud technologies that are not designed to work together.
7. Looking at Fraud Too Narrowly
Many fraud prevention solutions focus almost exclusively on the log-in and the transaction, and although these are critical elements, they are certainly not the only indicators of fraud. Hyper-focusing on these two elements will allow fraud to slip through the cracks. Most criminals perform several different actions before engaging in a fraudulent transaction, and if banks want to detect fraud effectively, their tools need to analyze as much data as possible related to users, devices, and behavior.
To underscore the importance of all of these elements, imagine that a fraudster buys a customer’s log-in details on the dark web, and after signing in, they contact the call center and change the customer’s contact details so that the customer will not receive alerts about their account. Then, they initiate the fraudulent transaction.
This type of fraud may slip past a lot of traditional anti-fraud systems. If the bank only analyzes the sign-in process, it will not detect an issue when the scam artist signs in. In contrast, quality anti-fraud tools notice that a new device is being used, and they respond accordingly. Of course, most legitimate customers often use new devices so shutting down the transaction at this juncture may be an overreaction.
However, when the scam artist changes the customer’s details after accessing their account on a new device, effective anti-fraud tools should notice a heightened risk of fraud based on the combination of these elements, and at this point, they should alert the bank’s fraud team that something may be wrong. Ideally, this should all take place before the fraudulent transaction occurs.
Protect Your Financial Institution From Fraud
To catch complicated scenarios like this one, financial institutions need anti-fraud tools that look at all elements of the banking (sign-in, device, etc), collect data from multiple channels (the banking app, the call center, etc.), and analyze the user’s actions based on historical activity.
At SQN we can help you address fraud prevention challenges in digital banking. Our fraud-prevention and detection tools and solutions use real-time analytics to reduce fraud, improve the customer experience, and build trust in your digital banking tools.
Need help expanding your approach to fraud and covering gaps in your current fraud prevention strategy? Then, contact us today.