Fraud and data breaches cost the banking industry billions of dollars per year, and early detection is one of the most effective ways to lower these costs. Keep in mind that with most scams, the thieves gain access to accounts or databases, and they extract money or information over time. The longer they can run their scams without detection, the more damage they can cause.
Research from IBM indicates that companies that contain data breaches in less than 30 days save over $1 million compared to companies that take over a month to resolve the breach, and the savings are also significant with fraud detection. If you have strategies in place to detect fraud and data breaches as early as possible, you can reduce remediation costs for the following reasons.
1. Thieves Work Quickly
Although scam artists steal more the longer they have access to bank accounts or consumer data, they start their heists right away. Many scam artists sell the information they find on the dark web, and criminals start using these stolen card and account numbers within nine minutes. To protect your financial institution, you need anti-fraud tools that work just as fast or faster than the criminals.
2. Remediation Costs More Than Fraud
With most fraud, remediation costs are nearly triple the amount stolen. As of 2018, financial service companies spend an average of $2.92 for every dollar lost through fraud. These costs include fees, interest, labor costs for fraud investigation, fines, legal fees, and external recovery expenses. Early detection helps you reduce both the amount stolen and the corresponding remediation costs.
3. Average Remediation Costs Are Increasing
On average, remediation costs are increasing. While financial services only incurred $2.62 in remediation costs per every dollar of fraud in 2017, that number increased by 9.3% by the following year. To reduce the impact of these increases, you need high-quality fraud prevention tools that can detect fraud as quickly as possible so that you don’t have to do as much remediation.
4. Slow Responses Can Lead to Fines
In some cases, failure to detect fraud or breaches in a timely manner can lead to fines from federal entities or banking organizations. To avoid these additional expenses, you need to be constantly scanning transactions for signs of fraud while also having safeguards in place to detect threats to databases and sensitive information.
5. Lack of Early Detection Heightens Risk of Lawsuit
If customers perceive that you are acting negligently with their money or information, they may bring lawsuits against you. When you can prove that you are acting in your customers’ best interest by investing in security solutions that detect fraud as soon as possible, you minimize the risk of being perceived as negligent.
6. Notifying Customers About Breaches Is Expensive
On average, businesses in the United States spend $740,000 notifying their customers about data breaches. Typically, the longer the scam artist has access to your files, the more records they can steal and the more customers you have to notify. Again, with early detection, you can keep these costs as low as possible.
7. Replacing Debit and Credit Cards Is Expensive
The cost of replacing debit and credit cards varies. Small banks incur an average cost of $11 to replace a debit card and $12.75 for a credit card, and due to economy of scale, these costs are only $2.70 and $2.99 respectively for large banks. Particularly for small banks, these costs can add up, and any steps you take to reduce the number of credit or debit card numbers stolen during a breach can help you lower your total remediation costs.
8. Reducing False-Positives Saves Money
As explained above, early detection is critical to keep remediation costs low, but you also have to be very careful about using subpar fraud detection tools that may lead to false positives. For instance, if you use fraud detection tools that only look at a few data points such as amount of purchase or location, your system is likely to generate a lot of false-positive fraud alerts, and as a result, your customers may refrain from using that card which can translate into losses for your financial institution.
In contrast, when you invest in machine learning tools that look at hundreds of data points when assessing transactions, you enjoy enhanced security and fewer false positives. Case in point, after applying these types of security solutions to 1.8 million transactions at one bank, researchers found that they had the potential to save $220,000 just due to decreasing false-positives.
At SQN Banking Systems, we deliver innovative fraud detection solutions to financial institutions of all sizes to help them reduce losses and become more profitable. We also partner with Q6 Cyber, a company that monitors data sources such as the dark web, the deep web, hacker forums, and social media to collect threat intelligence that enhances our security tools even further.
If you are ready to safeguard your reputation, minimize losses, and protect your profits, you need a quality fraud detection partner, and we would like to help. To learn more about the tools and solutions that can provide early fraud and data breach detection for your financial institution, contact us today.