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Three things that it takes to be in the Fraud Management Business in 2016; a survey reflection

Payments Fraud Survey 2016 Reflection

On the heels of ACI’s latest Consumer Fraud Survey, recurring questions have continued to solidify themes. Let me summarize the results for you: There is incrementally more card fraud, consumers are not changing their behavior all that much in reaction to it, and they expect any issues to be addressed and resolved more easily today than in years past. Of course, this is about what we should be anticipating in our “always on”, service and convenience oriented, mobile world. So, with that said, here’s what fraud management means to consumers and fraud managers in 2016.

  1. Greater volumes of fraud continue to affect more people; with nearly half of North Americans feeling the sting of fraud in the last 5 years, how do we react as managers? With alert accuracy and more dynamic and scalable (customer-centric) strategies. Consumers frequently hear about breached merchants and either recognize or suspect that they are impacted. However the replacement of these compromised cards is often a point of friction, and communication around this process is still lacking from the consumer’s perspective. Any missteps here and 20% of customers terminate their relationship, worst case, and up to half the time, the banks’ cards to go back of wallet in some countries, best case. Alternately, that any fraud on the outstanding compromised cards (that were not re-issued) needs to be rapidly detected with very high precision and with limited impact to the customer in their typical transaction patterns.

    Have you experience more than 1 incident of debit or credit card fraud in the past 5 years
  2. Consumers are not going to altruistically change any of their established risky behaviors; they still write their PIN on their card, leave phones (with ever increasingly available mobile wallets) unlocked and perform sensitive transactions on public computers. So, basic personal security hygiene is typically ignored and consumers become rich targets in a target-rich environment. Fraud Managers are expected to be able to separate the wheat from the chaff, and better protect people from themselves, using technology to both reduce false positives and increase detection on the true fraud attempts.

    Risky behavior trends over 2014 and 2016
  3. If fraud managers cannot react to these two previous drivers, customers take their business elsewhere. Customer-centrism is already a highly valued expectation for financial institutions, as it should be. The output of this is, if we do not provide excellent, consistent customer support as a result of a fraud incident (or even a well-meaning false positive!), a consumer will potentially change their relationship with the financial institution almost one quarter of the time! In essence, they are losing confidence that we are remaining effective at protecting them  in a rising risk environment.
    As a result of your experience with fraud, did you change your financial institution or credit card company

So, with great confidence in our precision, we have to immediately get the right message, through the right channel, to the increasingly-at-risk customer when we think something is wrong, or they may walk away from our relationship. Fraud is no longer a cost of doing business, it increasingly is the cost of losing a customer in an increasingly challenging environment, forgoing the cost of acquisition and life-time value of that customer. The formula remains that behavioral profiling, resting on precision and innovative analytics, targeted to ever-tightening metrics is the strategy to retain (and grow) market share.  These points certainly aren’t new, in that fraud can be a market segmentation opportunity for the right institutions, but in 2016 this should be accepted as a mature concept.

Banking is an industry that requires a customer to put confidence in their financial partner, and this survey reinforces that there is no replacement for trust that is developed through the entire customer lifecycle. Unfortunately, it’s fairly likely that at some point, fraud will be a touch point for the customer, so it may be time to dust off the old ROI model for evaluating a fraud business case. The flaw in the old model is that fraud costs are solely based in terms of financial loss avoidance. The real cost of fraud requires reevaluation with an emphasis on customer acquisition, retention and satisfaction. In 2016, the institution that best serves the mutual security needs of both parties is looking out for the best interests of their partner, the customer.