During the last couple of years, the interaction between financial institutions and their customers has become more digitized than ever. Online services, requests, and applications are key aspects of an enjoyable and memorable customer experience. However, the process of online identity verification has brought several fraud threats to financial institutions, which represent a significant risk for institutions and customers.
Back in June 2018, the credit reporting agency TransUnion hired the research company Forrester Consulting to carry out a study regarding fraud threats to financial institutions. During August and September, Forrester conducted a survey that 153 institutions from the US, Canada, and India responded to online. The results of the survey showed that fraud against financial institutions is increasing at an alarming rate. It also showed that financial institutions lack tools and strategies to tackle fraud. Besides, finding an effective solution without mitigating the customer experience is the main goal of financial institutions.
Fraud Threats to Financial Institutions Have Increased
Fraudulent activity has increased within the financial industry. Thanks to the digitization of processes and information, new fraud threats to financial institutions have risen. According to Forrester’s survey, 94% of the firms have experienced some type of fraud. The most common types of fraud include identity theft, new account fraud, synthetic identity fraud, and account take over fraud.
The study also found several tendencies that are having an influence on fraud threats that financial institutions experience. First, behaviors and expectations of customers have changed, which forces companies to provide remarkable and memorable experiences. 70% of the firms mentioned that they interact with their customers online more than face-to-face.
Also, the fact that fraudsters are keeping up with technology enables them to outsmart security systems and surveillance strategies. Almost 70% of the firms mentioned that they feel one step behind fraudsters.
Lastly, this survey also revealed that financial institutions don’t seem to be equipped with the necessary tools to tackle and unarm the most advanced fraudsters. Thus, more than 50% of the firms stated that their security systems are not effective enough to fight fraud properly.
Challenges that Financial Institutions Face Against Fraud Threats
Besides these complex dynamics, there are several challenges that financial institutions face when trying to fight off fraud threats. TO begin with, the current systems financial institutions use lack essential capabilities to combat fraudsters. More than 50% of the firms stated that they do not have access to the tools they’d like to, such as real-time insights. They also mentioned that the current tools they do have access to don’t support multi-channel protection. Missing analytics capabilities like machine learning, predictive analytics, and social media analytics make them vulnerable, too.
Another significant challenge is the difficulty of accurately and efficiently detecting and mitigating fraud altogether. According to the survey, 92% of the firms stated that they experience several issues when trying to remain compliant and respond to real-time alerts.
The fact that their current fraud solutions rely on inaccurate data to try to prevent and mitigate fraud has become an issue, too. This is because fraud detection and identity verification vendors do not meet the firms’ expectations. Having issues with costs, support, and quality of service is another challenge institutions must work with regularly.
Key Recommendations to Tackle Fraud Threats to Financial Institutions
Even when the current situation regarding fraud to financial institutions has become difficult to manage, Forrester’s survey provided several key recommendations to manage such threats more effectively.
One important recommendation is to understand the importance of high-quality data and its sources. Having a fraud detection system that relies on quality data will reduce fraud risks significantly.
The quality of our fraud prevention strategies and decisions can benefit greatly from using consortium data. All the information our company generates from fraud management attempts can be useful to prevent fraudulent activity in the future.
The importance of choosing the right vendor to manage and design our fraud prevention strategies is another key aspect. We need to make sure that our vendors will provide high-quality data, and that have documented and proven security services. This way we’ll know that our company is collaborating and being protected by the right partner.