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Fraud Management Investments - How Effective Are Yours?

The massive Ernst & Young Global Consumer Banking survey of nearly 30,000 bank customers around the world reveals that banking customers are increasingly expecting more personalization, convenience, accessibility and reliability across channels. Hence, a clear demand for banks to invest in making their channel network more customer-centric and user friendly. Technology advancements and changing client preferences have driven a shift in customer demands and usage patterns that has resulted in direct channels emerging as important media to reach a larger audience at a much lower cost.

Faster, convenient methods for banking create a lot of opportunities for banks but at the same time pose greater threats from fraudsters. Growth in online banking, emergence of mobile banking/mobile payments, accelerated settlement initiatives like Faster Payments and Single Euro Payments Area (SEPA) create potential targets for fraudsters. As the associated systems mature, understanding and investing in mechanisms like anti-fraud would serve as checks and balances to ensure that customers’ trust in the conveniences availed is not misplaced.

“Many institutions only know about fraud when they get notified by the customer, and that is not indicative of an industry that is really trying to address the problem,” says George Tubin, a senior research director for TowerGroup, focusing on delivery channels and financial security. As a response to increase in sophisticated fraud, in the recent past, many banks have invested in efficient fraud detection systems but monitoring a specific channel. This strategy might not be helpful in identifying or predicting fraud that involves activities across channels. As fraudsters get more sophisticated, their schemes more complex and the cost of fraud that can run into billions, banks need to recognize the need for having a 360 degree view of a customer to detect the fraud fast as well as in a better way. It has been demonstrated that frauds have a statistically significant reputational risk impact that is relevant both in terms of strength and length and that frauds detected due to customers’ complaints are more damaging from a reputational risk point of view than the ones detected due to internal controls.

Today, as fraud patterns get more sophisticated and cross more organizational silos, banks need to invest in analytics, traditional channel security as well as a system that digests information obtained from different channels to provide actionable insights.  In order to combat cross-channel fraud and cross-product fraud, banks not only need to adopt technology that would give them a single view of the customer but also bring out organization wide consciousness that working in silos might not help anyone except the fraudster. What do you think? Do let me know - I would love to know!


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