Rebooting Banking: Using Digital Platforms to Reduce Fraud and Risk

The existing approaches banks use to manage fraud are broken! Fraud occurs before it can be detected and its identification is not very accurate. It takes a long time to resolve fraud causing consumer frustration.

To make matters worse, the two-way communication between consumers and banks to resolve fraud isn’t ideal either. The experience usually starts with the consumer experiencing a moment of shock when their funds are compromised or a credit card is lost. They then pick up their phones and talk to a bank agent, the agent generates a case and blocks the account, a point-of-compromise is identified and after several days a new account is finally issued for the consumer to use. It’s a slow, laborious, and painful experience.

Most banks typically manage fraud in two ways. The first approach involves enabling necessary platforms and tools as well as enforcing policies that help in identification and prevention of fraud. The second approach involves refunding consumers for any loss due to fraud. The latter approach is worse because it trains consumers to be negligent of their surrounding environments.

In the end, the fraudsters win and the banks lose. Consumers aren’t winners either since they risk losing their identities to fraudsters who may cause them further harm.

It’s time to reboot the entire fraud identification, management, and prevention process. Using new digital and algorithmic platforms, data analytics and borrowing from new products introduced by start-ups, banks can design an experience that’s not only consumer-friendly but also allows some control to consumers for preventing fraud. A few such approaches are highlighted below:

Firstly, some basics:

  • Consumer Education: Educating consumers on how to protect their accounts and alerting them about potential breaches and a point-of-compromise can have a positive impact in reducing fraud. For example, a regional bank placed a simple video clip on its online site titled, Tap to play fraud prevention tips, and was able to reduce fraud by 30% to 40%.
  • Automating Manual Processes: Replacing manual data collection process during sign-up and registration, for example, using digital document management solutions along with encryption will make it difficult for information to be compromised.

Secondly, digital-led approaches that make use of new technology can be used to redefine the way fraud can be prevented:

  • Consumer-defined Controls: Involves enabling consumers to take control of their financial products. Two notable start-ups to have introduced such products are Ondot and BillGuard. Ondot is a remote control for cards that enables consumers to disable cards, set spending limits and limit use across a limited geography, giving control to consumers. BillGuard helps consumers identify deceptive and unauthorized charges on credit/debit card accounts. For example, when consumers reported a local Redbox DVD station as a potential target for fraud on social media and online, BillGuard alerted consumers whose cards were linked to that Redbox station, saving consumers trouble and banks millions of dollars, if breach were to happen.

  • New Bank Technologies: Smart Agents, an algorithmic platform, scores consumer transactions on real time-basis creating risk profiles to help bank agents detect and prevent fraud from occurring. Others include digitizing and encrypting account credentials, use of tokens, and new risk and behavioral models.
  • Accurate and Low-friction Authentication Solutions: Touch IDs, biometrics, device fingerprinting and password tokens are all advanced forms of device authentication. Bionym, a start-up, devised an approach that uses electrocardiogram (ECG) to authenticate consumer identity perhaps forever changing the way authentication will be done in future.

The banking experience is going to change forever. Consumers aren’t going to tolerate the embarrassing moment of their cards declining during the moment of purchase or the frustrating experience of calling banks to close accounts and wait for a new account to be issued. Banks will need to embrace digital and new technologies in a rapid manner. If they don’t, they risk losing consumers to those that create products like BillGuard, Ondot and Bionym.