Four Critical Insights for Reducing Internet Fraud and Friction in Banking

Posted September 14, 2016

Four Critical Insights for Reducing Internet Fraud and Friction in Banking

Financial Industry Cybercrime Study with First Annapolis Looks at Striking the Balance Between Convenience and Online Security

It’s the ultimate balancing act—and a lot is riding on it.

Whether you’re a financial services firm, or a partner serving clients in the banking sector, the success of your digital transformation efforts must include fraud prevention and fighting cybercrime without creating noticeable friction for consumers.

That’s the finding of an industry-first study we commissioned earlier this year with First Annapolis, a specialized management consulting and mergers and acquisitions advisory firm serving the global banking and financial services sector.

Our goal: to explore consumer perceptions of digital (online and mobile) banking and payments security, and to better understand the effects of current security measures on consumers’ relationships with their banks.

What are the tradeoffs? How much friction will consumers put up with to reduce fraud? Where’s the right place to strike that balance? And what is the penalty for failure?

A Run for the Money

While the industry strives to increase convenience for consumers in their digital banking experience, this should never be done in such a way that new paths are open for fraudsters to steal card data, gain access to bank accounts, or even open up new accounts using stolen identities.

But based on responses from nearly 3,100 consumers surveyed in the US, UK and Australia as part of this multi-market study, the mandate was as clear as it was divided.

Today, consumers rely on—in fact, expect—online and mobile channels to conduct everyday business in such a way that is convenient and perhaps superior to the traditional in-branch banking experience. As a result, banks face enormous pressure to invest in new ways to provide a streamlined, dynamic and engaging digital experience for customers. But it better not come at the expense of the kind of rock-solid security so central to consumer trust.

Four of our key findings from the First Annapolis research include:

  1. Consumers are seriously into using digital channels for managing financial services
  • 83% have accessed their bank account online in the past year, and 54% have downloaded and logged onto the bank’s mobile app
  • 70% say they log on once per week, while 29% say they log in daily
  1. Perceptions of online and mobile security directly impact brand trust and advocacy
  • 81% agree with the statement “a bank’s reputation for security is an important consideration when choosing a bank”
  • 62% agree that they “would not recommend a bank to a friend” if they experienced fraud on their account
  1. Losses from fraud aren’t just immediate, hard-dollar costs—there’s a long-tail effect at stake in eroding consumer confidence and loyalty
  • 38% of respondents report having been a victim of banking/payments fraud
  • Of that 38%, a full 10% say they left their financial institution, all or in part because of it (taking with them all their future revenue, cross-sell potential and referral value)
  • Even after securing or re-establishing their account, fraud victims are likely to change their behavior in ways that lower bank revenues
  1. The cost of friction can have a huge impact on consumer loyalty, too
  • 83% of online/mobile banking customers have experienced step-up challenges while logging into their account in the past year
  • 10% of those asked to take additional steps to login find the experience has a negative impact on their view of the interaction
  • A full 30% of those with a negative view of their bank’s step-ups changed banks, and another 32% considered it

Check Your Balances

So how’s all that for a balancing act?

Well, according to findings from the First Annapolis research, the price of failure can be steep: Just one year’s worth of fraud and friction is estimated to cost US banks $14.9 billion in lost relationship value.

This means it’s definitely worth taking some time to deep dive into the findings. You can download the full report here.

The success of your next digital transformation initiative might just hang in, well, the balance.

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