Fraud, Friction and Digital Transformation

Posted April 13, 2017

Fraud, Friction and Digital Transformation

The banking industry’s digital revolution is already well underway.

For established institutions, it is no longer a matter of “if” they’ll have to undertake a digital transformation. It is a matter of “when” … and the “when” is now!

For those just starting their digital transformation, and even those who have already started, recent research by ThreatMetrix and consulting firm First Annapolis provides insight on how to make that successful digital transformation a success.

Driven by Demand

Established banks and upstart FinTechs have been rolling out mobile banking options for checking balances, transferring funds, placing purchases and taking out loans — on-the-go and on-the-fly. And, by all accounts, consumers are loving it. Today, the average customer’s primary interaction with banks is through the web and mobile apps — not ATMs or bank branches.

This is especially true for Millennials, who access their financial institutions 8.5 times per month via mobile app or web browser, compared to 3.1 times for non-Millennials, according to a new study from Digital Banking Report.

Forty-two percent of financial institutions in the study predict mobile banking will be the most prevalent form of customer interaction across all cohorts within three years.

Focus on Fraud

According to research from ThreatMetrix and First Annapolis, as many as 38 percent of U.S. consumers report having been a victim of banking fraud in recent years.

A full 10 percent left their banks because of it — resulting in an average $5,090 loss in long-term fees and cross-sell potential.

With more than 5 billion personal files compromised through data breaches in the past few years, fraudsters have ready access to names, addresses, bank account numbers and even PIN codes on the dark web. That means digital authentication must now go far beyond just usernames and passwords.

But that authentication better not take long. To stop the roughly 2 to 5 percent of access attempts that are fraudulent, banks often initiate step-ups that 17 percent of customers find supremely irksome.

With competition just a click or swipe away, financial services brands are finding they must invest in preventing fraud and friction when deploying new innovations.

In fact, some are making that central to the entire digital transformation effort.

Lloyds of London, for example, is deploying digital identity-based authentication that recognizes legitimate customers and blocks out fraudsters instantly—without the need for step-ups.

These systems leverage anonymized, shared global threat intelligence to analyze the ever-changing associations between users and their devices, behaviors, locations and more to detect and reject fraud with zero impact on the user experience.

Five Keys to Success

According Lloyds and others, digital transformation has the best chance of success when organizations:

  • Think Holistically — Security should encompass all digital channels and potential endpoints — PCs, tablets, mobile devices — and consider device and user profiles in evaluating potential fraud.
  • Go Real-Time — Real-time technologies and networked threat intelligence provide the agility to identify and respond to fraud instantly — yet 59 percent of banks have yet to embrace them.
  • Balance Fraud and Friction — When evaluating security solutions, consider not only their ability to prevent fraud, but also their impact on the customer experience. Focus on preventing fraud without friction
  • Strategize Cross-Functionally — Involve cross-functional stakeholders in integrating digital security into transformation strategies; preventing fraud and friction shouldn’t fall solely on security units or IT
  • Refine Continuously — Evaluate fraud policies on an ongoing basis by establishing a baseline, monitoring results and feedback, and incorporating learnings into fraud strategies over time.

Game On

How things eventually play out between banks and FinTechs is anyone’s guess.

However, with fraudsters as a common enemy, one thing seems clear for incumbents and newcomers alike — digital transformation works best when it begins with bulletproof fraud prevention.

To learn more, please read the whitepaper from ThreatMetrix and First Annapolis, titled “The Path to Digital Transformation.”


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