August 14, 2018
ThreatMetrix Uncovers $14.9 Billion Yearly Loss Due to Consumer Friction and Fraud Attrition
Posted May 2, 2016
SAN JOSE, California – May 2, 2016
Q1 2016 research study by First Annapolis quantifies economic impact and identifies actions to prevent friction and fraud across digital banking and commerce channels
Understanding the true ROI of both friction and fraud prevention is imperative for banks to avoid the erosion of customer lifetime value. To measure the long-term economic impact of adding unnecessary fraud controls to the consumer digital experience, ThreatMetrix®, The Digital Identity Company™, conducted a sponsored research study in conjunction with First Annapolis, a leading consulting and M&A advisory firm. The research, “The Path to Digital Transformation: Controlling Friction While Tackling Cybercrime in Financial Services,” is available today.
This Q1 2016 multi-market study explored consumer perceptions of online and mobile banking and payments security by analyzing responses from 3,090 consumers across the U.S., U.K. and Australia. Among the many takeaways from the study was this staggering insight: one year’s worth of friction and fraud is estimated to cost U.S. banks $14.9 billion in lost relationship value. Consistent levels of friction and fraud over a five-year period would translate into a cumulative $74.3 billion – which does not include the life-time value of their account, future cross-sell potential and referrals.
“There are an estimated 215 million banked consumers in the U.S. and more are utilizing digital banking every day, especially younger consumers who are changing the way we bank. Banks are witnessing a digital transformation that indicates no signs of slowing down,” said Josh Gilbert, partner, payment strategy and innovation with First Annapolis. “Our research suggests that financial institutions need to be not only fighting cybercrime, but also the attrition risk that comes with it.”
The study reveals four key findings to prevent friction and fraud on behalf of consumers:
- Well-intended step-up authentication challenges create friction and dilute consumer relationships. Of the respondents who said performing additional steps had a negative effect on their perception of their bank and that it affected their behavior, 30 percent changed banks, 26 percent called customer service to complain and 26 percent used online/mobile banking less often.
- When it comes to digitally managing financial services, consumers are highly engaged. 70 percent of respondents reported logging into their bank’s online portal or mobile app at least once per week, and 29 percent daily.
- Security remains a very important concern for consumers, and perceptions of security impact brand advocacy. 62 percent of respondents noted that they would not recommend a bank to a friend if they experienced any level of fraud on their account.
- When a consumer experiences fraud there is a 1 in 10 chance that they attrite—and take all of their future revenue and cross-sell potential with them. Among the 38 percent of respondents who have experienced a fraud event, 10 percent left their financial institution all or in part as a result of having experienced fraud.
“This report quantifies what we have intuitively known: banks are missing the opportunity to increase customer lifetime value and improve satisfaction because they are underinvesting in fraud and authentication solutions that know their customers, as opposed to tools merely trained to recognize threats,” said Armen Najarian, chief marketing officer for ThreatMetrix. “The nearly $15 billion in annual loss is staggering and should serve as a wakeup call for the industry to deploy a more balanced approach that reduces friction while combatting fraud with more consumer-friendly, secure methods.”
As the industry continues to undergo a digital transformation, the likelihood of a negative experience due to friction and failure will only increase—as will the downside risks and financial impacts for financial institutions. To get more insight from ThreatMetrix and First Annapolis on how friction affects the consumer’s relationship with online and mobile banking, and to view the research findings, download the whitepaper.
- Share this news on Twitter: @ThreatMetrix & @FirstAnnapolis release study on #fraud & #friction impacting our relationships w/ banks. Download: https://info.threatmetrix.com/first-annapolis-research-report.html
- Download The Path to Digital Transformation: Controlling Friction While Tackling Cybercrime in Financial Services whitepaper
- Attend the May 17 webinar
About First Annapolis
First Annapolis is a specialized management consulting and mergers and acquisitions advisory firm with an unmatched focus on the payments industry. Founded in 1991, we advise clients on strategic and tactical matters across all major payment products and services including credit cards, debit cards, deposit access products, prepaid and mobile payments.
ThreatMetrix®, The Digital Identity Company™, is the market-leading cloud solution for authenticating digital personas and transactions on the Internet. Verifying more than 20 billion annual transactions supporting 30,000 websites and 4,000 customers globally through the ThreatMetrix® Digital Identity Network, ThreatMetrix secures businesses and end users against account takeover, payment fraud and fraudulent account registrations resulting from malware and data breaches. Key benefits include an improved customer experience, reduced friction, revenue gain, and lower fraud and operational costs. The ThreatMetrix solution is deployed across a variety of industries, including financial services, e-commerce, payments and lending, media, government, and insurance.
For more information, visit www.threatmetrix.com or call 1-408-200-5755. Join the cybersecurity conversation by visiting the ThreatMetrix blog, Twitter, LinkedIn and Facebook pages.