When banks ask their customers if they are interested in receiving bank communications by short messaging service, the results always seem to come as a surprise.
One retail bank I know had thought the proposition would be primarily of interest to teenagers and those in their 20s. Instead, an enthusiastic "yes" came back from all kinds of people: teenagers and young people certainly, but also working adults, stay-at-home moms and even retirees. It wasn't of "some" interest — it was in demand with more than 15 million customers opting in to receive bank communications by SMS. Granted, this is only a certain percent of the bank's customer base, but it's one that is growing fast.
It's growing fast because it has obvious benefits from the customer's point of view. SMS messages are more discreet than phone calls, so a customer who would not appreciate her bank calling her at work to advise that her account is in danger of being overdrawn might welcome the arrival of an SMS with the same warning. For those who like to stay on top of their financial affairs, a daily text message detailing their current balance and recent transactions is a convenient way to keep in control, wherever they may be.
For banks too, the use of SMS as a communications channel has many benefits. Compared with a paper communication or voice call it is a very low-cost channel, requiring no printing, postage or human intervention. It's also a way of keeping in regular touch with customers without being excessively intrusive. But perhaps one of the most significant areas of benefit is in its ability to assist in card fraud detection and prevention.
In fraud prevention, speed is everything. Stopping a card within minutes of a fraudulent transaction, denying the fraudster the opportunity to strike again, can save thousands of dollars per compromised card — amounting to millions of dollars a year for the issuer. The sooner a customer can confirm whether a transaction is or isn't fraudulent, the better for everyone.
Many banks have found SMS messaging to be one of the most expedient ways to gain a customer's attention in the event of a suspected fraud. With a properly automated system, an SMS message can be sent out to a customer within 30 to 60 seconds of a suspicious transaction occurring, which is equivalent to the time it takes you to log off from a Web site or gather your bags and walk out of a store. Typically, 60% of customers reply to these messages, 82% within five minutes of their being sent. This is a huge speed and efficiency gain over other forms of notification. With a phone call, e-mail or letter, a reply may not be forthcoming for hours or even days — during which time the fraudster may have the opportunity to strike repeatedly before the bank issues a hold on the account.
The difference lies in the way people use and perceive their cell phones. For most, the cell phone is a constant companion: they take it into meetings and on journeys, they take it out shopping, they take it to conferences, they even take it into the bathroom. It's the first thing that's switched on when a plane lands, and it's rare that a customer is out of range of a signal. All of this makes cell phone communication the fastest way to get a message to a customer. And while a voice call may go unanswered if the customer is in a meeting or at a social engagement, an SMS is still likely to gain their attention.
When the reduction in fraud loss is combined with the reduced cost of contact offered by SMS, the potential for cost savings is massive. Banks that implement SMS customer communications achieve a full return on investment more quickly than anticipated, and that investment continues to deliver savings as more customers opt in to use it.
So with several pioneering banks clearly benefiting from SMS, what's stopping others from following suit? It's true there are some infrastructure hurdles and set-up costs to be overcome. A database of cell phone numbers must be built and maintained, and an explicit customer opt-in must be secured. Organizations must go through a certification process to secure a short code (the short, five-digit "addresses" used by companies to send and receive SMS messages en masse). SMS messaging must be integrated with existing contact channels to ensure consistent customer service and seamless escalation to another channel (e.g., a phone call) if a text goes unanswered.
For the moment, strategies and approaches to rolling out SMS communications differ from bank to bank. Some are focusing on building up a large database of opted-in cell phone numbers before starting to roll out a service, while others are happy to start with a small number of SMS subscribers.
Some are wary of intruding on customers' privacy, but others are addressing this issue by tailoring opt-in processes to allow customers to specify at what times and under what circumstances they will consent to receiving an SMS communication. For banks that are interested in pursuing SMS as an effective low-cost alternative to voice or paper communications, securing customers' permission to text them in the event of a suspected fraudulent transaction may be a good starting point. History has shown that many will opt to receive more communications in this way if their experience with SMS fraud prevention is a positive one.
Fraud prevention via SMS may be in its infancy now, but there is already a strong business case emerging based on the experiences of the banks that have already begun implementing it. Not only can it be a very powerful tool for reducing fraud losses, it can also form an integral part of a wider SMS strategy that can significantly reduce costs while keeping customers both safe and informed.
