As payment fraud spikes, involving customers can aid prevention

For financial institutions, seeking to expand or grow into new markets, maintaining control over operational costs is crucial.

Yet, this can be difficult as instances of payments fraud seem to grow by the day, requiring significant manual effort from employees on the back end.

Most organizations experience payments fraud each year. In fact, according to this year’s AFP Payments Fraud Survey, the vast majority of organizations (78%) were hit in 2017 — a record high that only seems to be growing. It is no longer a matter of if an organization will fall victim to payments fraud, it is a matter of when.

The banks and credit unions that serve these businesses recognize this growing issue and the industry’s need for a better approach to fraud prevention. Even more, Gartner reports that 28% of account holders switch banks after being victims of fraud.

It is clear that institutions must streamline and make fraud prevention more scalable to sustain growth and even facilitate a better, more transparent experience for customers to not only protect them but support stronger customer retention efforts as well. However, selecting the right fraud detection and prevention solution can be overwhelming.

Historically, financial institutions have relied on manual, reactive process, but these antiquated processes do very little to protect the customer from fraud and create additional work for a financial institution’s staff. Institutions must enhance their fraud prevention strategy, and the most effective and successful way for doing so is by empowering customers to detect and respond to suspicious activity before the funds ever leave their account.

With an actionable online banking system that does not simply offer visibility over transactions, but instead enables customers to take action against unauthorized activity, financial institutions allow account holders to better protect themselves against suspicious activity. This is achieved by coupling a modern online banking system using single sign-on capabilities, with fraud prevention tools that utilize technologies like out-of-band authentication and voice biometrics.

This is especially important with regard to corporate accounts. Without a truly actionable online banking system that facilitates greater security for account holders, financial institutions could be held responsible for fraud losses. Because they have higher balances and a limited time frame to react to and report fraudulent transactions than consumers, corporate accounts are often targeted. This presents a serious risk for financial institutions. Business customers are valuable relationships for banks and credit unions, so they often cover fraud losses at their own expense.

Consider this scenario: A customer is reviewing his or her transactions and notices an unfamiliar change. With an actionable banking system, that customer can easily dispute it right there from their phone. There is significant value in making fraud prevention a collaborative effort with the customer. Ultimately, it is the account holder who can best determine whether a transaction is authorized or not.

Involving the account holder in detecting and responding to payments fraud shifts liability to the customer, as the institution’s decision to process the payment is based on the customer’s guidance. By not involving customers, financial institutions will continue to bear the expensive responsibility of detecting and responding to suspicious activity on behalf of their customers. If fraud happens — and it will — the institution could be held liable for the losses incurred.

Additionally, there is reputational risk. According to Gartner, 6% of account holders have switched banks over security concerns whether they’ve experienced fraud or not. As financial institutions look to expand or grow into new markets, they simply cannot afford these costly risks. Businesses will look for financial institutions that demonstrate a clear understanding and commitment to ensuring secure transactions. The banks and credit unions that offer a process for screening them that is transparent, convenient and promotes faster processing of the payment will ultimately win out over their competitors. Balancing security needs with convenience is challenging, but it is possible to deliver a seamless customer experience without compromising security if the right technology is leveraged.

Another cost factor is the time spent manually communicating a suspicious transaction to customers through phone calls and recorded messages. These incredibly time-consuming, labor-intensive and costly processes require additional back-office employees to manage fraud. However, technology that allows account holders to set parameters to determine which transactions should be authorized enables institutions to systematically monitor for suspicious payment activity that does not meet those parameters. This, combined with automated out-of-band alerting and verification, minimizes the time spent by employees.

While there is an opportunity to reduce operational costs, there is also an opportunity to generate additional revenue. Customers are already using and often paying for fraud prevention services that are grossly outdated. Offering a convenient, real-time solution that empowers the customer is a valuable opportunity to tap into a new revenue stream.

To grow or expand into new markets, financial institutions must leverage technology that enables account holders to participate in the fraud detection process. At the end of the day, the account holder has a better awareness of their own accounts. With an actionable online banking system that enables customers to take action against unauthorized activity, fewer full-time employees are needed to manage the manual transaction dispute and return process. Shifting the control over to the customer and automating fraud prevention is crucial to ensure your financial institution can grow most efficiently while offering an outstanding customer experience.