Stan Cowan

Stan Cowan

October 14, 2022

Identity fraud is a very real—and costly—problem for FIs. While most understand the value of creating a seamless digital experience—as well as its necessity based on consumer demand, they are still trying to figure out how to balance delivering that frictionless experience while reducing fraud without enticing applicants to jump ship.

We’re now entering a new age of digitalization. Simply providing banking consumers with digital access to accounts and services is no longer enough to remain competitive, retain account holders or improve cross-sell ratios. Financial institutions (FIs) must do all of this quickly, accurately and seamlessly end-to-end. In other words, experience is king. Everything needs to be online and implemented with minimal friction, from marketing and selling to taking applications, decisioning, closing and funding. 

Unfortunately, many FIs that have been slower to implement digital transformation initiatives are about to fall even further behind—in fact, Cornerstone Advisors, based on survey responses indicating when financial institutions launched digital transformation strategies and how far along they actually were, estimates most institutions are six to eight years away from being fully implemented. 

What does fraud prevention and detection technology have to do with experience? Well, done wrong, manual processes, unintegrated point solutions, outdated technology or the need for too much human intervention can morph into roadblocks at crucial points during online account opening, online loan application or payments workflows leading to abandoned applications or fraudulent transactions, resulting in very real hard-dollar losses. Done right, however, good fraud prevention technology and policies will not only save you from additional costs and losses affecting bottom-line performance but will also help increase total sales and top-line revenue. 

Account abandonment is at an all-time high

Online account abandonment is a costly problem. Both consumer expectations for a seamless, frictionless experience and account abandonment are at an all-time high. Abandonment rates increase significantly as the time to open an account or complete an application increases. If it takes longer than five minutes to open a new account or complete a new loan application, the abandonment rate can be as high as 60 percent. However, transactions completed in under five minutes can reduce abandonment rates to 25 percent or less. Eliminating points of friction that threaten a seamless, end-to-end experience has the potential to double or triple the number of new accounts opened. Despite this, 44 percent of institutions in one survey said their online account opening process takes between six and ten minutes

On the other hand, increasingly savvy and wary consumers will also abandon the new account opening process if they don’t perceive it as secure. Among consumers who have already experienced new account fraud, the number-one reason for application abandonment was that the “…process was taking too long,” and the next three related to perceived safety and security, according to a survey conducted by Javelin.

The right fraud prevention solution solves both challenges

Identity fraud is a very real—and costly—problem for FIs. While most understand the value of creating a seamless digital experience—as well as its necessity based on consumer demand, they are still trying to figure out how to balance delivering that frictionless experience while reducing fraud without enticing applicants to jump ship.

One survey illustrated the importance of solving this problem to executives: Sixty-five percent said they expected to make primary account opening technology investments in tools to streamline the identity verification process. 

The good news is that by adding machine learning (ML) to fraud detection and prevention solutions, community banks, credit unions, and budgets can realize greater efficiency—and effectiveness—while reducing friction across digital transaction channels for new accounts and loan applications and payments. 

While no fraud prevention solution (regardless of price) can completely eliminate the human intervention needed to examine exceptions or rejected transactions, machine learning-enabled solutions bring you as close as possible. With a human-”in”-the AI loop, ML is trained via human judgment. However, keeping a human-”on”-the-AI loop enables the easiest way to scale and is least prone to error.

Through greatly improved accuracy, such a solution is continually trained to analyze and detect patterns across large amounts of seemingly disconnected data that would be impossible for humans to detect. This not only helps better detect suspicious activity, but it also helps reduce false positives, meaning good customers/members aren’t turned away.

A machine learning-enabled fraud prevention solution will also greatly speed up the online application process through its ability to evaluate enormous amounts of data in a very short amount of time—in near to actual real-time—in line with consumer expectations for speed, convenience and safety.

Machine learning (as the name suggests) gets more and more efficient over time. With its continuous learning and improvement, ML can detect subtle changes in patterns across enormous amounts of data. This means the fraud detection process becomes more accurate over time and speedier as inefficient processes get eliminated from the workflow, saving analysts even more time reviewing exceptions. 

Effectiv’s fraud and compliance solutions – Scalable, turnkey, cost-effective and accurate

Effectiv’s turnkey, customizable application and onboarding fraud detection and compliance automation platform does all this and more. Designed specifically for community banks and credit unions, it helps defeat fraud at the source while minimizing friction for legitimate applicants because it’s built with AI/ML capabilities that help eliminate false positives. 

Built with community-based financial institutions in mind, Effectiv’s platform comes integrated with trusted third-party data intelligence providers. It can be deployed out of the box with built-in rules or customized so rules can be added, deleted, or adjusted based on your unique risk profile and tolerances. Better still, customizations are as easy as drag-and-drop and don’t require any intervention from IT staff or programmers, greatly reducing the total cost of ownership and saving valuable time. 

As we enter the budget planning process for 2023, we highly recommend financial institutions take a deeper look at the value and benefits—both bottom-line and top-line—that can be achieved by implementing the right fraud detection and prevention solutions and policies. 

For more information on this topic or to learn more about Effectiv’s fraud and financial crimes solutions, visit effectiv.ai or contact us.

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