Stan Cowan

Stan Cowan

January 5, 2023

As competition continues to grow and the economy remains uncertain, financial institutions can’t afford fraud cases, even if they result from human error. An automated case management solution can help to mitigate risk while streamlining customer acquisition.

New fraud cases and scams are increasing faster than ever. Over 70% of finance professionals reported that their institution suffered from payment attacks in 2021. Consumers alone lost $5.8 billion to scams. 

As a result, financial institutions (FIs) and fintechs have found themselves facing new anti-fraud legislation and imposing stricter controls. 

The problem is that manual and data-entry-based processes aren’t enough to effectively keep fraudsters at bay or to identify a potential risk in a timely manner. And it’s not just a problem for the risk management team—the lengthy, complex onboarding process has affected customer acquisition, too.

FIs that choose to automate risk management will be able to save time and leverage resources to foster growth. And to do that, it helps to understand how risk management affects more than just fraud detection but customer satisfaction also. 

Connecting risk management and customer acquisition 

Risk management, in particular, KYC/AML compliant verifications, are intrinsically linked to customer experience and acquisition. As regulations and expectations continue to expand, financial institutions have to balance risk mitigation with a lengthy application and onboarding processes and new customer abandonment.

 In 2021 alone, 68% of customers abandoned a financial application during onboarding. The reasons given were varied:

  • The application process was too complicated
  • They didn’t have the right identity documents during the process
  • It took too long to apply
  • The application required too much information
  • They changed their mind during the process

While some aspects are outside of an FI’s control, such as the customer changing their mind or not having the right documents, a streamlined process can reduce abandonment. Reducing application time, simplifying the process, or requiring less information can make it easier to improve customer acquisition.

But it’s nearly impossible to accomplish with a manual risk management process.  

Why a manual case management not enough? 

Manually reviewing fraud cases, even by digital data entry, simply can’t keep up with the scale and compliance requirements. One study of finance professionals found that manual processes led to compliance breaches, lost documents, and reduced productivity.  

One study found that with data entry alone, the potential for human error could be up to 40%. Other reports have placed this rate much low, between 1% and 4%. But even these seemingly negligible numbers can snowball into significant issues if your process requires ten, twenty, or even thirty data points to complete. In other words, the more data you need and the more often you need to review that information, the more likely it is that your final copy will contain a human error. 

The other issue with manual processes is that it’s very tedious. Labor required to complete a manual risk assessment could take days or weeks, while with a modern system, it may only take hours and can be automated.

Today, FIs can leverage intelligent automation that optimizes performance as it accumulates data. At the same time, automated processes are largely standardized, compliant, secure, and fast. The right solution can simultaneously reduce costs and save time, allowing your team to focus on challenging accounts and other higher-level tasks. 

How to automate your risk management process

For any transformation project, you’ll need to set a firm foundation. It’s just as important to choose the right tool as it is to help your team use it. Selecting a comprehensive or cheap but overly-complex software solution can result in staff refusing to use it, or using it incorrectly. 

To improve the chances that your new automation tool will be a success, follow these six steps:

1. Map your process

Before even looking at solutions, it’s essential to map out your entire risk management process. Through a birds-eye view of your current policies and procedures, it’s possible to pinpoint bottlenecks, compliance gaps, and opportunities for automation and digitization. 

Outside of listing current processes, it’s also important to highlight key objectives and strategies you would like to include. This can help you better determine which solution is best for long-term growth, not just a quick fix.  

2. Decide on your objectives

Next, you’ll want to organize your long-term and short-term objectives into “must have” and “nice to have” lists. You’ll also want to list KPIs and determine your current baseline. 

3. Get buy-in from the fraud leadership team

Once you know your objectives, you will need to speak to key stakeholders about your automation strategy. The first step is to convince your leadership team, and in particular the CFO, to justify the potential costs. But even with the green light, you’ll want the risk and fraud management teams to be open to creating new processes.

Your analysts will be working with the automation software day in and day out. The more they feel part of the process, the more likely they will quickly adopt the new software and necessary skills, so be sure to gain their input and constructive feedback. 

4. Choose a solution

Next, it’s time to choose an automation solution. You may already have a few on your list to review based on competitor technology or a recent conference showcase. When selecting your automation tool, it will ideally be an innovative solution that your organization will use for years to come, adapting to your needs when necessary. In addition, users will include new hires, who may not have any hard technical skills, as well as veteran employees who don’t have the bandwidth for excessive reskilling. 

 

As a result, it’s important to consider more than just its current features. Some questions to ask are:

  • Is this solution no-code, or will my team need to learn a programming language?
  • Does data and verification occur in real-time?
  • Does the solution include continuous monitoring and regular alerts?
  • How much will it reduce manual processes (it’s up to 90% with Effectiv)
  • Does it only support traditional transaction methods, or does it include newer types like Zelle and P2P? 
  • Does it only include customer data, or can vendors be integrated, too?
  • Is it an industry-specialized solution or a generic tool? 
  • Are there enhanced analytics so the team can make more informed decisions? 
  • How is data protected? Are there any vulnerabilities that would pose a cybersecurity risk?

Keep in mind that if you select a code-heavy risk management software, you will need to get buy-in from the engineering team, too. 

5. Implement and train

Generally, the easier the program is to use, the more likely your team will adopt it. That said, there is always a learning curve whenever a new process is introduced, and it’s essential to plan for a training period of 4-8 weeks. 

To reduce time spent learning a new platform, it’s better to choose a solution that requires a few new skills. For example, selecting a drag-and-drop-styled solution rather than one that requires coding knowledge can significantly improve adoption rates. 

6. Continue to optimize 

Finally, implementing your new fraud management and risk mitigation solution isn’t the end of your story. You’ll want to keep improving on the process, not just to save time and money, but to create a truly seamless experience for your staff and customers. The good news is that if you’ve chosen a solution that uses machine learning (ML), the software will do a lot of optimization work for you. 

Leverage powerful automated risk management software

As competition continues to grow and the economy remains uncertain, financial institutions can’t afford fraud cases, even if they result from human error. An automated case management solution can help to mitigate risk while streamlining customer acquisition. 

For fintechs, banks, credit unions, and lenders looking to maintain compliance but leverage a fast and secure risk management software, Effectiv has you covered. As a comprehensive fraud management solution that covers everything from applications, onboarding, transactions, and financial crime, Effectiv is an easy-to-use, customizable platform that works in real-time to verify accounts. 

In fact, our extensive self-service and the simple no-code interface were the primary reasons Cardless, a customized credit card program service, selected Effectiv as their risk management automation solution. Get their full story in our recent case study.

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