The pandemic has catalyzed the digitization process like nothing we’ve seen before. With 10 years worth of digitalization happening in the first 6 months of 2019, financial institutions who haven’t invested in their digital strategy are now facing severe challenges on the following fronts:
- Digital-first user acquisition channels and the increasing demand for digital financial services like contactless payments, buy now pay later, etc.
- Constantly innovating fraudsters attacking institutions that are further behind in their digitalization journey.
- Scarcity of fraud management talent and the divergence of engineering talent from core business operations to maintain fraud systems.
While technological advancements are opening new avenues for serving customers and meeting their needs, the same technological advancements are helping fraudsters become more innovative, exploiting system-wide loopholes in different ways. According to a report published by Aite Group, losses from identity theft totalled $712.4 billion USD in 2020, a 42% increase from 2019.
On the other hand, the goal of delivering a seamless customer experience is being met with a barrage of malicious attacks, evidenced by the fact that Arkose labs countered over a billion attacks in the first 8 months of 2020 across their customer base. This has not only increased overall fraud losses to three times pre-pandemic rates, but also increased the cost to manage fraud losses. In 2019-2020, banks and FIs spent an additional $4 USD for every $1 USD of fraud.
So, where do we go from here?
Financial institutions need to understand the pace, direction, and paths fraud is taking. Understanding is extremely critical in the process of prevention. For credit unions, call centers, and consumers, there isn’t one specific way to prevent fraud, and it’s important to incorporate a comprehensive strategy for full and secure authentication. As newer technological advances like contactless payments are being developed and existing technology is becoming more mature, fraudsters are becoming more adept and collaborative. The moment financial institutions strengthen their vulnerabilities, fraudsters find new areas and markets with weaknesses to attack. Fraud management is a never-ending task.
With our team’s decades of experience immersed in fraud-fighting efforts and building capabilities at some of the biggest companies in the world, we believe that fraud management needs to be disrupted. For financial institutions to stay ahead of fraudsters, the following state-of-the-art capabilities are must-haves:
- Ability to combine multiple data sources in a simple, fast, and reliable way to craft multiple strategies, allowing institutions to have complete views of their customers and add friction where needed.
- A case management system that is built from the ground up to be modular and extensible to foster collaboration amongst frontline investigators and customer service representatives from other departments.
- Advanced analytical and machine learning capabilities that can constantly enhance the fraud detection toolkit. When used correctly and as an enabler in the entire decision making process, machine learning has shown a tremendous boost in efficiency and productivity.
As stated in a study done by Mckinsey, FIs that have invested in state-of-the-art fraud management tools and techniques typically see 15-20% improvement in their fraud detection rate while reducing false positives by 20-50%.
With these principles in mind, my co-founders and I started Effectiv earlier this year. If you would like to know more about what we are building, visit effectiv.ai.