Four Ways Banks Can Turn Fraud Into a Loyalty Play
By Suman Bhattacharyya, Reporter at The Financial Brand
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Executive Summary
- Fraud often casts financial institutions in a poor light, leaving customers feeling ignored and at risk of churn.
- Proactive communication, improved service standards, and smart use of tech can help keep these customers loyal.
- While automation is key to streamlining how financial institutions handle claims and disputes, human touch remains important as it makes customers feel heard and cared for.
- The need for banks to meet service standards set forth by regulators doesn’t mean they can’t aim higher.
When customers fall victim to fraud, it can undermine trust, leaving them feeling vulnerable and exposed. Banks can respond by relying on legalese and process instead of empathy — but that typically makes a bad situation worse for both parties.
Efficient fraud resolution processes matter to customers. Poorly handled incidents increase the risk of customer churn, recent research shows. In a survey of 1,000 credit card fraud victims conducted by fintech firm Quavo last year, two thirds of respondents said they would be “highly or extremely likely” to switch banks due to long, tedious dispute resolution processes.
Experts say financial institutions can turn these events into opportunities to build trust. To succeed, they need to be proactive — investing in better fraud detection technology, communicating empathetically after an incident, and sometimes going above and beyond what’s required to make things right.
“You’re starting from a point where the trust relationship is badly damaged, and everything you do from that moment onward will determine whether or not you’re able to repair that relationship, or whether or not it will end in termination,” says Trace Fooshée, strategic advisor at Datos Insights, who adds that banks should be using automation wherever possible to smooth the resolution process.
Here are four ways banks can improve fraud detection and resolution — and ultimately strengthen customer loyalty:
Want more insights like these? Check out Quavo’s content hub: Building Trust: Best Practices in Fraud Response and Resolution
1. Prevention is better than a cure, but trust and verify where appropriate.
Investing in tools to detect fraud before it happens is often the first line of defense for financial institutions. Cambridge Savings Bank, a community bank based in Cambridge, Massachusetts, says it uses proprietary technology that taps artificial intelligence and machine learning to monitor transactions and flag potentially suspicious transactions.
“We’ll be looking at volumes of data around how you’ve transacted, and if something is anomalous, that will trigger an alert,” says Angela Conti, senior vice president and head of consumer and small business banking at Cambridge Savings Bank.
The alert, says Conti, is based on a risk score assigned by the bank’s toolset. But a flagged transaction doesn’t necessarily mean it’s blocked; the bank contacts the customer to confirm whether it should proceed.
Banks need to be careful not to let automated systems run wild on decisions that affect customers. A “trust but verify approach” is the strategy most banks use, says Fooshée, noting swiftly shutting down accounts or inflexibly blocking transactions can cause unnecessary customer friction.
Cambridge Savings Bank says decisions on suspected fraudulent transactions shouldn’t only be left to technology. Cambridge Savings Bank often uses human fraud investigators to review the outputs of automated decisions and confirm their appropriateness. This may involve contacting the customer to get more details, says Conti.
Others say educational campaigns — both for bank staff and customers — can be a bulwark against possible fraud. Minnesota-based Stearns Bank, for example, says it works to inform employees and customers on fraud risks through emails, webinars, blog and social media posts.
“We send regular customer emails and blogs on our website about fraud… that’s a proactive way for us to reach out to our customers so that they’re aware that these might be schemes,” including elder abuse, gift card and payment scams, identity theft and other fraudulent transactions, says Jill Molitor, director of fraud and credit administration at Stearns Bank.
Dig deeper:
- How Banks Can Fight ‘Under the Radar’ Customer Fraud
- Why Fraud Resolution is Critical to Building Customer Trust
- Fraud is Mutating and Growing. Cut It Off As Early As Possible
Bank campaigns to use well-known public personalities to draw attention to fraud threats can be effective, suggests Steve Morgan, global banking industry lead at AI decisioning and workflow automation tech firm Pega.
Some banks are gamifying fraud education training to retain interest and engagement on fraud topics, says Robert Mara, a principal at EY.
2. Effective, empathetic communication after a fraud incident can help maintain the customer relationship.
Laws and regulations spell out what banks must do after a customer reports a fraudulent transaction, but meeting those requirements isn’t always enough.
Banks need to organize themselves to communicate clearly, frequently and with empathy. Companies should automate “as much as possible” of the claim intake and investigation process to help ensure the customer experience is as simple as possible, argues Fooshée.
“That means investing in a case management system — a very good one that has a lot of opportunities to help investigators automate a lot of the jobs that they have to do during the course of the investigation,” he says.
Automation allows cases to be resolved faster, enables quicker communication with customers and more rapid processing of financial adjustments and recoveries, according to Rex Richardson, director of client processing at Quavo, a technology vendor focused on streamlining how financial institutions handle fraud claims and disputes.
A bank’s technology suite should provide a unified view of the customer’s case — regardless of the channel they’re using to communicate with the bank. Customers should be able to start a conversation in one medium (e.g., chat) and have the information carry over when they switch to another (e.g., call center), Morgan says.
A technology solution should also let institutions update customers more frequently — an important feature for customers accustomed to up-to-the minute updates on their digital e-commerce transactions.
In practical terms, this means banks should do more than just send dispute acknowledgement letters by mail. Regular updates through digital channels help keep customers reassured that their case is being addressed, Morgan says. “[There] needs to be either a notification in your app, in your secure email, or in a secure channel where you’re authenticated,” he says. “The best [banks] would lay out a process — a bit like a workflow — of steps and timelines.”
3. A human touch helps customers feel heard.
Stearns Bank says the bank attempts to contact customers by phone to flag potential fraud — especially since email communication might appear suspicious to customers.
“We should be using the phone. With business email compromise, if somebody has tried to take over somebody’s identity…there’s a higher probability that somebody could be intercepting [potentially fraudulent] emails,” says Molitor, who noted that the bank should be communicating using a verified phone number.
When the dispute gets to a human service representative, team members should be trained to listen with understanding, instead of attempting to close the case as quickly as possible. Cambridge Savings Bank says it trains its service representatives to ensure they leave customers feeling their concerns are heard — and not brushed off, says Conti.
“You’re not trying to rush them off the phone to get that form processed,” she says. “You’re trying to really listen and understand, and oftentimes, when you take that position of active listening and you open a safe space… you can also learn other things that can help protect them in the future.”
4. Going beyond what’s required can help build customer confidence.
The need for banks to meet service standards set forth by regulators doesn’t mean they can’t aim higher. For example, some technology solutions allow banks to resolve fraud claims the same day — possibly within hours, suggests Morgan.
He recalled one case where he noticed a fraudulent transaction on his account and, upon contacting the bank, found it had already been resolved. A customer might also report fraud through the banking app and have it resolved almost instantly through automation — without needing to speak to anyone.
“There should be immediate, straight-away resolution,” he said. “In some markets, people are using this as a differentiator.”
Banks can also improve the service experience during the fraud resolution process. Value-adds include practical advice on how to avoid falling victim to similar scams in the future, and assistance with transferring direct debits to a new account when the account number is changing, a process that can be frustrating for customers, says EY’s Mara.
With most fraud processes, “you don’t have the opportunity to interact with that customer in a different way and help them through it,” he says. “You might say, ‘Hey, I see that in the last month, you had 16 automatic bill pays. Do you want me to transfer those over to your new account so you don’t have an interruption?’”
Finally, in cases where the bank can’t recover funds — such as when a customer willingly sends a large sum of money to a scammer — it can still help by flagging unusual transactions and gently suggesting that the customer may have fallen victim to a scam.
“Sometimes our hands are a little bit tied — where we can give gentle reminders to the customer that we think that this might be a scam,” says Molitor. “We shouldn’t just sit there and watch it happen.
